GST UPDATE ON POWER OF ATTACHMENT TO BE EXERCISED JUDICIOUSLY 123/2020-21

The justification for granting wide powers to tax authorities regarding attachment of property of the taxpayer under the GST law has been contentious since inception. In our past updates also, we have discussed important judgments on legality of attachment of bank accounts by the GST authorities. The update no. 104/2020-12 and update no. 89H/2020-21 may be referred to by our netizens. In the present update, we seek to discuss yet another important judgment delivered by the Hon’ble Gujarat High Court in the case of M/S VALERIUS INDUSTRIES V/S UOI concerning provisional attachment of the stock of goods and bank account of the petitioner by State Tax Officer under section 83 of the GST Act, 2017.

The Hon’ble Gujarat High Court held that just because a search has been undertaken resulting in seizure of goods by itself may not be sufficient to arrive at the conclusion that it is necessary to pass an order of provisional attachment to protect the revenue. The power u/s 83 should neither be used as a tool to harass the assessee nor should it be used in a manner which may have an irreversible detrimental effect on the business of the assessee. The court also held that the following factors must be taken into consideration, firstly whether it is a revenue neutral situation; secondly, the statement of output liability or input credit, having regard to the amount paid by reversing the input tax credit, if the interest of the revenue is sufficiently secured- then the authority may not be justified to invoke its power u/s 83. It would be a big mistake on the part of the revenue authorities to understand that the reasons to believe necessary for the purpose of carrying out inspection, search and seizure under Section 67 of the Act, 2017 would be sufficient for the purpose of formation of the opinion that it is necessary to provisionally attach the goods or other articles for protecting the interest of the government revenue.

The government has armed tax officers with sweeping powers to conduct searches,surveys and to attach the assets in case of recovery. Search proceedings are seen as blunt instruments of law enforcement. The intention of the government is that they want to expand the tax base, but it must be ensured that the tax administration is handling powers in a judicious way. The hon’ble High Court also held that under CGST Act, 2017, the order of provisional attachment can be passed only by the Commissioner and so in the present case, the provisional attachment order passed by State Tax Office was without jurisdiction. It was held that the power of forming reasonable belief in order to provisionally attach the property of the taxpayer is subjective one and has been delegated to the Commissioner which cannot be further delegated by him to the subordinate officers.

In this context, reference may be made to the decision given by the Hon’ble Gujarat high courtin the case of M/s Kushal Ltd.wherein it has been held that to exercise the power of provisional attachment of the property of a taxable person, proceedings should be pending under the requisite provisionswhereas in the instantaneous case pursuant to search under section 67(2) of the CGST Act, no inquiry or other proceedings under GST law was initiated.Thus,when the basic requirement for exercise of powers under section 83 was not satisfied, the provisional attachment of the bank account of the petitioners is not in consonance with the provisions and thus cannot be sustained and the High Court quashed the order of provisional attachment of the bank account of the petitioners.However, in the present decision, the Hon’ble Gujarat High Court held that mere initiation of proceedings or pendency of proceedings under section 67 of the CGST Act, 2017 per se would not lead to provisional attachment of the property of the taxpayer. Hence, this decision is one step forward to the decision given in case of M/s Kushal Ltd.

The High Courts act as a watchdog for applying the relevant provisions of the laws,specially the provisions which have adverse effect on the assessee such as provisional attachment of the property of the taxpayer. Although there are sufficient judicial guidelines against arbitrary exercise of such powers,taxpayers expect that the tax administration exercises due diligence to ensure that these powers are not abused.

This is solely for educational purpose.

You can reach us at www.capradeepjain.com , at our facebook page on https://www.facebook.com/GSTTODAYBYPRADEEPJAIN/ as well as follow us on twitter at https://www.twitter.com/@capradeepjain21and u may also follow us on Linkedinhttps://www.linkedin.com/in/ca-pradeep-jain-b6a31a16

Comments

GST UPDATE ON POWER OF ATTACHMENT TO BE EXERCISED JUDICIOUSLY 123/2020-21

Post a Comment

Query