Widening the powers of the Provisional Attachment – A brief analysis of the budgetary amendment

In the previous article (see, “Tax Wire” Issue: 08 dated June 12, 2021), we briefly discussed the provisions of S. 83 of the CGST Act, 2017 („the Act‟) empowering the Commissioner to resort to the provisional attachment in the specified circumstances and the protective shield provided by the various High Courts by its judgments to the taxpayers against the arbitrary action of the authorities in terms of S. 83 of the Act. However, instead of learning a lesson from these judicial pronouncements, the government has amended the provisions of S. 83 by the Finance Act, 2021 substantially widening the scope thereof. But before we discuss these amendments, it will be advantageous to have a look at a few significant judicial rulings rendered in the context of S.83 in force as of date.

In the case of Valerius Industries vs. UOI – 2019-TIOL-2094-HC-AHM-GST, the Gujarat High Court, while examining the validity of the action of the Department in terms of S.83, observed and summarised its conclusions as under:

“52. Our final conclusions may be summarized as under:

[1] The order of provisional attachment before the assessment order is made may be justified if the assessing authority or any other authority empowered in law is of the opinion that it is necessary to protect the interest of revenue. However, the subjective satisfaction should be based on some credible materials or information and also should be supported by supervening factor. It is not any and every material, howsoever vague and indefinite or distant remote or far-fetching, which would warrant the formation of the belief.

[2] The power conferred upon the authority under Section 83 of the Act for provisional attachment could be termed as a very drastic and far-reaching power. Such power should be used sparingly and only on substantive weighty grounds and reasons.

[3] The power of provisional attachment under Section 83 of the Act should be exercised by the authority only if there is a reasonable apprehension that the assessee may default the ultimate collection of the demand that is likely to be raised on completion of the assessment. It should, therefore, be exercised with extreme care and caution.

[4] The power under Section 83 of the Act for provisional attachment should be exercised only if there is sufficient material on record to justify the satisfaction that the assessee is about to dispose of whole or any part of his / her property with a view to thwarting the ultimate collection of demand and in order to achieve the said objective, the attachment should be of the properties and to that extent, it is required to achieve this objective.

[5] The power under Section 83 of the Act should neither be used as a tool to harass the assessee nor should it be used in a manner that may have an irreversible detrimental effect on the business of the assessee.

[6] The attachment of bank account and trading assets should be resorted to only as a last resort or measure. The provisional attachment under Section 83 of the Act should not be equated with the attachment in the course of the recovery proceedings.

[7] The authority before exercising power under Section 83 of the Act for provisional attachment should take into consideration two things: (i) whether it is a revenue-neutral situation (ii) 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 in invoking its power under Section 83 of the Act for the purpose of provisional attachment.”

Related Topic:
Provisional Attachment of Property including Bank Account

With the above observations, the High Court quashed and set aside the orders of provisional attachment and blockage of the Input Tax Credit under challenge before it. The conclusions of the Gujarat High Court in the aforesaid judgement were endorsed in the recent judgement delivered on April 20, 2021, by the Supreme Court in the case of M/s. Radha Krishna Industries vs. State of Himachal Pradesh and Ors. – 2021-L-179-SC-GST. In this case, the Apex Court was considering the validity of the departmental action of the provisional attachment under S. 83 against the Petitioner who had been charged with the involvement in an ITC fraud amounting to Rs. 5.03 crores during 2017-18 and 2018-19. The High Court of Himachal Pradesh had, by its Order dated January 1, 2021, dismissed the Writ Petition instituted by the Petitioner under Article 226 of the Constitution challenging the orders of provisional assessment on the ground that an alternate remedy was available. This order of the High Court was under challenge before the Supreme Court.

Related Topic:
Provisional Attachment of Credit Ledger on account of Nonexistence of Supplier at their Registered Address

The Supreme court, after considering the facts of the case, the relevant statutory provisions and the rival submissions, allowed the Appeal of the Petitioner and set aside the impugned judgement of the High Court and the orders of the provisional attachment passed by the authorities. In its uniquely structured and scintillating judgement, the Apex Court has made the following significant observations:

“48. Now in this backdrop, it becomes necessary to emphasize that before the Commissioner can levy a provisional attachment, there must be a formation of “the opinion” and that it is necessary “so to do” for the purpose of protecting the interest of the government revenue. The power to levy a provisional attachment is draconian in nature. By the exercise of the power, a property belonging to the taxable person may be attached, including a bank account. The attachment is provisional and the statute has contemplated an attachment during the pendency of the proceedings under the stipulated statutory provisions noticed earlier. An attachment that is contemplated in Section 83 is, in other words, at a stage that is anterior to the finalization of an assessment or the raising of a demand. Conscious as the legislature was of the draconian nature of the power and the serious consequences which emanate from the attachment of any property including a bank account of the taxable person, it conditioned the exercise of the power by employing specific statutory language which conditions the exercise of the power. The language of the statute indicates first, the necessity of the formation of opinion by the Commissioner; second, the formation of opinion before ordering a provisional attachment; third the existence of opinion that it is necessary so to do for the purpose of protecting the interest of the government revenue; fourth, the issuance of an order in writing for the attachment of any property of the taxable person; and fifth, the observance by the Commissioner of the provisions contained in the rules in regard to the manner of attachment. Each of these components of the statute is integral to a valid exercise of power. In other words, when the exercise of the power is challenged, the validity of its exercise will depend on a strict and punctilious observance of the statutory pre-conditions by the Commissioner. While conditioning the exercise of the power on the formation of an opinion by the Commissioner that “for the purpose of protecting the interest of the government revenue, it is necessary so to do”, it is evident that the statute has not left the formation of opinion to an unguided subjective discretion of the Commissioner. The formation of the opinion must bear a proximate and live nexus to the purpose of protecting the interest of the government revenue.”

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