What is 'Provisional Attachment' under the Law of GST?

INTRODUCTION

On today’s show, we will discuss the case of Radha Krishnan Industries v. State of Himachal Pradesh and Others, 2021 SCC OnLine SC 334, wherein the Supreme Court, dealt with the interpretation of Section 83 of the Himachal Pradesh GST Act that provides for provisional attachment of property, and consequently, also discussed the scope of Article 226 of the Constitution of India in relation to cases where an alternative efficacious remedy exists. In layman terms, provisional attachment of property means attachment of property that is done during pendency of any legal proceedings.

 

The brief facts of the case are that the Appellant is a Lead Manufacturer, whose suppliers and customers faced GST Proceedings in respect of raising fraudulent input tax credit claims. A Notice under Section 74 of the HP GST Act that deals with determination of fraudulent Input Tax Credit claims was also issued to the Appellant for production of certain documents on the ground that the Appellant had claimed Input Tax Credit on the supplies received by it from its suppliers and since the inward supplies made by its supplier were found to be fake, the Appellant's claim of Input Tax Credit was also in question. The mandate of such Notice was duly complied with by the Appellant by producing the relevant documents.

 

Thereafter an order of provisional attachment of money receivable to the Appellant from its customers was also passed. The Appellant preferred a representation against such order of provisional attachment, which was allowed, and the notice of attachment was withdrawn. However, later on, another Order of Provisional Attachment dated 21.10.2020 was issued to the Appellant, aggrieved by which the Appellant filed a Writ Petition before the Himachal Pradesh High Court which was also dismissed on the ground that an alternate remedy in form of Appeal in terms of Section 107 of the HP GST Act exists with the Appellant. It is pertinent to note that after issuance of order of provisional attachment, on 27.11.2020, the GST Department issued another Notice under Section 74 to the Appellant.

 

SECTION 83

Before adverting any further, let us peruse Section 83 of the HP GST Act. It states that: -

 

“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 effect after the expiry of a period of one year from the date of the order made under sub-section (1).”

 

INTERPRETATION OF SECTION 83

Now, let us understand the interpretation of Section 83. According to the Court: -

 

Firstly, the power to order a provisional attachment is entrusted during the pendency of proceedings under any one of six specified provisions: Sections 62, 63, 64, 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;

 

Secondly, before exercising the power under Section 83, 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”.

 

Thirdly, such order for attachment must be in writing and may include “any property including a bank account belonging to the taxable person.”

 

And lastly, it was observed that “the manner in which a provisional attachment is levied must be specified in the rules made pursuant to the provisions of the statute.”

 

So, this is how Section 83 (1) is to be interpreted. With respect to Section 83 (2), the Court observed that “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).”

 

MAINTAINABILITY OF WRIT PROCEEDINGS

After interpreting Section 83 of the HP GST Act, the Court moved on to the other limb of the argument in relation to maintainability of writ proceedings in light of existence of an alternate efficacious remedy under Section 107 of the HP GST that provides for Appeal to Appellate Authority. According to Section 107, any person aggrieved by any decision under the HP GST Act or CGST Act “by an adjudicating authority” may appeal to such Appellate Authority as has been prescribed.

 

Thereafter the Court discussed the definition of “Adjudicating Authority” provided under Section 2 (4) of the HP GST Act, which is “adjudicating authority means any authority, appointed or authorized to pass any order or decision under this Act, but does not include the Commissioner…..”

 

Upon perusal of this definition, the Court made it clear that “the expression ‘adjudicating authority’ does not include among other authorities, the Commissioner” and if such is the position, then “clearly the order passed by the Joint Commissioner as a delegate of the Commissioner was not subject to an appeal under Section 107(1) and the only remedy that was available was in the form of the invocation of the writ jurisdiction under Article 226 of the Constitution. The High Court was, therefore, clearly in error in declining to entertain the writ proceedings.”

 

OTHER OBSERVATIONS RELATING TO SECTION 83

There were some other arguments as well in relation to interpretation of Section 83. As we had discussed that the Appellant was embroiled in the GST Proceedings because investigations were pending against its suppliers and customers. In this regard, it was clarified by the Court that merely because proceedings under the HP GST Act are pending against some other affiliate taxable entity, the same cannot mean that “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.”

 

Further, in the present case, the Joint Commissioner had passed an order of provisional attachment that was later on withdrawn upon a representation made by the Appellant. Thereafter, another order of provisional attachment was passed against the Appellant with respect to same-subject matter. According to the Supreme Court, such an exercise is impermissible since it amounts to review of the earlier provisional attachment that is outside the mandate of Section 83.

 

HELD BY THE COURT

That was the entire conspectus of interpretation of Section 83 that transpired in the present case. In such light, it was held by the Supreme Court that: -

 

Firstly, the Writ Petition under Article 226 of the Constitution challenging the order of provisional attachment was maintainable.

 

Secondly, under Section 83, there is a necessity of the formation of opinion based on tangible material that the Assessee is likely to defeat the demand, and this formation of opinion must be before ordering a provisional attachment by the Commissioner. There must be existence of opinion that it is necessary so to do for the purpose of protecting the interest of the government revenue or “the interests of the government revenue cannot be protected without ordering a provisional attachment.” There must be existence of such an opinion.

 

Thirdly, such order of provisional attachment must be a reasoned written order that is communicated to the Assessee and there must be observance by the Commissioner of the provisions contained in the rules such as adherence to principles of natural justice as provided under Rule 159 (5) of the HP GST Rules.

 

Fourthly, in the name of provisional attachment, pre-emptive strikes on the property of the Assessee must not be made.

 

And lastly, the Order of Provisional Attachment was set aside, and the Writ Petition preferred before the High Court stood allowed.

 

This was all that was held in the present case. So, what are my concluding remarks?

 

CONCLUSION

I feel that the taxation authorities in India are becoming over-enthusiastic in trying to recover money from the taxable entities and in the process, sometimes they act hastily by not following the mandate of the law in letter and spirit. The Supreme Court beautifully conducted the interpretative exercise in respect of Section 83 and came to the conclusion that such provision being draconian in nature is to be interpreted strictly and an expansive interpretation cannot be given to it. I hope that the taxation authorities all over India take note of this Judgment and do not hound the taxable persons without justified cause.