Power to attach bank account should be exercised strictly as it entails serious consequences

The Hon’ble Delhi High Court in Proex Fashion Private Limited v. Government of India &Ors. [W.P.(C) 11245/2020 & CM APPL. 35053/2020, decided on January 6, 2021] quashed the order passed for attaching the bank account of the assessee pursuant to proceedings initiated under Section 71 of the Central Goods and Services Tax Act, 2017 (“CGST Act”). Further, held that, the attachment of bank account entails serious consequences and therefore, the power to attach the bank account must be exercised only in strict compliance with the statutory provisions.

Facts

By this present petition, Proex Fashion Private Limited (“the Petitioner”) seeks to challenge an order vide Form GST DRC-22 dated November 25, 2020 ("Impugned Order”), by which the bank account of the Petitioner had been attached by the Assistant Commissioner (“the Respondent”), purportedly under Section 83 of the CGST Act.

It is contended by the Respondent, that proceedings were initiated against the Petitioner pursuant to a communication from the Directorate General of Analytics and Risk Management (“DGARM”). The Petitioner was declared as a “risky exporter”, and an attempt was made to elicit certain information and documents from the Petitioner. However, several communications were addressed to the Petitioner at its registered office but were returned undelivered. Therefore, proceedings under Section 71 of the CGST Act were initiated against the Petitioner, and the Petitioner’s bank account was attached under Section 83 of the CGST Act pursuant to those proceedings.

Issue

Whether the bank account of the Petitioner can be attached by the Respondent under Section 83 of the CGST Act, pursuant to proceedings initiated under Section 71 of the CGST Act?

Held

The Hon’ble Delhi High Court in W.P.(C) 11245/2020 & CM APPL. 35053/2020, decided on January 6, 2021 held as under:

• The Court was of the view that the Impugned Order cannot be sustained. It is clear from a plain reading of Section 83 that action thereunder is predicated upon pendency of proceedings under Sections 62, 63, 64, 67, 73 or 74 of the CGST Act.
• Noted that, that no proceedings under any of the provisions mentioned in Section 83 of the CGST Act were in fact initiated against the Petitioner.
• Observed that, the attachment of bank account entails serious consequences to the assessee, particularly in the case of a running concern such as the Petitioner herein. The power to attach the bank account must therefore be exercised only in strict compliance with the statutory power and cannot be extended to cover situations which are not expressly contemplated by the Section 83 of the CGST Act. Absent the statutory precondition for exercise of the power of attachment, any order under Section 83 ibid is wholly illegal and unsustainable.
• Quashed the Impugned Order and held that, in these circumstances, the Impugned Order, is ultra vires the statutory powers of the Respondent.
• Further stated that, this order will not preclude the Respondent from taking such action against the Petitioner as they may be entitled to in law, including passing of any orders under Section 83 of the CGST Act in accordance with the conditions of that section. However, assured that the Petitioner will supply information and documents to Respondent as and when called for.

Our Comments

Section 83(1) of the CGST Act is proposed to beamendedvide Clause No. 106 of the Finance Bill, 2021 to read as under:

“83. 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.”

The scope of Section 83(1) of the CGST Act is proposed to be widened, so as to provide for provisional attachment of property or bank account in case of any action being initiated by authorities pertaining to assessment, inspection, search, seizure & arrest and demand & recovery, whereas, earlier, the attachment could only be made while during the pendency of any proceedings under specified Sections viz., Section 62 (assessment of non-filers of returns) or Section 63 (assessment of unregistered persons) or Section 64 (summary assessment in certain special cases) or Section 67 (power of inspection, search and seizure) or Section 73 (determination of tax in non-fraud cases) or Section 74 (determination of tax in fraud cases) of the CGST Act.

Thus, while earlier the provisions listed were more of those undertaken to check tax evasions (inspection, search, seizure, adjudication of SCN), the amended provision provides for such coercive measure even in case of regular proceedings in case of regular taxpayers like scrutiny of returns, provisional assessment, access to business premises etc. Further, such power can now be exercised even at the stage of summon.

Seemingly, such wide powers can increase the misuse of this provision by Revenue even more, when casual exercise of powers under Section 83 of the CGST Act is still under scanner of various High Courts which have time and again held in plethora of judgments that an order of provisional attachment cannot be taken as a matter of course. It is one of the drastic measures which the authority may be compelled to take if the situation demands for the purpose of protecting the interest of the Government Revenue. Recently, the Gujarat HC in VinodkumarMurlidharChechani v. State of Gujarat [R/Special Civil Application No. 12498 of 2020 decided on February 3, 2021] has directed Government to issue appropriate instructions or guidelines at the earliest w.r.t to excise of power of provisional attachment under Section 83 of the CGST Act. Thus, some strict framework for exercising Section 83 needs to be put in place.

Further, the Hon’ble Bombay High Court in AJE India Private Limited v. Union of India and Ors. [Writ Petition (ST.) No. 97165 of 2020 decided on December 22, 2020] has stayed the order wherein assessee’s bank accounts were provisionally attached for recovering alleged tax dues, and held that, merely because there is a proceeding under Section 67 of the CGST Act, it would not mean that recourse to such a drastic power as given under Section 83 of the CGST Act would be an automatic consequence, more so when the assessee has cooperated with the investigation process.

To know more, kindly watch our video “Whether GST Dept can provisionally attach Property/Bank Account of any Person-Budget 21” by CA Bimal Jain-https://www.youtube.com/watch?v=CSg6v3jmXbM

Relevant Provisions

Section 71 of the CGST Act

“Access to business premises. 

71. (1) Any officer under this Act, authorised by the proper officer not below the rank of Joint Commissioner, shall have access to any place of business of a registered person to inspect books of account, documents, computers, computer programs, computer software whether installed in a computer or otherwise and such other things as he may require and which may be available at such place, for the purposes of carrying out any audit, scrutiny, verification and checks as may be necessary to safeguard the interest of revenue.

(2) Every person in charge of place referred to in sub-section (1) shall, on demand, make available to the officer authorised under sub-section (1) or the audit party deputed by the proper officer or a cost accountant or chartered accountant nominated under section 66-

(i) such records as prepared or maintained by the registered person and declared to the proper officer in such manner as may be prescribed;

(ii) trial balance or its equivalent;

(iii) statements of annual financial accounts, duly audited, wherever required;

(iv) cost audit report, if any, under section 148 of the Companies Act, 2013 (18 of 2013);

(v) the income-tax audit report, if any, under section 44AB of the Income-tax Act, 1961 (43 of 1961); and

(vi) any other relevant record,

for the scrutiny by the officer or audit party or the chartered accountant or cost accountant within a period not exceeding fifteen working days from the day when such demand is made, or such further period as may be allowed by the said officer or the audit party or the chartered accountant or cost accountant.”

Section 83 of the CGST Act

“Provisional attachment to protect revenue in certain cases-

83. (1) Where during the pendency of any proceedings under section 62 or section 63 or section 64 or section 67 or section 73 or section 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.

(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).”