CAN GST AUTHORITIES HAVE POWER TO ATTACH PROPERTY IN HASTE?
Many a times, it is been observed that tax authorities act in haste and issues order of attachment of property of tax payer. This issue was well analysed by Supreme Court in case titled M/s Radha Krishan Industries Vs State of Himachal Pradesh & Ors.
Table of Contents
- Purpose of Appeal
- Factual Background
- Detailed Background
- Why High Court Rejected Writ Petition
- Conclusion
M/s Radha Krishan Industries were served with a provisional attachment notice and he filed a writ petition challenging the provisional attachment order on certain grounds. Writ Petition was dismissed by High Court by stating that a writ is ordinarily not maintainable when there exists an alternative remedy. Thereafter, an appeal was filed in Supreme Court challenging the impugned order.
Here in this article, the Supreme Court Order is discussed:
A Purpose of Appeal
This Appeal was filed for interpretation that
- if the Commissioner has the power to order provisional attachment of the property of the assessee, wherein case he is of opinion that such attachment is necessary for the interest of protecting the government revenue. What specifically, is the ambit of this power?
- What are the safeguards available to the citizen?
- And In interpreting the law, the court has to chart a course that will ensure a fair exercise of statutory powers.
B Factual Background
2017. Joint Commissioner of State Taxes and Excise, Parwanoo issues order of provisionally attachment of receivable from customers of M/s Radha Krishan Industries (appellant). M/s radha Krishan Industries challenged the order issued by the JointCommissioner of State Taxes and Excise, Parwanoo. The provisional attachment was ordered was passed under 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 appellant filed a writ petition under Article 226 of the Constitution challenging the provisional attachment order. The High Court dismissed this writ on the ground that alternative and efficacious remedy of an appeal under Section 107 of the HPGST Act is
Detailed Background
The appellant manufactures has a factory at village Meerpur Gurudwara, Kalamb in the District of Sirmaur of Himachal Pradesh. The appellant has been in the same line of business since Upon the introduction of the Goods and Services tax, the appellant migrated to and was registered under.
On 3 October 2018, a notice was issued to the appellant under Section 74 of the HPGST Act and the Central Goods and Services Tax Act requiring it to produce (i) invoices pertaining to inward and outward supplies for the years 2017-18 and 2018-19; (ii) party-wise summary/ledger of inward supplies; (iii) proof of payment of GST with a commodity-wise breakup; and (iv) copies of GSTR-1, GSTR-2 and GSTR-3 returns from July 2017 to July 2018. The appellant appeared before the third respondent and submitted original tax invoices pertaining to inward and outward
On 10 October 2018,
a ‘detection case’ was registered against GM Powertech, Kala-Amb, one of the suppliers of the appellant, under Section 74 of the HPGST Act and the CGST Act read with Section 20 of the Integrated Goods and Services Tax Act, 2017. This was through a search and seizure under Section 67 of the HPGST Act and CGST The partners of GM Powertech were arrested on 3 December 2018 on the ground of raising fraudulent claims of input tax credit from fake/fictitious firms in Delhi and Kanpur.
The appellant received a memo by an e-mail dated 15 December 2018 from the GST department directing it to be present on 17 December 2018 for explaining the allegedly illegal claim of ITC made during 2017-18 and 2018-19. By its letter dated 17 December 2018, the appellant contended that it had validly claimed ITC as it fulfilled the conditions under Section 16 and other provisions of the HPGST Act and the CGST
On 9 January 2019, a notice was issued to Fujikawa Power, Bagbania,BBN Baddi, one of the customers of the appellant, for provisionally attaching an amount of Rs. 5 crores due to the appellant, under Section 83 of the HPGST Act. On 19 January 2019, the GST department passed an order of provisional attachment in respect of receivables worth 5 crores due from Fujikawa Power. This order inadvertently referred to Sarika industries instead of the appellant. The appellant responded by a representation dated 29 January 2019, claiming inter alia, that the order of attachment was without affording a hearing. The appellant also claimed that on 26 December 2018, they had noticed that the ITC had been blocked without prior notice. On 30 January 2019, the notice of attachment was withdrawn by the GST department. According to GST Department, after the case of GM Powertech was investigated it was found to have claimed and utilized ITC against invoices issued by “fake fictitious firms without actual movement of goods…” GM Powertech had issued invoices to various recipients in Himachal Pradesh including the appellant. On 4 July 2020, GST Department issued an intimation to the appellant under Section 74(5) of the HPGST Act of tax ascertained as being payable (in Form GST DRC-01A), advising it to pay tax, interest, and penalty of Rs. 5.03 crores. The appellant was given an opportunity to file its submissions against the ascertainment of the amount by 4 August 2020.
A tax liability of Rs 39.48 crores was confirmed against GM Power techon the conclusion of the proceedings against GM Power ech was found to have no business establishment or property in Himachal Pradesh and the case was considered to fall into the category of a serious tax fraud.
On 21 October 2020, the Commissioner of State Taxes and Excise, Himachal Pradesh (Second Respondent) delegated his powers under Section 83 of the HPGST Act to the third respondent. In exercise of the powers delegated by the Commissioner, the Joint Commissioner (third respondent) issued two orders of provisional attachment dated 28 October 2020 attaching the receivables of the appellant from its customers, Fujikawa Power, and M/s Deepak International. The order, in its relevant part, provides:
“In order to protect the interests of revenue and in the exercise of the powers conferred/delegated by Commissioner of the State Taxes & Excise, HP vide office order No.12-4/78-EXN-Tax-Part- 278/22(a)- 26780-82 dated 21.10.2020 under section 83 of the Act, I, U.S. Rana, Joint Commissioner of State Taxes & Excise, South Enforcement Zone, Parwanoo, hereby provisionally attach the payment to the extent of Rs.5,03,82,554/- of M/s Radha Krishan Industries, Kala-Amb. Henceforth, no payment shall be allowed to be made from your company to M/s RadhaKrishan Industries without the prior permission of this department/office.”
On 27 November 2020, the Joint Commissioner issued a notice to show cause to the appellant under Section 74(1) of the HPGST Act for recovering the ITC, interest, and penalty. The notice was issued on the basis that the appellant had claimed ITC on the supplies received from GM Powertech and since the inward supplies made by GM Powertech were found to be fake, the appellant’s claim of ITC was also in question.
The orders of provisional attachment and the order passed by the Commissioner on 21 October 2020 delegating his powers under Section 83 of the HPGST Act to the Joint Commissioner, were challenged by the appellant before the High Court in a writ petition14 under Article
Why High Court Rejected Writ Petition
The High Court, while rejecting the writ petition, held that it was undisputed that the Joint Commissioner and the Divisional Commissioner, who has been appointed as Commissioner (Appeals) under the GST Act, are constituted under the HPGST Act, and therefore, it is assumed that there is no illegal or irregular exercise of
- the high Court further observed that even if there is some defect in the procedure followed during the hearing of the case, it does not follow that the authority acted without jurisdiction, and though the order may be irregular or defective, it cannot be a nullity so long it has been passed by the competent authority.
- The High Court held that a writ is ordinarily not maintainable when there exists an alternative remedy. The High Court held that when a statutory forum of appeal exists, an appeal should “not be entertained ignoring the statutory dispensation”. Exception: The exceptions to this rule are where the statutory authority has not acted in accordance with the provisions of the legislation; or acted in defiance of the fundamental principles of a judicial procedure or where an order has been passed in violation of the principles of natural justice.
Additional Facts
Subsequent to the dismissal of the writ petition by the High Court, certain developments have taken place. On 12 January 2021, the appellant sought to
inspect the files for GM Powertech and stated that no documents in this regard had been provided to it in the context of the proceedings initiated under Section 74. In response, the GST department allowed the appellant to inspect the contents of the appellant’s case file. According to the GST department, the appellant failed to exercise this option and did not reply to the show cause notice dated 27 November 2020. Thereafter, on 18 February 2021, an order under Section 74(9) of the HPGST Act was passed by the GST department confirming a tax demand of Rs. 8,30,27,218.
E. Conclusion
Held that:
- The Joint Commissioner while ordering a provisional attachment under section 83 was acting as a delegate of the Commissioner in pursuance of the delegation effected under Section 5(3) and an appeal against the order of provisional attachment was not available under Section 107 (1);
- The write petition before the High Court under Article 226 of the Constitution challenging the order of provisional attachment was maintainable;
- The power to order a provisional attachment of the property of the taxableperson including a bank account is draconian in nature and the conditions which are prescribed by the statute for a valid exercise of the power must be strictly fulfilled;
- The expression “necessary so to do for protecting the government revenue” implicates that the interests of the government revenue cannot be protected without ordering a provisional attachment;
- In the facts of the present case, there was a clear non-application of mindby the Joint Commissioner to the provisions of Section 83, rendering the provisional attachment illegal;
- Under the provisions of Rule 159(5), the person who e property is attached is entitled to dual procedural safeguards:
- An entitlement to submit objection son the ground that the property was or is not liable to attachment; and
- An opportunity of being heard;
- A final order having been passed under Section 74(9), the proceedings under Section 74 are no longer pending as a result of which the provisional attachment must come to an end; and
- The appellant having filed an appeal against the order under section 74(9), the provisions of sub-Sections 6 and 7 of Section 107 will come into operation in regard to the payment of the tax and stay on the recovery of the balance as stipulated in those provisions, pending the disposal of the
Therefore, an attachment order must be passed only when it is necessary to safeguard the interest of government revenue but an opportunity of being heard must be given to the taxpayer before passing such an order.