Cash-credit account cannot be attached by Revenue being not debt

The Calcutta High Court has ruled that a cash-credit facility provided by a bank is not a debt and therefore cannot be provisionally attached by the Revenue Department under Section 83 of the CGST Act. The court followed a Gujarat High Court judgement, stating that such facilities are merely a line of credit, not an asset belonging to the assessee that can be seized to protect government revenue. The petitioner was advised to seek relief through the statutory objection process.

The Hon'ble Calcutta High Court, in the case of J. L. Enterprises v. Assistant Commissioner, State Tax [W.P.A. No. 12132 of 2023 dated May 25, 2023] held that cash-credit facility is not a debt, thus cannot be attached through provisional attachment order.

Facts

M/s. J. L. Enterprises ("the Petitioner") a partnership firm was inspected by the State Tax Department Officers on March 04, 2023, the officers inspected the books on accounts and verified the records and found anomalies and later issued the FORM INS-01.

Thereafter, a show cause notice ("the SCN") was issued for disallowing the ITC amounting to INR 1,15,92,650 and further demanding interest and penalty on the ground that the mobile phone exported were found active in Indian territory, e-invoice were generated after the goods left India and no e-way bills for purchased goods etc.

Subsequent to issuance of the SCN FORM DRC-14 was issued to the Petitioner's banker for provisional attachment of cash-credit facility under Section 83 of the Central Goods and Services Tax Act, 2017 ("the CGST Act").

The Petitioner challenged the provisional attachment order before the Hon'ble Calcutta High Court with the contention that cash-credit limit is a facility provided by the bank to its customers to use the money. Thus, the cash-credit facility is not a debt to be attached by the Revenue department.

Whereas the Revenue Department contended that Section 83 of the CGST Act, provides power to the Revenue Department to attach to provisionally attach the bank accounts to protect revenue in certain cases, the cash-credit facility is also a bank account issued by the bank which was used by the Petitioner for paying GST, thus provisional attachment was correct.

Issue

Whether cash credit facility can be attached by provisional attachment order?

Held

The Calcutta High CourtinW.P.A. No. 12132 of 2023 held as under-

• Relied on, the judgement of Manish Scrap Traders v. Pr. Commissioner (2022 (64) G.S.T.L. 482 (Guj.)) wherein the Gujarat High Court specifically held that cash-credit account of the assessee cannot be provisionally attached in exercise of powers under Section 83 of the CGST Act.
• Held that, the cash-credit facility is not a debt and therefore, it cannot be made attachable.
• Further stated, when there is efficacious relief in the statute itself, the Petitioner should adopt such efficacious relief and file objection for releasing the cash-credit account before the appropriate authority.

Relevant Provisions

Section 83 of the CGST Act:

"Provisional attachment to protect revenue in certain cases.

(1) Where, after the initiation of any proceeding under Chapter XII, Chapter XIV or Chapter XV, 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 or any person specified in sub-section (1A) of section 122, in such manner as may be prescribed.

(2) Every such provisional attachment shall cease to have effect after the expiry of a period of one year from the date of the order made under sub-section (1)."