Supreme Court on Provisional Attachment
under GST Laws - Attachment can be Undertaken
only on the basis of “Tangible Material”
The Supreme Court in its judgment in Radha Krishnan Industries v. State of Himachal Pradesh
&Ors. (CA 1155 of 2021 dated 20 April 2021) has
laid down the law on the provisional attachment under GST laws. Further, the
Supreme Court in detail has also discussed the issue of the writ petition and
alternative remedy.
Radha Krishnan Industries (Appellant) is a
manufacturer of lead and in operation since 2008. The Appellant was called by
GST authorities to bring its records. The Appellant appeared before the
Authorities with the necessary details. In the meanwhile, a detection case was
registered against one of the suppliers of the Appellant (supplier being GM Powertech). At about the same time, the Appellant was alleged to have illegally claimed Input tax credit
during 2017-18 and 2018-19. During the course of the entire investigation, the
Commissioner delegated his power to the Joint Commissioner. Under this
delegated power the Joint Commissioner passed provisional orders dated 28
October 2020 against the Appellant under section 83 of HPGST Act attaching the
receivables of the Appellant from its customers (Fujikawa
Power and Deepak International). It was alleged that the Appellant was involved
in ITC fraud amounting to INR 5.03 crores (approx.). Pursuant thereto, A show
cause notice dated 27 November 2020 was issued to the Appellant under section
74 (1) of HPGST Act for recovery of ITC, interest, and penalty.
The Appellant challenged the
provisional orders and delegation of the Commissioner by way of a writ petition
in the Himachal Pradesh High Court. The High Court did not entertain the writ
petition on the ground of alternative remedy available under section 107 of
HPGST Act.
Subsequent to the dismissal of the
writ petition, Order under section 74(9) of HPGST Act was passed against the
Appellant confirming demand of INR 8.30 crores. The Appellant filed an appeal
under section 107 of the Act against this Order. The Appellant by way of an SLP
came before the Supreme Court against dismissal of the writ petition.
The Supreme Court framed two legal
issues:
·
Whether a writ petition challenging
the orders of provisional attachment was maintainable under article 226 of the
Constitution before the High Court
·
If yes, whether the orders of
provisional attachment constituted a valid exercise of power
The Supreme Court again delineated
the principles of law given in the matters of Whirlpool 1998 (8) SCC 1
and Harbanslal Sinha v.
IOCL 2003 (2) SCC 107 and amongst other points held that power
under article 226 to issue writs can be exercised not only for the enforcement
of fundamental rights, but for any other purpose as well. An alternate remedy
by itself does not divest the High Court of its powers under article 226 in an
appropriate case though ordinarily, a writ petition should not be entertained
when an efficacious alternative remedy is provided by law.
It was held that an appeal against
order of provisional attachment was not available under section 107(1) HPGST
Act and therefore the writ petition before the High Court challenging the order
provisional attachment was maintainable.
It was held:
The power to levy a provisional
attachment is draconian in nature. …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 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. The formation of the opinion must bear approximate and live
nexus to the purpose of protecting the interest of the government revenue.
The exercise of unguided discretion
cannot be permissible because it will leave citizens and the legitimate
business activities to the peril of arbitrary power.
…The Commissioner must be alive to
the fact that such provisions are not intended to authorize Commissioners to
make pre-emptive strikes on the property of the assessee,
merely because property is available for being attached. There must be a valid
formation of the opinion that a provisional attachment is necessary for the
purpose of protecting the interest of the government revenue.
It was held that attachment can be
undertaken only on the basis of “tangible material”. For this, the Supreme
Court relied on CIT v. Kelvinator of India Limited 2010 (2) SCC 723
an Income tax judgment which had considered the expression
“reason to believe”. It was held that while section 83 HPGST Act uses the
expression “opinion” as distinguished from “reason to believe”; however, the
Supreme Court was clear of the view that the formation of opinion must be based
on tangible material which indicates live link between the need for the
attachment and the purpose it is intended to secure (i.e. Government revenue).
It was held that consequences of a
provisional attachment is serious. It displaces a person whose property is
attached from dealing with the property. Where a bank account is attached, it
prevents a person from operating the account. The procedural safeguards
inserted in rule 159(5) demand strict compliance.
In the facts of the instant case, it
was held that the order of provisional attachment did not indicate any basis
for the formation of the opinion that the levy of a provisional attachment was
necessary to protect the interest of the Government revenue. No tangible
material had been disclosed by the Joint Commissioner. It was held that merely
because proceedings were pending/concluded against another taxable entity, i.e.
GM Power Tech, the power under section 83 could not be attracted against the
Appellant. Hence, it was concluded that the order of provisional attachment was
ultra vires section 83 of HPGST Act.
This judgment will put to rest
interpretation on the provisional attachment under GST laws. It clearly stands
laid down that tangible material will be required to be placed by Revenue
authorities for justifying a provisional attachment. Simply because proceedings
have been initiated against another legal entity that by itself cannot be a
ground for initiating a provisional attachment against an assessee.
It has also been stated by the Supreme Court that all procedures and safeguards
given in law are required to be followed by Revenue authorities while
undertaking a provisional attachment. It is hoped that pursuant to this judgment,
provisional attachment in GST matters is used by Commissioner only in
exceptional circumstances and not as a routine exercise.