AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2021 (4) TMI 837
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....assessee, including bank accounts. The legislation in Himachal Pradesh, which comes up for interpretation in the present case, has conferred the power on the Commissioner to order provisional attachment of the property of the assessee, subject to the formation of an opinion that such attachment is necessary in the interest of protecting the government revenue. What specifically, is the ambit of this power? What are the safeguards available to the citizen? In interpreting the law, the court has to chart a course which will ensure a fair exercise of statutory powers. The legitimate concerns of citizens over arbitrary exercises of power have to be protected while ensuring that the legislative purpose in entrusting the authority to order a provisional attachment is fulfilled. The rule of law in a constitutional framework is fulfilled when law is substantively fair, procedurally fair and applied in a fair manner. Each of these three components will need to be addressed in the course of interpreting the tax statute in the present case. 2 This appeal arises from a judgment and order dated 1 January 2021 of a Division Bench of the High Court of Himachal Pradesh. The High Court dismissed ....
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....) party-wise summary/ledger of inward supplies; (iii) proof of payment of GST with a commodity-wise breakup; and (iv) copies of GSTR-1, GSTR-2 and GSTR-3 returns from July 2017 to July 2018. The appellant appeared before the third respondent and submitted original tax invoices pertaining to inward and outward supplies for 2017-18 and 2018-19 by a letter dated 15 October 2018. 6 On 10 October 2018, a 'detection case' was registered against GM Powertech, Kala-Amb ("GM Powertech"), one of the suppliers of the appellant, under Section 74 of the HPGST Act and the CGST Act read with Section 20 of the Integrated Goods and Services Tax Act, 2017 ("IGST Act"). This was through a search and seizure under Section 67 of the HPGST Act and CGST Act. The partners of GM Powertech were arrested on 3 December 2018 on the ground of raising fraudulent claims of input tax credit ("ITC") from fake/fictitious firms in Delhi and Kanpur. 7 The appellant received a memo by an e-mail dated 15 December 2018 from the third respondent directing it to be present on 17 December 2018 for explaining the allegedly illegal claim of ITC made during 2017-18 and 2018-19. By its letter dated 17 December 2018, the appel....
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....ders of provisional attachment") dated 28 October 2020 attaching the receivables of the appellant from its customers, Fujikawa Power and M/s Deepak International. The attachment order issued to Fujikawa Power under Rule 159(1) of the HPGST Rules noted that it owed about Rs. 4 crores to the appellant. The order states that the appellant was found to be involved in an ITC fraud amounting to Rs. 5,03,82,554/- (Rs. 5.03 crores) during 2017-18 and 2018-19. The order, in its relevant part, provides: "In order to protect the interests of revenue and in exercise of the powers conferred/delegated by Commissioner of the State Taxes & Excise, HP vide office order No.12-4/78-EXN-Tax-Part-278/22(a)- 26780-82 dated 21.10.2020 under section 83 of the Act, I, U.S. Rana, Joint Commissioner of State Taxes & Excise, South Enforcement Zone, Parwanoo, hereby provisionally attach the payment to the extent of Rs. 5,03,82,554/- of M/s Radha Krishan Industries, Kala-Amb. Henceforth, no payment shall be allowed to be made from your company to M/s RadhaKrishan Industries without the prior permission of this department / office." A similar order was issued to Deepak International, noting that a payment of ....
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....f has been taken contains a mechanism for redressal of grievances. The High Court held that when a statutory forum of appeal exists, an appeal should "not be entertained ignoring the statutory dispensation". 17 Noting that the appellant has an alternative and efficacious remedy of appeal under Section 107 of the HPGST Act, the High Court refused to entertain the writ petition. The High Court held that it was fortified in this view by the fact that the writ petition filed by GM Powertech, has also not been entertained and that it has been relegated to avail of the alternative remedy. 18 Subsequent to the dismissal of the writ petition by the High Court, certain developments have taken place. On 12 January 2021, the appellant sought to inspect the files for GM Powertech and stated that no documents in this regard had been provided to it in context of the proceedings initiated under Section 74. In response, the third respondent allowed the appellant to inspect the contents of the appellant's case file. According to the respondent, the appellant failed to exercise this option and did not reply to the show cause notice dated 27 November 2020. Thereafter, on 18 February 2021, an order....
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....he appellant filed objections to the orders of provisional attachment on 4 November 2020 and the objections were rejected by the third respondent on 6 November 2020, without providing an opportunity of being heard to the appellant; (v) The reliance placed by the High Court on the judgment in the case of GM Powertech and others v State of H.P CWP No. 5462 of 2020 to state that a similar petition was not entertained is misplaced. In that case, GM Powertech had challenged the order of assessment in the writ petition, while the appellant has challenged the orders of provisional attachment made prior to the assessment. Additionally, the case of GM Powertech did not fall within the exceptions to the rule of alternate remedy; (vi) The High Courts should not have dismissed the writ petition on grounds of maintainability if the facts of the case are not disputed by the State as held in Rajasthan State Electricity Board v Union of India 2008 (5) SCC 632; and (vii) Reliance was placed on Calcutta Discount Co. Ltd. v Income Tax Officer, Companies District I, Calcutta AIR 1961 SC 372 and Commissioner of Income Tax, Gujarat v M/s A Raman and Co. AIR 1968 SC 49 to argue that the High Court ....
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....PGST Act do not provide for making provisional attachment a second time, once the first attachment is withdrawn. Moreover, the HPGST Act, does not provide the third respondent the power of review to review his earlier decision regarding provisional attachment; (xii) The first provisional attachment against the appellant was "withdrawn completely with immediate effect" in January 2019 and the same had gained finality. Thus, the impugned orders of provisional attachment for the second time, are without the authority of law and should be set aside; (xiii) Provisional attachment of 100% of the alleged amount is not permissible as per law; (xiv) While Section 83 of the HPGST Act does not provide for the percentage of alleged amount to be attached, the powers under this section must be guided by other provisions of the Act; (xv) Under Section 74 of the HPGST Act, once the tax demand becomes payable, an assessee can only challenge this demand in appeal after depositing 10% of the disputed amount and the remaining demand is stayed. In contrast, the provisional attachment of 100% of the alleged amount even before the finalisation of the tax demand is contrary to the legislative inte....
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....Act had concluded after rejection of the objections filed by the appellant on 6 November 2020. The appellant participated in these proceedings and did not challenge the orders of provisional attachment. Thus, the appellant is estopped from challenging the initiation of proceedings under Section 83 of the HPGST Act; (viii) The impugned orders of provisional attachment were based on a fresh set of allegations, after the proceedings against GM Powertech had been concluded and it was found that GM Powertech had no business or properties in Himachal Pradesh; (ix) After the appellant filed objections to the orders of provisional attachment, it was in the discretion of the Commissioner whether or not to grant an opportunity of a hearing to the appellant; (x) Merely because the appellant has paid Rs. 12 crores of tax, does not imply that the appellant did not engage in the ITC fraud; (xi) There was no violation of the principles of natural justice as an order of provisional attachment does not require a prior notice to be issued to the assessee; (xii) The necessary prerequisites for triggering Section 83 of the HPGST Act were complied with; (xiii) The appellant had not sought a....
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....Applying this formulation, the High Court noted that the appellant has an alternate remedy available under the GST Act and thus, the petition was not maintainable. 25 In this background, it becomes necessary for this Court, to dwell on the "rule of alternate remedy" and its judicial exposition. In Whirlpool Corporation v Registrar of Trademarks, Mumbai (1998) 8 SCC 1 ("Whirlpool"), a two judge Bench of this Court after reviewing the case law on this point, noted: "14. The power to issue prerogative writs under Article 226 of the Constitution is plenary in nature and is not limited by any other provision of the Constitution. This power can be exercised by the High Court not only for issuing writs in the nature of habeas corpus, mandamus, prohibition, quo warranto and certiorari for the enforcement of any of the Fundamental Rights contained in Part III of the Constitution but also for "any other purpose". 15. Under Article 226 of the Constitution, the High Court, having regard to the facts of the case, has a discretion to entertain or not to entertain a writ petition. But the High Court has imposed upon itself certain restrictions one of which is that if an effective and efficac....
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....ll; (ii) The High Court has the discretion not to entertain a writ petition. One of the restrictions placed on the power of the High Court is where an effective alternate remedy is available to the aggrieved person; (iii) Exceptions to the rule of alternate remedy arise where (a) the writ petition has been filed for the enforcement of a fundamental right protected by Part III of the Constitution; (b) there has been a violation of the principles of natural justice; (c) the order or proceedings are wholly without jurisdiction; or (d) the vires of a legislation is challenged; (iv) An alternate remedy by itself does not divest the High Court of its powers under Article 226 of the Constitution in an appropriate case though ordinarily, a writ petition should not be entertained when an efficacious alternate remedy is provided by law; (v) When a right is created by a statute, which itself prescribes the remedy or procedure for enforcing the right or liability, resort must be had to that particular statutory remedy before invoking the discretionary remedy under Article 226 of the Constitution. This rule of exhaustion of statutory remedies is a rule of policy, convenience and discret....
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....ises or removal of machinery to another premises by itself is not a ground for granting attachment before judgment. A plaintiff should show, prima facie, that his claim is bona fide and valid and also satisfy the court that the defendant is about to remove or dispose of the whole or part of his property, with the intention of obstructing or delaying the execution of any decree that may be passed against him, before power is exercised under Order 38, Rule 5 CPC. Courts should also keep in view the principles relating to grant of attachment before judgment [internal citation omitted]." 31 A body of precedent has emerged in the High Courts on the exercise of the power under Section 83 of the CGST Act (akin to the State GST Act "SGST Act"). The shared learning which emerges from these decisions of the High Court needs recognition. In Valerius Industries v Union of India 2019 (30) GSTL 15 (Gujarat), the Gujarat High Court laid down the principles for the construction of Section 83 of the SGST/CGST Act. The High Court noted that a provisional attachment on the basis of a subjective satisfaction, absent any cogent or credible material, constitutes malice in law. It further outlined the p....
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....s sufficiently secured, then the authority may not be justified in invoking its power under Section 83 of the Act for the purpose of provisional attachment." (emphasis supplied) 32 In the same vein, in Jai Ambey Filament Pvt Ltd v Union of India 2021 (44) GSTL 41 (Gujarat), the Gujarat High Court reiterated that the subjective satisfaction as to the need for provisional attachment must be based on credible information that the attachment is necessary. This opinion cannot be formed based on "imaginary grounds, wishful thinking, howsoever laudable that may be." The High Court further held, that on his opinion being challenged, the competent officer must be able to show the material on the basis of which the belief is formed. 33 In Patran Steel Rolling Mill v Assistant Commissioner of State Tax Unit 2 2019 (20) GSTL 732 (Gujarat), the Gujarat High Court cited two instances in which provisional attachment would be apposite, these being where the assessee is a 'fly by night operator' and if the assessee will not be able to pay its dues after assessment. 34 Similar to the decisions of the Gujarat High Court, other High Courts have recognized the restrictive nature of the power of prov....
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...."18. [...] Section 83 though uses the phrase 'pendency of any proceedings', the proceedings are referable to section 62, 63, 64, 67, 73 and 74 of the Act and none other. The bank account of the taxable person can be attached against whom the proceedings under the sections mentioned above are initiated. Section 83 does not provide for an automatic extension to any other taxable person from an inquiry specifically launched against a taxable person under these provisions. Section 83 read with section 159(2), and the form GST DRC-22 show that a proceeding has to be initiated against a specific taxable person, an opinion has to be formed that to protect the interest of Revenue an order of provisional attachment is necessary. The format of the order, i.e. the form GST DRC-22 also specifies the particulars of a registered taxable person and which proceedings have been launched against the aforesaid taxable person indicating a nexus between the proceedings to be initiated against a taxable person and provisional attachment of bank account of such taxable person." (emphasis supplied) C.3 Delegation of authority under CGST Act 38 The learned counsel for the respondent State, during the cou....
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....er words, the administrative side of the delegate's duties were to be the subject of control and revision but not the essential power to decide, whether to take action or not in a particular case. Once the powers are delegated for the purpose of Section 69 of the Act, the subjective satisfaction, or rather, the reasonable belief should be that of the delegated authority." (emphasis supplied) D Analysis 39 The essence of the present case lies in how the power to order a provisional attachment under Section 83 of the HPGST Act is construed. Before interpreting it, the provision is extracted below for convenience of reference: "83. Provisional attachment to protect revenue in certain cases. - (1) Where during the pendency of any proceedings under section 62 or section 63 or section 64 or section 67 or section 73 or section 74, the Commissioner is of the opinion that for the purpose of protecting the interest of the Government revenue, it is necessary so to do, he may, by order in writing attach provisionally any property, including bank account, belonging to the taxable person in such manner as may be prescribed. (2) Every such provisional attachment shall cease to have ef....
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...., 67, 73 or 74. In other words, it is when a proceeding under any of these provisions is pending that a provisional attachment can be ordered; (ii) The power to order a provisional attachment has been vested by the legislature in the Commissioner; (iii) Before exercising the power, the Commissioner must be "of the opinion that for the purpose of protecting the interest of the government revenue, it is necessary so to do"; (iv) The order for attachment must be in writing; (v) The provisional attachment which is contemplated is of any property including a bank account belonging to the taxable person; and (vi) The manner in which a provisional attachment is levied must be specified in the rules made pursuant to the provisions of the statute. 42 Under sub-Section (2) of Section 83, a provisional attachment ceases to have effect upon the expiry of a period of one year of the order being passed under sub-Section (1). The power to levy a provisional attachment has been entrusted to the Commissioner during the pendency of proceedings under Sections 62, 63, 64, 67, 73 or as the case may be, Section 74. Section 62 contains provisions for assessment for non-filing of returns. Secti....
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.... of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for such periods other than those covered under subsection (1), on the person chargeable with tax. (4) The service of statement under sub-section (3) shall be deemed to be service of notice under sub-section (1) of section 73, subject to the condition that the grounds relied upon in the said statement, except the ground of fraud, or any wilful mis-statement or suppression of facts to evade tax, for periods other than those covered under sub-section (1) are the same as are mentioned in the earlier notice. (5) The person chargeable with tax may, before service of notice under sub-section (1), pay the amount of tax alongwith interest payable under section 50 and a penalty equivalent to fifteen per cent of such tax on the basis of his own ascertainment of such tax or the tax as ascertained by the proper officer and inform the proper officer in writing of such payment. (6) The proper officer, on receipt of such information, shall not serve any notice under sub-section (1), in respect of the tax so paid or any penalty payable under the provisions of this Act or the rules made ther....
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....f Section 74 empowers the proper officer to serve a notice on a person chargeable with tax where it appears that (i) Any tax has not been paid; (ii) Tax has been short paid; (iii) Tax has been erroneously refunded; or (iv) Input tax credit has been wrongly availed or utilized by reason of fraud, willful statement or suppression of fact to evade tax. 46 Sub-Section (1) enables the proper officer to issue a notice to show cause for the recovery of tax, interest payable under Section 50 and the penalty equivalent to the amount of tax specified in the notice. Sub-Sections (2), (3) and (4) lay down procedural provisions which are to be followed by the proper officer. Secondly, under sub-Section (5) of Section 74, before the service of a notice under sub-Section (1), the person who is chargeable with tax may pay the tax together with interest and a penalty equivalent to fifteen per cent of the tax on the basis of their own ascertainment of the tax or as ascertained by the proper officer and inform the proper officer of the payment having been made upon receipt of the information. Sub-Section (6) stipulates that the proper officer shall not serve any notice under sub-Section (1)....
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....unt of the taxable person, it conditioned the exercise of the power by employing specific statutory language which conditions the exercise of the power. The language of the statute indicates first, the necessity of the formation of opinion by the Commissioner; second, the formation of opinion before ordering a provisional attachment; third the existence of opinion that it is necessary so to do for the purpose of protecting the interest of the government revenue; fourth, the issuance of an order in writing for the attachment of any property of the taxable person; and fifth, the observance by the Commissioner of the provisions contained in the rules in regard to the manner of attachment. Each of these components of the statute are integral to a valid exercise of power. In other words, when the exercise of the power is challenged, the validity of its exercise will depend on a strict and punctilious observance of the statutory pre-conditions by the Commissioner. While conditioning the exercise of the power on the formation of an opinion by the Commissioner that "for the purpose of protecting the interest of the government revenue, it is necessary so to do", it is evident that the statu....
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....rdering a provisional attachment the Commissioner must in the formation of the opinion act on the basis of tangible material on the basis of which the formation of opinion is based in regard to the existence of the statutory requirement. While dealing with a similar provision contained in Section 45 (Section 45 (1) provides as follows: "45. Provisional attachment. - (1) Where during the tendency of any proceedings of assessment or reassessment of turnover escaping assessment, the Commissioner is of the opinion that for the purpose of protecting the interest of the Government revenue, it is necessary so to do, he may by order in writing attach provisionally any property belonging to the dealer in such manner as may be prescribed.") of the Gujarat Value Added Tax Act 2003, one of us (Hon'ble Mr Justice MR Shah) speaking for a Division Bench of the Gujarat High Court in Vishwanath Realtor v State of Gujarat Special Civil No. 7210 of 2015, decided on 29 April 2015 observed: "8.3. Section 45 of the VAT Act confers powers upon the Commissioner to pass the order of provisional attachment of any property belonging to the dealer during the pendency of any proceedings of assessment or re....
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....ssion "opinion" as distinguished from "reasons to believe". However for the reasons that we have indicated earlier we are clearly of the view that the formation of the opinion must be based on tangible material which indicates a live link to the necessity to order a provisional attachment to protect the interest of the government revenue. 52 Rule 159 prescribes modalities for effecting a provisional attachment of property. Rule 159 provides thus : "159. Publication of information in respect of persons in certain cases. - (1) If the Commissioner, or any other officer authorised by him in this behalf, is of the opinion that it is necessary or expedient in the public interest to publish the name of any person and any other particulars relating to any proceedings or prosecution under this Act in respect of such person, it may cause to be published such name and particulars in such manner as it thinks fit. (2) No publication under this section shall be made in relation to any penalty imposed under this Act until the time for presenting an appeal to the Appellate Authority under section 107 has expired without an appeal having been presented or the appeal, if presented, has been dis....
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....se property is attached. This is in consonance with the principles of natural justice and ensures that a fair procedure is observed. Sub-Rule (5) provides for a post- provisional attachment right of: (i) Submitting an objection to the attachment; (ii) An opportunity of being heard. Sub - Rule (5) contains clear language to the effect that a person whose property is attached is entitled to two procedural entitlements: first, the right to submit an objection on the ground that the property was not or is not liable to be attached; and second, an opportunity of being heard to the person filing an objection. This is a clear indicator that in addition the filing of an objection, the person whose property is attached is entitled to an opportunity of being heard. It is not open to the Commissioner, as has been stated in the present case, to hold the view that the only safeguard under sub-Rule 5 is to submit an objection without an opportunity of a personal hearing. Such a construction would be plainly contrary to sub-Rule 5 which contemplates both the submission of an objection to the attachment and an opportunity of being heard. The opportunity of being heard can be availed of as a m....
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....r where the taxable person offers an alternative form of security, these are also matters which ought to be determined by the Commissioner in the exercise of powers under Rule 159(5). The scope of objection can also extend to the nature of the property which is being provisionally attached. Now, it is in this backdrop that we proceed to a determination of whether the petition under Article 226 was maintainable and if it was, whether Commissioner exercised the powers under Section 83 read with Rule 159 in accordance with law. 57 The material facts for making this determination need to be recapitulated. On 3 October 2018, a memo was issued under Section 70 (incorrectly referring to the provisions of Section 74) by the Joint Commissioner of State Taxes and Excise directing the appellant to appear on 9 October 2018 along with specific documents pertaining to the years 2017-18 and 2018-19. The notice stated that in the event that the appellant failed to appear, the Commissioner would be constrained to issue a notice to show cause under Section 74(1). On 9 October 2018, two partners of the appellant attended the hearing. On 10 October 2018, a 'detection case' under Section 74 of the H....
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....ainst GM Powertech confirming a demand of Rs. 39.48 crores for 2017-18 and 2018-19. The proceedings concluded that GM Powertech had (i) No business establishment or property in Himachal Pradesh; and (ii) No security or surety. 58 On 21 October 2020, the Commissioner of State Taxes and Excise, Himachal Pradesh delegated, in pursuance of the provisions of Section 5(3) the powers vested under Section 83(1) inter alia to the Joint Commissioner of State Taxes and Excise. On 28 October 2020, a fresh order was issued under Section 83 stating that proceedings were initiated against the appellant under Section 74 since it was found to be involved in an ITC fraud of Rs. 5.03 crores during 2017-18 and 2018-19. Since a GST fraud case had been initiated against GM Powertech on whom a demand had been raised, the ITC claimed by the appellant against supplies effected by GM Powertech was held to be inadmissible resulting in a provisional attachment of the payments due to the appellant to the extent of Rs. 5,03,82,554/-. A similar order was issued on 28 October 2020 under Section 83 to M/s Deepak International Limited. The appellant submitted a detailed representation under Rule 159 (5) to the....
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....y may appeal to such Appellate Authority as may be prescribed within three months from the date on which the said decision or order is communicated to such person." 61 Sub-Section (1) of Section 107 makes it abundantly clear that an appeal to the Appellate Authority is available against a decision or order passed under the HPGST Act or CGST Act by an "adjudicating authority". Sub-Section (2) similarly provides that: (2) The Commissioner may, on his own motion, or upon request from the Commissioner of central tax, call for and examine the record of any proceeding in which an adjudicating authority has passed any decision or order under this Act or the Central Goods and Services Tax Act, 2017 (No.12 of 2017) for the purpose of satisfying himself as to the legality or propriety of the said decision or order and may, by order, direct any officer subordinate to him to apply to the Appellate Authority within six months from the date of communication of the said decision or order for the determination of such points arising out of the said decision or order as may be specified by the Commissioner in his order. Sub-Section (2) confers a revisional power on the Commissioner in regard to....
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....HPGST Act, 2017, only because the proceedings did not end up favoring of the Petitioner. 18. It is reiterated that the fresh order of attachment passed on 28.10.2020 was not based on the same set or allegations. 19. It is further submitted that once the Petitioner had filed objections, then any opportunity of hearing was the discretion of the Ld. Commissioner." 64 This understanding of the Commissioner is in the teeth of and clearly contrary to the provisions of Rule 159(5). Rule 159(5), as explained earlier contemplates two safeguards to the person whose property is attached. Firstly, it permits such a person to submit objections to the order of attachment on the ground that the property was or is not liable for attachment. Secondly, Rule 159(5) posits an opportunity of being heard. Both requirements are cumulative. The Commissioner's understanding that an opportunity of being heard was at the discretion of the Commissioner is therefore flawed and contrary to the provisions of Rule 159(5). There has, hence, been a fundamental breach of the principles of natural justice. 65 On 28 October 2020, the following order was recorded in the file noting by the Joint Commissioner ....
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.... evident from the facts noted above that the order of provisional attachment was passed before the proceedings against the appellant were initiated under Section 74 of the HPGST Act. Section 83 of the Act requires that there must be pendency of proceedings under the relevant provisions mentioned above against the taxable person whose property is sought to be attached. We are unable to accept the contention of the respondent that merely because proceedings were pending/concluded against another taxable entity, that is GM Powertech, the powers of Sections 83 could also be attracted against the appellant. This interpretation would be an expansion of a draconian power such as that contained in Section 83, which must necessarily be interpreted restrictively. Given that there were no pending proceedings against the appellant, the mere fact that proceedings under Section 74 had concluded against GM Powertech, would not satisfy the requirements of Section 83. Thus, the order of provisional attachment was ultra vires Section 83 of the Act. 69 On 1 March 2021, the appellant has filed an appeal under Section 107 together with a deposit of Rs. 32,15,488 representing ten per cent of the tax du....
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....nal attachment is in substance and effect an order reviewing the earlier order withdrawing the order of provisional attachment which was not permissible and therefore the subsequent order of provisional attachment is without jurisdiction. The High Court has not considered this aspect. Both the earlier and the subsequent orders of provisional attachment are on the same grounds. Therefore, unless there was a change in the circumstances, it was not open for the Joint Commissioner to pass another order of provisional attachment, after the earlier order of provisional attachment was withdrawn after considering the representations made by the petitioner. This is an additional ground to set aside the subsequent order of provisional attachment. E Summary of findings 72 For the above reasons, we hold and conclude that (i) The Joint Commissioner while ordering a provisional attachment under section 83 was acting as a delegate of the Commissioner in pursuance of the delegation effected under Section 5(3) and an appeal against the order of provisional attachment was not available under Section 107 (1); (ii) The writ petition before the High Court under Article 226 of the Constitution ch....