HC eases GST provisional attachment, limits security to 10% of alleged Rs 15.09 crore under Section 83

HC held that continued complete provisional attachment of the petitioner's bank accounts in alleged GST evasion of about Rs. 15.09 crores was unwarranted, especially as over 16 months had passed since the panchnama and one year since the attachment order. The Court noted that the alleged evasion was yet to be adjudicated and the petitioner was a running concern paying substantial taxes, with assets disclosed through a CA certificate. HC directed that only 10% of the alleged amount be secured by maintaining a minimum bank balance, and lifted the attachment on the remaining funds. Petition disposed of.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court include:

• Whether the provisional attachment of the Petitioner's bank account under Section 67 of the Central Goods and Services Tax Act, 2017 (CGST Act) was justified on the basis of the alleged GST evasion.
• The validity and sufficiency of the evidence relied upon by the Directorate General of Goods and Services Tax Intelligence (DGGI) to form the opinion of tax evasion and to justify provisional attachment.
• The procedural propriety of the attachment, including whether the Petitioner was issued a show cause notice or afforded due process before attachment.
• The extent to which the Petitioner's business operations and financial viability should be protected pending final adjudication of the alleged tax evasion.
• The appropriate quantum of security to be maintained in the attached bank account to safeguard revenue interests while allowing the Petitioner to continue business operations.
• The permissibility of creating any third-party interest in the Petitioner's immovable property during the pendency of the proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification for Provisional Attachment under Section 67 of the CGST Act

The legal framework governing provisional attachment is set out under Section 67 of the CGST Act, 2017, which permits provisional attachment of property to protect the interests of revenue where there is reason to believe that any tax has been evaded. The procedure is further regulated by Rule 159(1) of the CGST Rules, 2017.

The DGGI conducted a search and seizure operation at the Petitioner's premises and recorded a Panchnama on 13th December 2023. Based on a prima facie assessment, the DGGI concluded that there was clandestine removal of goods leading to GST evasion amounting to Rs. 15.09 crores. This opinion was supported by a voluntary statement of the Petitioner's Director admitting the evasion and inability to pay the amount. Consequently, the DGGI issued a provisional attachment order (Form GST DRC-22) on 18th December 2023, attaching the Petitioner's bank account.

The Court noted that the impugned order complied with the procedural requirements under Section 83 of the CGST Act and Rule 159(1) of the CGST Rules, and that the Petitioner is a taxable person under the GST regime.

However, the Court also observed that the basis for the alleged evasion was an estimation by officials without detailed adjudication, and no show cause notice had been issued even after more than 16 months since the Panchnama and over a year since the attachment order.

The Court recognized that while the DGGI has a statutory right to provisionally attach property to protect revenue, the attachment must be balanced against the Petitioner's right to conduct business and the requirement of due process.

Issue 2: Sufficiency and Nature of Evidence Supporting Attachment

The DGGI's case relied primarily on the discrepancy between physical stock and registered accounts, ascertained through a surprise inspection and eye-estimation by officials. The Panchnama recorded that excess stock was found unaccounted for in the books, and the Petitioner's Director admitted evasion in a voluntary statement.

The Petitioner challenged the evidentiary basis, contending that the assessment was speculative and not supported by concrete proof. It was also pointed out that substantial GST and Income Tax payments had been made over the past three years without delay or default, indicating compliance with tax obligations.

The Court noted that the impugned order itself acknowledged the Petitioner's compliance history and payment of large sums of GST and Income Tax, as well as the company's role in providing employment and economic activity.

Given the preliminary nature of the evidence and the absence of adjudication, the Court found that the attachment could not be sustained in a manner that would cripple the Petitioner's business.

Issue 3: Procedural Compliance and Due Process

The Petitioner emphasized that no show cause notice or formal proceedings have been initiated despite the attachment order being over a year old. The DGGI submitted that a show cause notice is likely to be issued shortly and that the statutory period for issuance is three years.

The Court underscored the importance of procedural fairness and timely adjudication, observing that prolonged attachment without initiation of proceedings causes undue hardship and prejudice to the Petitioner.

Issue 4: Protection of Petitioner's Business and Financial Interests

The Petitioner argued that the attachment of its bank account, which held approximately Rs. 2.75 crores, caused severe financial difficulties and threatened the viability of its ongoing business operations.

The Court took note of the Petitioner's status as a running concern engaged in manufacturing and trading of steel products, with substantial tax compliance and employment generation.

In balancing the revenue protection with the Petitioner's business interests, the Court considered the net worth of the Petitioner's Directors and related persons, as certified by a Chartered Accountant, totaling over Rs. 50 crores in movable and immovable assets.

The Court concluded that it was reasonable to allow the Petitioner to operate its bank account subject to maintaining a minimum balance as security to safeguard revenue interests.

Issue 5: Quantum of Security to be Maintained

Given the alleged GST evasion amount of Rs. 15.09 crores, the Court directed that the Petitioner's bank account maintain a minimum credit balance of Rs. 1.5 crores, representing approximately 10% of the disputed amount.

This condition was intended to strike a balance between protecting the revenue and allowing the Petitioner to continue business operations without complete financial paralysis.

Issue 6: Restrictions on Creation of Third-Party Interest in Immovable Property

The Court further directed that no third-party interest shall be created in the Petitioner's residential property situated at Ghaziabad until the final adjudication of the case. This was to prevent dissipation or encumbrance of assets that could frustrate recovery of revenue if the Petitioner is ultimately found liable.

3. SIGNIFICANT HOLDINGS

The Court held that while provisional attachment under Section 67 of the CGST Act is a valid measure to protect revenue interests, it must be exercised with due regard to the Petitioner's right to conduct business and procedural safeguards.

It was emphasized that:

"The issue relating to evasion has to be adjudicated in accordance with law. Until then, the Petitioner's business cannot be prejudiced by complete attachment of bank accounts."

The Court established the principle that provisional attachment should not cause irreparable harm to a running business, especially where the evidence is prima facie and no final adjudication has been made.

The final determination was that the Petitioner's bank account would continue to be provisionally attached but subject to maintaining a minimum balance of Rs. 1.5 crores, allowing the Petitioner to operate the account freely beyond this threshold.

Additionally, the Court restrained creation of any third-party interest in specified immovable property pending final orders.

These directions reflect a balanced approach that protects revenue while safeguarding the Petitioner's legitimate business interests and ensuring procedural fairness in tax enforcement actions.

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