2025 (2) TMI 134 - HC - GST

Bank account attachment under Section 83 MGST Act quashed for lack of material evidence and proper reasoning

Goisu Realty Pvt. Ltd. Versus State of Maharashtra & Ors.

Bombay HC quashed provisional attachment of petitioner's bank account under Section 83 of MGST Act, 2017. Court held that Section 83 power is draconian ... Provisional attachment of the Petitioner's bank account under Section 83 of the MGST Act, 2017 - HELD THAT:- The power to order provisional attachment of a property of a taxable person [including a bank account] under Section 83 is draconian in nature and the conditions which are prescribed in the statute for the aforesaid exercise of power must be strictly fulfilled. The exercise of the power for ordering a provisional attachment must be preceded by the formation of an opinion of the Commissioner that it is necessary so to do for the purpose of protecting the interest of the revenue. The impugned order proceeds on the basis that the GST Council has also recommended amendment to the words “plant and machinery” instead of “plant or machinery” in Section 17 (5) (d), in light of the Judgment passed by the Hon’ble Supreme Court in “Safari Retreats [2024 (10) TMI 286 - SUPREME COURT]”. In one sweeping line, the Joint Commissioner of State Tax has come to the conclusion that in order to protect the interest of the revenue, he is exercising powers under Section 83. What was the material available to him to form an opinion that the assessee (the Petitioner) is likely is to defeat the demand, if any, is nowhere mentioned and is nowhere on record. Conclusion - The provisional attachment of the Petitioner's bank account was unjustified due to the absence of necessary material and reasoning. Petition disposed off. ISSUES PRESENTED and CONSIDEREDThe primary issue in this case is whether the provisional attachment of the Petitioner's bank account under Section 83 of the MGST Act, 2017 was legally justified. The Court considered whether the conditions for such an attachment, as prescribed by the statute and interpreted by precedent, were met. Additionally, the Court examined the legality of the Petitioner's availed input tax credit (ITC) and the implications of the Supreme Court's judgment in the case of Safari Retreats and Radha Krishan Industries.ISSUE-WISE DETAILED ANALYSISProvisional Attachment under Section 83 of the MGST Act, 2017The legal framework for provisional attachment under Section 83 requires the Commissioner to form an opinion that such an action is necessary to protect the interest of the revenue. This power is considered draconian and must be exercised with caution, based on tangible material indicating that the taxpayer is likely to defeat the demand.The Court noted that the impugned order lacked any material evidence or reasoning to justify the attachment. The Joint Commissioner of State Tax had concluded the necessity of the attachment without demonstrating how the Petitioner was likely to defeat any demand. This omission was critical, as emphasized by the precedent in Radha Krishan Industries, which mandates a clear basis for forming such an opinion.The Court also considered the financial standing of the Petitioner, noting its substantial paid-up share capital and ongoing projects, which were free from encumbrances. This financial stability further undermined the rationale for fearing that the Petitioner might defeat the demand.Input Tax Credit and Legal PrecedentsThe Petitioner's availed ITC was another focal point, specifically whether it was wrongly availed under Section 17(5)(d) of the MGST Act. The Joint Commissioner's order referenced the Supreme Court's judgment in Safari Retreats and the GST Council's recommended amendments to justify the disallowance of ITC. However, the Court found that the order failed to provide a coherent rationale linking these developments to the specific case of the Petitioner.The Court highlighted that the legal dispute over ITC was not adequately addressed in the impugned order, which instead relied on a generalized interpretation of legal developments without specific application to the Petitioner's circumstances.SIGNIFICANT HOLDINGSThe Court held that the provisional attachment of the Petitioner's bank account was unjustified due to the absence of necessary material and reasoning. The decision emphasized the importance of adhering to statutory requirements and established precedents when exercising powers under Section 83. The Court found the order to be a 'colorable exercise of power,' lacking the requisite foundation.In addressing the ITC issue, the Court did not make a definitive ruling on the legality of the availed ITC but noted the procedural inadequacies in the Joint Commissioner's approach. The Court accepted the Petitioner's undertaking to inform the department three months in advance if they intended to utilize the ITC, indicating a pragmatic resolution to the ongoing dispute.The final determination was to set aside the impugned order, allowing the Petitioner to operate the bank account immediately. The Court's decision underscores the necessity for administrative actions to be grounded in clear, tangible evidence and reasoning, especially when such actions have significant financial implications.