All About Provisional Attachment under GST

Table of Contents: 

1. Introduction
2. Legal Provision
3. Increasing number of provisional attachments
4. Hon’ble Gujarat High Court’s take
5. Amendments through Finance Act, 2021
6. Guidelines by the CBIC
7. Hon’ble Supreme Court’s Take
8. Conclusion

1. Introduction

The demand and recovery proceedings take considerable amount of time. In this span of time, the taxpayer might default or even escape in order to avoid tax collection. In order to safeguard the interest of the revenue, power is given to the GST authorities under the Central Goods & Services Tax (‘CGST’) Act, 2017 to provisionally attach the property of the taxable person, including bank account, during the pendency of proceedings.

2. Legal Provision

Section 83 of the CGST Act, 2017 provides that where during the pendency of the proceedings under Sections 62, 63, 64, 67, 73 and 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.

Rule 159 of the CGST Rules, 2017 provides that the person whose property is attached can file an objection if such property was not liable to be attached. The objection can be filed within 7 days of attachments.

3. Increasing number of provisional attachments

Recent track shows that the GST Department has been increasingly issuing provisional attachment orders to attach bank accounts and other properties in numerous cases. In fact, the Hon’ble Gujarat High Court highlighted that everyday around 10 matters are listed for hearing relating to provisional attachment.

4. Hon’ble Gujarat High Court’s take

The Gujarat High Court in case of Valerius Industries v. Union of India [2019] 109 taxmann.com 218 (Gujarat) held that the powers should neither be used as a tool to harass nor should have irreversible detrimental effect on business of assessee. The powers given to the authorities should be resorted to only as last resort. The Hon’ble High Court stated that attachment of a property is very drastic and far-reaching power and should be used cautiously only on weighty grounds.

The Gujarat High Court in the given case issued guidelines for the authorities in order to form an opinion for provisional attachment, few of which are summarized below-

• • Opinion formed by the authority should not be based on imaginary ground or wishful thinking
  • Necessary for Commissioner to form opinion based on some credible material
  • Material should not be vague
  • Power to be exercised only when there is sufficient material on record to justify that assessee is about to dispose of wholly or any part of property with a view to prevent ultimate collection of demand

The Gujarat High Court in case of Vinodkumar Murlidhar Chechani v. State of Gujarat [2021] 123 taxmann.com 329 (Gujarat) stated that the mechanical exercise of the powers given under the provision of provisional attachment is not appreciated.

Further, the High Court requested the Government as well as the CBIC to issue guidelines for provisional assessment.

5. Amendments through Finance Act, 2021

The Finance Act, 2021 provides amendments in Section 83 (supra) which aims to enlarge the scope of the section.

The amendments extends the scope of the provisional attachment to the proceedings which are initiated in any of the sections of the entire chapters of Assessment (Chapter XII), Inspection, Search, Seizure & Arrest (Chapter XIV) and Demand & Recovery (Chapter XV). Currently, only those cases are covered where proceeding is pending under specified Sections.

In addition, provisional attachment would not only be applicable to the concerned taxable person but also to the person specified in Section 122(1A), which are –

• • Any person who retains the benefit of the following transactions-
    • Supply of any goods or services or both without issue of any invoice or issues an incorrect or false invoice with regard to any such supply
    • Issue any invoice or bill without supply of goods or services or both in violation of the provisions of this Act or the rules made thereunder
    • Availment or utilization of ITC without actual receipt of goods or services or both either fully or partially, in contravention of the provisions of this Act or the rules made thereunder
    • Takes or distributes ITC in contravention of Section 20, or the rules made thereunder
  • At whose instance such transaction is conducted

However, the amendment is yet to be notified.

6. Guidelines by the CBIC

The CBIC has issued guidelines [Letter No. CBEC-20/16/05/2021-GST/359, Dated 23.02.2021] for the Department officers for exercising the power of provisional attachment of property provided under Section 83 (supra), few of which are provided below:

• • The remedy of attachment by its very nature is extraordinary which needs to be resorted to with utmost circumspection and with maximum care and caution
  • It should not be invoked in cases of technical nature and should be resorted to mainly in cases where there is an evasion of tax or where wrongful input tax credit is availed or utilized or wrongfully passed on
  • For formation of opinion, the Commissioner must exercise due diligence and carefully examine all the facts including the nature of offence, amount of revenue involved, established nature of business and extent of investment in capital assets. The basis of formation of opinion should be duly recorded on file by the Commissioner
  • Copy of provisional attachment order shall be provided to the taxable person as early as possible so that objections can be filed on timely basis

7. Hon’ble Supreme Court’s Take

The Hon’ble Supreme Court in case of Radha Krishan Industries v. State of Himachal Pradesh [2021] 127 taxmann.com 26 (SC) laid down principles to exercise the power of provisional attachment by the authorities, which are summarized below-

• • The power of provisional attachment is draconian in nature and the conditions prescribed by the statute for a valid exercise of the power must be strictly fulfilled
  • The formation of the opinion must bear a proximate and live nexus to the purpose of protecting the interest of the Government revenue
  • The Commissioner must form an opinion on the basis of tangible material that the assessee is likely to defeat the demand and that therefore, it is necessary for the purpose of protecting the interest of the government revenue
  • The expression ‘necessary so to do for protecting the government revenue’ implies that the interests of the government revenue cannot be protected without ordering a provisional attachment
  • The person whose property is attached is entitled to dual procedural safeguards:
    • An entitlement to submit objections
    • An opportunity of being heard

8. Conclusion

The power to provisionally attach the property, including bank account is very drastic in nature. It hampers the working of the business, especially where there is no mala fide intention.

The principles laid down at various levels, such as by the CBIC, the High Courts and by the Hon’ble Supreme Court, has addressed the issue to an extent and has ultimately reduced the number of instances of provisional attachment.

The amendments introduced by the Finance Act, 2021 excessively increase the scope of this provision. The implementation of the revised provision might have led to even more drastic impact of the provisional attachments, however, the principles laid down by the Supreme Court puts a check on such power of the Commissioner.

Check out Taxmann’s Video on Revelation of Provisional Attachment under GST (Including the amendments proposed by the Finance Bill 2021) [37 Mins | Watch Time]