GST Update No 179 on Provisional Attachment not to hamper business activity

The enforcement authorities under GST regime have been vested with a powerful tool of provisional attachment u/s 83 of CGST Act, 2017. The rationale behind introduction of the same was to protect the revenue from practices of crafty taxpayers related to diversion of funds and properties to circumvent tax liability. However, considering the far-reaching implications of such power, it becomes necessary to exercise the same in exceptional circumstances. Various judicial pronouncements have upheld the same viewpoint. One such issue travelled all the way to Gujarat High Court in the case of ARYA METACAST PVT LTD V/S STATE OF GUJARAT. The decision imparted is the subject matter of discussion of our present update. The petitioner is engaged in manufacture and sale of ingots and have claimed to have regularly paid output tax for three Financial Years i.e. AY 2018-19 to -2020-21. The petitioner submitted records of purchase transactions, invoices, e-way bills, weighment slips etc. contenting that no fictious purchases were made. The petitioner cooperated during provisional attachment proceedings. The counsel of the petitioner argued that the authorities apart from seizing the properties also seized mobile phones, laptops etc of the applicant. It was contended that exercise of power of Provisional Attachment must be exercised only if the authorities opine that it is necessary for the purpose of protecting the interest of revenue to do so. Furthermore, it was submitted that the conditions prescribed in the Act related to provisional attachment should be adhered to. Therefore, the provisional attachment is illegal and arbitrary. Reliance was placed on decision of Apex Court in the case of RADHE KRISHAN INDUSTRIES VS. STATE OF HIMACHAL PRADESH (2021) 6 SCC 771. Moreover, attention was drawn to the CBIC Circular No. CBEC-20/16/05/2021-GST dated 23.02.2021 regarding guidelines for provisional attachment. It was submitted that the departmental authorities should not have acted in a manner to hamper the normal business activities by CA. PRADEEP JAIN ??www.capradeepjain.com??pradeep@capradeepjain.com??5 provisionally attaching stock, de-mat account, current account etc. The Counsel for the revenue submitted that the petitioner was engaged in bogus purchases from 15 fictious firms which were either not traceable or non-existing and consequently availed fake ITC of Rs. 4,73,39,338/. It was argued that provisions of the Act were duly adhered to and therefore, the Court should not interfere in the matter. The Court held that the respondents have failed to adhere to the guidelines issued by CBIC vide aforesaid Circular. Reference was made to VALERIUS INDUSTRIES VS. UNION OF INDIA, REPORTED IN [2019] 70 GSTR 147 (GUJ), wherein it was held that powers of provisional attachment should be exercised judiciously and with reasonable apprehension that the assessee may default the ultimate collection of the demand. It was stated that it should not be used a tool to harass the assessee resulting into detrimental effect on the business. Quoting the decision of Supreme Court as stated by applicant, it was held that the provisional attachment of property including bank account of a person is draconian in nature. It was held that the stock of finished goods and raw material are valuable and necessary for running the business of the assessee. Reference was also made to the Court Judgement in the case of M/S. UTKARSH ISPAT LLP VS. STATE OF GUJARAT vide Special Civil Application No.188 of 2022. Therefore, the order of provisional attachment was quashed and set aside by the Court. The above decision is appreciated by the business community. Time and again there are various judicial pronouncements on the said subject matter wherein it was ruled out that the departmental authorities should exercise the power of provisional attachment judiciously and appropriately. To illustrate, in the case of M/S MUTHARAMMAN IRON AND STEELS V/S PRINCIPAL ADDITIONAL DIRECTOR GENERAL, Madras High Court held that provisional attachment cannot be exercised since it crippled the business of the assessee. The authorities in last few years have artificially enhanced the scope of provisional attachment by attaching movable property also resulting into undue hardships on the taxpayer. The need of the hour is that the revenue authorities should restrict exercising powers of attachment and emphasize CA. PRADEEP JAIN ??www.capradeepjain.com??pradeep@capradeepjain.com??6 on the need of striking a balance between protecting the Government’s revenue and allowing genuine businesses to operate.

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GST Update No 179 on Provisional Attachment not to hamper business activity

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