GST Update on No 138 Provisional Attachment of Cash Credit A/c

The demand and recovery proceedings take considerable amount of time. During this time span, one of the biggest concerns of the revenue is that the taxpayers might abscond/flee in order to avoid tax collection. Further, the pendency of proceedings delays the revenue collection by the government. Thus, in order to safeguard the interest of revenue, power is given to GST authorities under CGST Act, 2017, to provisionally attach the property of the taxable person, including bank accounts, during pendency of proceedings. Recent track record shows that the GST department has been increasingly issuing provisional attachment orders to attach bank accounts and other properties in various cases. One such issue on the similar subject line was raised before the Hon’ble Gujarat High Court in the case of MANISH SCRAP TRADERS V/S PRINCIPAL COMMISSIONER. The analysis of the decision is the subject matter of our present update. The petitioner prayed for issuing Writ of Mandamus from the Hon’ble Court praying to set aside the order of provisional attachment. Further, the petitioner contended to quash the impugned order since, provisional attachment of cash credit account is not permissible in Law as per Section 83 of CGST Act, 2017. Further, the petitioner also stated that since decisions of High Court are binding on all subordinate courts, judicial and quasi-judicial authorities, it was not adhered to and therefore, the impugned order should be set aside. Reliance was placed in the case of M/S. FORMATIVE TEX FAB VS. STATE OF GUJARAT AND M/S VINODKUMAR CHECHANI VS STATE OF GUJARAT. The Court stated that the law related to provisional attachment of cash credit is no longer res integra. Reliance was placed on the same issue in the case of KANERIA GRANITO LTD. VS. ASSISTANT COMMISSIONER OF INCOME TAX wherein it was held that a cash credit account cannot be provisionally attached. It was held that cash credit account would be in the nature of borrowing which is required by assessee for the purpose of business. However, in such a case, the bank and the petitioner do not have debtor-creditor relationship. The principal commissioner was of the view that the case of M/S FORMATIVE TEX FAB VERSUS STATE OF GUJARAT, is not applicable to them since, in that case Form DRC-22 was issued by Additional Commissioner and not the Principal Commissioner. The Hon’ble Court was astonished on the reasoning adopted by the Principal Commissioner and was of the view that the Principal Commissioner holds an explanation as to on what basis he has distinguished the orders passed by this Court. The Learned Counsel was also of the view that contention of Principal Commissioner is totally erroneous. Consequently, High Court issued notice and granted next hearing for explaining the circumstances in which the impugned order was passed. The power to provisionally attach the property, including bank account is very sensitive as it hampers the working of the business, especially when there is no malafide intention of the taxpayer. However, the power of provisional attachment bestowed on the department is a draconian measure which is to be exercised cautiously and diligently by the officers. It should not be used as a punitive measure by the revenue authorities. The authorities should apply their mind before issuing provisional attachment orders so that unnecessary litigations can be avoided. Moreover, the judicial discipline should be followed unreservedly by the departmental officers in view of the landmark decision given by Supreme Court in the case of UNION OF INDIA V KAMALAKSHI FINANCE CORPORATION LTD., wherein, the Apex Court held that, 'THE PRINCIPLES OF JUDICIAL DISCIPLINE REQUIRE THAT THE ORDERS OF THE HIGHER APPELLATE AUTHORITIES SHOULD BE FOLLOWED COMPLETELY BY THE SUBORDINATE AUTHORITIES'

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GST Update on No 138 Provisional Attachment of Cash Credit A/c

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