GST update No 285 on arbitrary attachment without tangible material

It is very well-known fact that law prescribed in the statue books and law in its practical application is very different. The revenue authorities often exercise their discretionary powers without adhering to the stipulations stated in the Statue which have far-reaching consequences. At times, due to irrational exercise of powers, the assessees are left with no other option but to knock the doors of courts. Apex Court in the case of RADHA KRISHNA INDUSTRIES V/S STATE OF H.P. has held that the provisions contained in section 83 of the CGST Act, 2017 can be invoked only if it is pre-judicial to the interest of revenue. On similar lines, issue regarding validity of the attachment was challenged before hon’ble Allahabad High Court in the case of VARUN GUPTA V/S UNION OF INDIA. The decision delivered in this case is subject matter of discussion of our present update.
The petitioner is a proprietorship firm that is engaged in manufacturing of plastic granules and its compounding. The bank account of the petitioner was attached in accordance with the Section 83 of CGST Act, 2017. The revenue authorities passed the attachment order and directed the bank that no operations shall be made by the department without taking any permission in this respect. It was submitted by the petitioner that as on the date of attachment no proceedings under Section 74 of CGST Act, 2017 was initiated. This was further admitted by the counsel of revenue as well.
The Court placed reliance on the decision of Apex Court in the case of RADHA KRISHNA INDUSTRIES V/S STATE OF HIMACHAL PRADESH AND OTHERS wherein it was concluded that provisional attachment can be done only in cases where it is necessary to protect the interest of revenue. Further, there should be existence of reason to believe and thus the formation of opinion must be based on strong tangible material. Moreover, the Court referred to the amended provisions of Section 83 of the CGST Act, 2017wherein following are essential ingredients to invoke the said Section:
• Commissioner is of the opinion that attachment of property is required
• Purpose of attachment is to protect the interest of revenue
• It is necessary to invoke the provision
• The order is passed in writing
• The proceedings under section 74 of CGST Act, 2017 have been initiated against the assessee.
Therefore, it was held that each of the above stated components are integral and vital to exercise the power of attachment. The statue has not left it upto the Commissioner to form an opinion as per his discretion. The formed opinion must bear a nexus with protection of interest of revenue. Further, it was held that the attachment is not to be undertaken merely because it is expedient to do so but because it is necessary to do so, without which the basic intention of legislature will be defeated. Hence, there should be existence of tangible material and the above stated components must be applied strictly before initiation of any action under section 83. In the present case, there is absence of these ingredients. Hence, the impugned order is quashed. Further, the revenue authorities while passing the orders neither recorded their opinions nor referred any to any tangible material. Hence, it was concluded that the attachment order is passed in an arbitrary and illegal manner which consequently disregarded the provisions of Section 83 of the Act. Reference was also drawn to the decision of Apex Court in PUNJAB STATE POWER CORPORATION LTD. V/S ATMA SINGH GREWAL wherein it was stated that when the discretionary power is exercised in arbitrary manner, the cost should be imposed on the officers concerned. Hence, a cost of Rs. 50,000 was imposed on the respondent in the present case.
The above decision is silver lining in the clouds for the trade and industry. The legislature in its wisdom has provided a shield in form of safeguards as a pre-condition for invoking drastic powers of attachment which is also backed by various Judicial Precedents. Reference may be made to the decision rendered by the hon’ble Gujarat High Court in the case of VALERIUS INDUSTRIES V/S UNION OF INDIA, PATRAN STEEL ROLLING MILL COMMR OF STATE TAX. The CBIC also issued guidelines in this regard vide Circular No. 20/16/05/2021-GST/359 dated 23.02.2021. Further, it is pertinent tomention here that there had been various amendments vide Finance Act, 2021, in the provisions of Section 83 wherein the first and foremost change was the word “pendency” of proceedings shall be replaced by “initiation” of proceedings. Hence, from the above discussion it is crystal clear that draconian powers like these should be invoked only after exercising due-diligence and should be subject to judicial review if challenged on the grounds of arbitrariness. On the other hand, the revenue authorities should also follow these binding pronouncements to avoid any unnecessary litigations.

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GST update No 285 on arbitrary attachment without tangible material

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