Principle Governing Attachment of Property Under Section 83 CGST Act, 2017

Principle Governing Attachment of Property Under Section 83 CGST Act, 2017

Section 83 of Central Goods & Services Act, 2017 (hereinafter called CGST Act) says that Commissioner is of the opinion that any proceedings are pending under any of the following Sections of the CGST Act. 

a) Any proceedings under Section 62 covering registered persons who fail to file returns under Section 39, 45, and 46 after service of notice, the proper officer may proceed to assess the tax liability of registered persons to the best of his judgment. 

b): Where a person fails to obtain registration through legally obliged to do so or his registration has been cancelled and fails to pay tax, the PO may proceed to assess the tax liability to be the best of his judgment. 

c): Where search and seizure, under Sec.67, has been carried out by the Commissioner or any officer authorized by him and he is of the opinion that (i) there is a suppression of supply of goods or services or both (ii) or stock of goods in hand (iii) has claimed an inputs tax credit in excess of his entitlement or (iv) indulged in contravention of any provisions of the Act or rules made there–under. This is the power that could be greatly missed by some officers. 

d): Where Show Cause Notice has been issued by invoking a normal period of limitation under Section 73 seeking to recover the duty not paid, short paid, erroneously refunded, or where ITC has been utilized. 

e): Where SCN has been issued by invoking an extended period of five years under Section 74 seeking to seek to recover the duty not paid, short paid, erroneously refunded, or where ITC has been utilized. The arbitrary powers have been conferred upon the Department by virtue of which they will invariably issue Show Cause Notice under Section 74 of CGST Act, 2017 seeking to invoke the extended period of five years as in much as the department does not stand to lose anything by invoking the extended period of limitation and in case, they fail to establish the necessary ingredient for invocation of an extended period of limitation, the SCN shall not be bad in law as, by virtue of subsection 2 of Section 75 of CGST Act, the adjudicating authority will adjudicate as if issued under Section 73 of CGST Act – more particularly when both Adjudicating Authority and Commissioner (Appeals) are Departmental Officer. 

2: Under the Service Tax regime, there existed “The Service Tax (Provisional Attachment of Property) Rules, 2008 which were notified laying down the procedure for provisionally attaching the property. Further, CBIC had also issued a Circular No. 103/06/2008 dt.1.7.2008 specifying the manner of making provisional attachment of property of assessee. 

3: The Hon‘ble Supreme Court in Bhikhubhai Vithlabhai Patel and Ors. vs. the State of Gujarat: MANU/SC/7399/2008, on the issue of formation of opinion, has held as under: 

The record does not reveal that there has been any consideration by the State Government that necessity had arisen to make substantial modifications to the draft development plan. We are of the view that there has been no formation of the opinion by the State Government which is a condition precedent for exercising the power under the proviso to Section 17(1)(a)(ii) of the Act. 

4: Therefore, unfortunately, the formation of opinion is with respect to “protection of government revenue” and nothing more since Section 83(1) clearly says that the Commissioner is of the opinion for the purpose of protecting the interests of government revenue, may order in writing for provisional attachment of property. The formation of opinion must be on the part of Commissioner and no other office below the rank of Commissioner, who shall, as per Rule 159 of CGST Rule, pass an order in Form GST DRC–22 clearly specifying therein the property sought to be attached. There are no guidelines or any indication for which period, materials would be looked into for the purpose of formation of opinion by the Commissioner in as much as for the issuance of SCN, there is a limit of three years U/s 73 or five years U/s 74 as the case may be but under Section 83, there is no time limit. It gives blanket powers to attach property in respect of transactions pertaining to – maybe even for 10 or 15 years – once the property is attached, the party may be perforced to pay the tax, interest, and penalty even without adjudication of SCN under Section 73/74… 

4.1: A copy of the order shall be served upon the Revenue Authority or any other Authority to take note of such attachment – more particularly in relation to an immovable property so that, at a later stage, Revenue Authority may not register the transfer or alienation of immovable property which is a subject matter of attachment. 

5: However, in case, the property is of perishable nature or hazardous in nature and the assessee is willing to pay the value of the property or amount that may become payable, whichever is lower, the property may be released as per Rule 159(3) upon passing an order in Form GST DRC–23 subject to the submission of proof of payment. However, if the person fails to pay the amount, the Commissioner may dispose of the property and realize the amount and such amount shall be adjusted against the tax, interest, penalty, fee, or any other amount payable by the taxable person. 

6: As per Sub–rule 5 of Rule 159, a person is entitled to make representation against the order of provisional attachment within seven days of the attachment and the Commissioner, after affording an opportunity of hearing, may release the provisional attachment by passing an order in FORM GST DRC –23. Surprisingly, the party has only a time of seven days to make representation and but there is no compulsion of time limit for the Commissioner to pass an order on such representation – another classic case where the assessee is left high and dry. 

Related Topic:
Filing reply to Form GST DRC-22

7: Section 83(2) CGST provides that order for provisional attachment shall remain valid for a period of one year and fortunately there is no enabling provision for its extension. At the same time, Rule 159(6) CGST Rule provides, in case, the commissioner is of the view that the property is no longer liable for attachment, he may pass an order in FORM GST DRC–23 for its release. 

Condition Precedent For Invocation of Provision. 

8: The DB of Punjab & High Court, in a very latest judgment, in the case of Bindal Smelting Pvt. Ltd. vs. ADG (20.12.2019 – PHHC): MANU/PH/2993/2019, explained as to how the words“ is of the opinion” would be interpreted as appearing in Section 83 of the CGST Act, 2017. 

The expression ‘is of the opinion‘ or ‘has reason to believe‘ are of the same connotation and are indicative of subjective satisfaction of Commissioner. It is settled law that ‘opinion‘ must have a rational connection with or relevant bearing on the formation of the opinion. Rational connection postulates that there must be a direct nexus or live link between the protection of interest and available property which might not be available at the time of recovery of taxes after final adjudication of the dispute. The opinion must be formed in good faith and should not be a mere pretense. Courts are entitled to determine whether the formation of opinion is arbitrary, capricious, or whimsical. 

9: The following observations of the Supreme Court in the case of Smt. S.R. Venkatraman vs. Union of India MANU/SC/0359/1978 would be extremely useful for a challenge to action (by way of a writ petition under Section 226 of Constitution of India before the High Court having jurisdiction over the Department) under Section 83 of CGST Act: 

“There will be an error of fact when a public body is prompted by a mistaken belief in the existence of a non–existing fact or circumstances. This is so clearly unreasonable that what is done under such a mistaken belief might almost be said to have been done in bad faith; and in actual experience and as things go, they may well be said to run into one another. The influence of extraneous matters will be undoubtedly there where the authority making the order has admitted their influence. An administrative order which is based on reasons of fact which do not exist must be held to be infected with abuse of power.” 

10: The DB of Hon‘ble Gujarat High Court in the case of Pranit Hem Desai vs. ADG (28.08.2019 – GUJHC): MANU/GJ/1855/2019 laid down the principle governing passing of the order of provisional attachment. 

Further, the orders of provisional attachment must be in writing. There must be some material on record to indicate that the Assessing Authority had formed an opinion on the basis thereof that it was necessary to attach the property in order to protect the interest of the revenue. The provisional attachment provided under section 83 is more like an attachment before judgment under the Code of Civil Procedure. It is a liability on the property. However, the power conferred upon the Commissioner under Section 83 is very drastic, far–reaching power and that power has to be used sparingly and only on substantive weighty grounds and for valid reasons. 

Who Can Exercise Powers

11: The DB of Gujarat High Court in Valerius Industries vs. Union of India (28.08.2019): MANU/GJ/1743/2019 observed that it is only the opinion of the Commissioner which is condition precedent for taking action under Section 83 for provisional attachment of any property. However, any exercise of powers by any other officers (other than Commissioner) shall be in violation of the mandate of Section 83 and consequently, the provisional attachment shall be illegal. In other words, the formation of the opinion cannot be by any officer junior to the Commissioner. 

In the case on hand, Section 83 makes it abundantly clear that it is the Commissioner‘s opinion which is relevant. Whether such power conferred upon the Commissioner by the legislature could have been delegated to the three subordinate officers referred to above by virtue of the order dated 15th January 2018 passed in exercise of power under subsection (3) of Section 5 read with clause 19 of Section 2 of the Act and the rules framed thereunder. In our opinion, the answer has to be in the negative. Although there is no specific challenge to the order dated 15th January 2015 passed by the Commissioner of State Tax delegating his power under Section 83 to the subordinate officers, yet, we are of the view that by virtue of such order, such impugned order of provisional attachment cannot be defended. 

12: The DB of Gujarat High Court in Valerius Industries vs. Union of India: MANU/GJ/1743/2019, while dealing with the scope of exercise of powers under Section 83 of the CGST Act has observed as under: 

In the absence of any cogent or credible material, if the subjective satisfaction is arrived at by the authority concerned for the purpose of passing an order of provisional attachment under Section 83 of the Act, then such action amounts to malice in law. Malice in its legal sense means such malice as may be assumed from the doing of a wrongful act intentionally but also without just cause or excuse or for want of reasonable or probable cause. Any use of discretionary power exercised for an unauthorized purpose amounts to malice in law. It is immaterial whether the authority acted in good faith or bad faith. 

When Powers Can Be Exercised

13: The DB of Hon’ble Gujarat High Court in the case of Pranit Hem Desai vs. ADG (28.08.2019 – GUJHC): MANU/GJ/1855/2019, while explaining the scope of Section 83 of the CGST Act, 2017, has observed as under: 

Section 83 of the State GST Act empowers the Assessing Authority to make a provisional attachment of any property of the assessee during the pendency of any proceeding for the assessment or reassessment of any turnover, even though there is no demand outstanding against the assessee if he is of the opinion that it is necessary to do so to protect the interest of the revenue. This provision has been made, in our opinion, in order to protect the interest of the revenue in cases where the raising of demand is likely to take time because of the investigations and there is apprehension that the assessee may default in the ultimate collection of the demand. In other words, Section 83 gives a power to be exercised during the pendency of any proceeding for assessment or reassessment, so that the assessee may not fritter away or secrete his resources out of the reach of the Commercial Tax department when the assessment or reassessment is completed. The expression “for the purpose of protecting the interest of the revenue” occurring in Section 83 of the Act is very wide in its meaning. 

Further, the orders of provisional attachment must be in writing. There must be some material on record to indicate that the Assessing Authority had formed an opinion on the basis thereof that it was necessary to attach the property in order to protect the interest of the revenue. The provisional attachment provided under section 83 is more like an attachment before judgment under the Code of Civil Procedure. It is a liability on the property. However, the power conferred upon the Assessing Authority under Section 83 is very drastic, far–reaching power and that power has to be used sparingly and only on substantive weighty grounds and for valid reasons. 

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