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Provisional attachment of Taxpayers property under GST

The appellant challenged the orders issued on 28 October 2020 by the Joint Commissioner of State Taxes and Excise, Parwanoo provisionally attaching the appellant’s receivables from its customers. The provisional attachment was ordered while invoking Section 83 of the Himachal Pradesh Goods and Service Tax Act, 2017 and Rule 159 of Himachal Pradesh Goods and Service Tax Rules, 2017.

The High Court had dismissed the writ petition instituted under Article 226 of the Constitution challenging orders of provisional attachment on the ground that an alternate remedy is available. While dismissing the writ petition challenging orders of provisional attachment the High Court noted that although it can entertain a petition under Article 226 of the Constitution, it must not do so when the aggrieved person has an effective alternate remedy available in law.

In an appeal against the Himachal Pradesh High Court judgment which dismissed a petition after noticing that the appellant has an alternate remedy available, the Supreme Court bench of Dr. DY Chandrachud and MR Shah, JJ has decided on the following questions:

1. Maintainability of writ petition before High Courts

2. Improper invocation of Section 83 of CGST Act 2017

The Hon’ble Supreme court summarised the principles related to the maintainability of a writ petition before High Courts as under:

Principles summarised by the Supreme Court on maintainability :

i) The power under Article 226 of the Constitution to issue writs can be exercised not only for the enforcement of fundamental rights, but for any other purpose as well;

(ii) The High Court has the discretion not to entertain a writ petition. One of the restrictions placed on the power of the High Court is where an effective alternate remedy is available to the aggrieved person;

(iii) Exceptions to the rule of alternate remedy arise where

(a) the writ petition has been filed for the enforcement of a fundamental right protected by Part III of the Constitution;

(b) there has been a violation of the principles of natural justice;

(c) the order or proceedings are wholly without jurisdiction; or

(d) the vires of a legislation is challenged;

(iv) An alternate remedy by itself does not divest the High Court of its powers under Article 226 of the Constitution in an appropriate case though ordinarily, a writ petition should not be entertained when an efficacious alternate remedy is provided by law;

(v) When a right is created by a statute, which itself prescribes the remedy or procedure for enforcing the right or liability, resort must be had to that particular statutory remedy before invoking the discretionary remedy under Article 226 of the Constitution. This rule of exhaustion of statutory remedies is a rule of policy, convenience and discretion; and

(vi) In cases where there are disputed questions of fact, the High Court may decide to decline jurisdiction in a writ petition. However, if the High Court is objectively of the view that the nature of the controversy requires the exercise of its writ jurisdiction, such a view would not readily be interfered with.

Interpretation of Supreme Court on Section 83

Interpreting Section83 of the CGST Act (as it read prior to the amendment), the Supreme Court laid down a four-part test to check the exercise of power of provisional attachment by the Commissioner - (i) the preliminary six-point trigger test, followed by (ii) purpose, (iii) necessity and (iv) proportionality test.

(1) The preliminary six-point trigger test requires

a. the Commissioner to necessarily form an opinion,

b. the formation of opinion is required before passing an order of provisional attachment,

c. the 'opinion' of the Commissioner is to be on the basis of tangible material

d. the opinion of the Commissioner should show that it is necessary to attach the property,

e. the order for attachment has to be in writing and

f. the prescribed rules have to be followed by the Commissioner.

The laying of a comprehensive six-point test to examine whether Section83 would be triggered shows that the provision should be interpreted strictly, and the Commissioner should act judiciously. But even this is not sufficient for provisional attachment as the Commissioner has also to satisfy the 'purpose' and 'necessity' test.

(2) Under the test for 'purpose', the Commissioner has to be satisfied that

(i) there is 'approximate' and 'live nexus' between the provisional attachment and the purpose of protecting interest of government revenue and

(ii) the interest of revenue would be defeated without the provisional attachment.

(3) The 'necessity' test requires the Commissioner to be satisfied that –

(i) revenue of the government can 'only' be protected by provisional attachment,

(ii) attachment is not being done only because it is expedient, and

(iii) provisional attachment is not a pre-emptive strike on the property only because it is available for being attached.

(4) Both the purpose and necessity test would then be tested on the touchstone of 'proportionality',

(i) the existence of an 'approximate' or a 'live link' between the need for attachment and the purpose which it intends to secure and

(ii) nature and extent of attachment vis-à-vis purpose which is intended to be secured.

The consequence of such an extremely strict four-part test is that only the 'rarest of rare case' can qualify for provisional attachment.

In view of the above tests, the Supreme Court summarised the principles on provisional attachment as under:

(1) 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.

(2) 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 wholly 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 which 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:

a. whether it is a revenue neutral situation.

b. 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.

Further in the present case, one of the fundamental questions that the apex court had to answer was, whether commissioner rightly dispensed his powers given under section83 of the act. As evident from the fact that to make an order of provisional attachment, the taxable person shall have any proceeding pending under section 62, 64, 67, 73 or 74 of the CGST Act or respective State GST Act (hereinafter referred to as the Act). In the present case, the proceedings were pending and subsequently concluded against other taxable entity (GM Powertech) under section 74, and commissioner with respect to pendency of proceeding against GM Powertech, passed an order of provisional attachment against M/s Radha Krishan Industries.

In the instant case, the remedy available to challenge the Provisional Attachment order was not available under Section 107(1) of the Act as contended by the Joint Commissioners and the Himachal High Court. An appeal under this section is only available when an order is passed by an Adjudicating Authority and a Commissioner cannot be considered as one. Hence, the order passed by the Joint Commissioner who was delegated power by the Commissioner could not be appealed and filing a writ petition was the only option available. The Apex Court therefore held that the High Court was in error in declining to entertain the writ petition filed by the M/s Radha Krishnan Industries.

Apex Court therefore held that the power of provisional attachment is draconian in nature, it can cripple any successful business, therefore such order shall be used only in cases of necessity. Further held that since no proceedings were initiated against M/s Radha Krishan Industries, under section 62, 64, 67, 73 or 74 of the Act and the proceedings were actually against GM Powertech, the commissioner in the present case, was not empowered to pass any provisional attachment under section 83 of the Act and the supreme court thus set aside the provisional order passed under section 83 of the Act.


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