Provisional Attachment under the Goods and Services Tax Act – Laws on Paper Versus Law in Practice

Introduction

 We begin with the comments of the eminent jurist Professor Sir William Wade in his treatise, Administrative Law (9th Edn.):

The whole conception of unfettered discretion is inappropriate to a public authority, which possesses powers solely in order that it may use them for the public good.

There is nothing paradoxical in the imposition of such legal limits. It would indeed be paradoxical if they were not imposed.

With these prefatory remarks, we delve straight into the legislative provision in question. The Goods and Services Tax (GST) regime was introduced in the country with effect from 1-7-2017 through the 101st Amendment of the Constitution of India[1]. As per the Statement of Objects and Reasons of the Central Goods and Services Tax Act, 2017[2] (CGST Act”), the Act was meant to “simplify and harmonise the indirect tax regime in the country” by subsuming the extant indirect taxes such as central excise, service tax and value added tax, etc. into a unified destination and consumption based indirect tax known as the Goods and Services Tax, which would be payable on “supply” of goods and services.

The present research paper seeks to deliberate on a specific provision of the fiscal legislation that allows the taxation authorities to provisionally attach the properties of the assessee, including bank accounts i.e. Section 83 of the CGST Act[3]. For ready reference, Section 83 is reproduced below:

83. Provisional attachment to protect revenue in certain cases. —

(1) Where during the pendency of any proceedings under Section 62[4] or Section 63[5] or Section 64[6] or Section 67[7] or Section 73[8] or Section 74[9], 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).

Without even going into the text of the section, the heading of Section 83, gives a brief indication of the scope of the section. It is now well settled that heading of the section can be regarded as a key to the interpretation of the operative portion of the section and if there is no ambiguity in the language or if it is plain and clear, then the heading used in the section strengthens that meaning[10]. According to the heading, Section 83 provides for “provisional attachment”, “to protect revenue”, “in certain cases”. Thus, this section was enacted, as is commonplace in other fiscal statutes (discussed hereinbelow), to provisionally attach properties of the assessee pending certain proceedings in order to protect the interest of the revenue. Such discretion is based on the formation of opinion of the Commissioner.

Such is the nature of the provisional attachment that no notice is given to the assessee before such an attachment, lest such attachment should lose its purpose i.e. the fear of the assessee alienating its properties before recovery can be made. It also cannot be gainsaid that a provisional attachment order, in a way, directly places fetters on the right of an assessee to conduct its business. Thus, it must be clearly understood that this power, as with all discretionary powers, must be exercised sparingly and not in a routine manner because of its far-reaching consequences. Section 83 itself, read with the corresponding rules[11], provides for stringent conditions for invoking this section and the procedure to be followed – this being in consonance with the law regarding provisional attachments i.e., that drastic and far-reaching powers must be used only on weighty grounds and reasons.

However, with the benefit of hindsight, we can safely say that law on statute books and law in its practical application, are two very separate phenomenon. The taxing authorities have been issuing orders under Section 83 at the drop of a hat, much to the dismay of the assessees. This has led to evolvement of significant jurisprudence since the assessee is left with no option but to knock on the doors of the constitutional courts, eventually culminating into the judgment of the Supreme Court in Radha Krishan Industries v. State of H.P.[12], which is most likely to become (even without the benefit of foresight) a locus classicus. This paper also discusses how the evolvement of Judge-made law on Section 83, particularly by the High Courts, has led to issuing of clarificatory guidelines as well as the amendment of the section itself (yet to be notified).

Taking a leaf from earlier statutes

 Before dissecting Section 83 of the CGST Act, it is worth noting that powers relating to provisional attachment are normal currency in fiscal statutes. There obviously exists a need to protect the revenue from unscrupulous dealers/assessees. Therefore, various earlier provisions such as Section 281-B of the Income Tax Act, 1961[13]; Section 73-C of Chapter 5 of the Finance Act, 1994[14]; Section 11-DDA of the Central Excise Act, 1944[15]; Section 127-D of the Customs Act, 1962[16]; Section 46-A of the Delhi Value Added Tax Act, 2004; Section 35 of the Maharashtra Value Added Tax, 2002; Section 45 of the Gujarat Value Added Tax Act, 2003, to name a few, contained pari materia provisions for provisional attachment. The basis of it however stems from Order 38 Rule 5 of the Code of Civil Procedure, 1908[17], (CPC) which provides for attachment before judgment.

One may profitably refer to how these provisions have been interpreted by the courts. This is more so in light of the settled principle of law that that where a word has received a clear judicial interpretation, the subsequent statute which incorporates the same word or the same phrase in a similar context must be construed so that the word or phrase is interpreted according to the meaning that has previously been ascribed to it[18]. This principle, first evolved by courts in England[19], has also found acceptance by the courts in India[20].

Order 38 Rule 5 of the Code of Civil Procedure, 1908 – In Raman Tech. & Process Engg. Co. v. Solanki Traders, the Supreme Court of India held that the purpose of attachment before judgment is to prevent the ends of justice from being defeated[21]. Such power “not be exercised mechanically or merely for the asking”[22] and that a defendant is not debarred from dealing with her/his property merely because a case is filed against him[23].

Section 281-B of the Income Tax Act, 1961

1. Gandhi Trading CIT[24]– The Bombay High Court inter alia held that the power of provisional attachment is a drastic power and must only be exercised if there is sufficient material on record to justify the apprehension that the assessee is about to dispose of the whole or any part of her/his property with a view to thwart the ultimate collection of the demand. It was also warned that such power must not be used to harass the assessee.
2. VLS Finance Ltd. v. CIT[25]The Delhi High Court inter alia held that the principles of Order 38 Rule 5 CPC is implicit in Section 281-B of the Income Tax Act, 1961.
3. Society for Integrated Development in Urban and Rural Areas v. CIT[26]– The High Court of Andhra Pradesh held that there must be some material on record to show that the Assessing Officer had formed an opinion on the basis thereof that it was necessary to attach the property in order to protect the interests of the revenue.
4. Gopal Das Khandelwal v. Union of India[27] – According to the Allahabad High Court, the power of attachment must be exercised for attachment of the property of only the assessee and no one else.

Section 45 of the Gujarat Value Added Tax Act, 2003

1. Vishwanath Realtor v. State of Gujarat[28] – The opinion formed by the Commissioner must be on some tangible material on objective facts available with the Commissioner such as the past conduct of the dealer or that the dealer is likely to sell her/his property.
2. Automark Industries (I) Ltd. State of Gujarat[29] – Powers under Section 45 of the Gujarat Value Added Tax Act, 2003 are drastic in nature and must be exercised with due care. Such power cannot be exercised merely because assessment proceedings are pending, since it is merely prima facie, ex parteopinion of the assessing authority that a provisional attachment is necessary.

These are settled rules of provisional attachment which find expression not only in statutes but also time-honoured hallowed principles which are followed by the courts of our country. Thus, the legislature, at the time of enacting the CGST Act, was conscious of these principles of provisional attachment (it would be deemed to have been aware of it in any instance[30]).

Analysis of Section 83 of the CGST Act

It would be apposite to segregate Section 83 into distinct parts for a better understanding thereof:

1. The power under Section 83 can be exercised only during the pendency of proceedings under certain sections.
2. These sections are exhaustive – Sections 62, 63, 64, 67, 73 or 74 of the CGST Act.
3. The power under Section 83 must be exercised by the Commissioner.
4. The Commissioner must form an “opinion” that such attachment is “necessary”, for the purpose of “protecting the interest of the Government revenue”.
5. The order of provisional attachment must be in writing.
6. The provisional attachment must be of a property belonging to a taxable person.

Section 83 is further fleshed out by Rule 159 of the CGST Rules, which provides for the following:

1. The order shall be passed in Form DRC-22, mentioning the details of property.
2. The assessee, may, within seven days of order of attachment, file an objection to the attachment to the effect that the said property was or is not liable to attachment.
3. If an objection is filed, the Commissioner shall afford an opportunity of hearing to the assessee.
4. Thereafter, the Commissioner may release the said property by an order in Form DRC-23.

Probably the most important safeguard against provisional attachment is the formation of an “opinion” by the Commissioner. The term “opinion” was succinctly explained by Lord Bramwell in John Derby Allcroft v. Lord (Bishop)[31]  – “If a man is to form an opinion, and his opinion is to govern, he must form it himself on such reasons and grounds as seem good to him.” In Barium Chemicals Ltd. v. Company Law Board[32], the Supreme Court while construing Section 237 of the Companies Act, 1956[33], held that:

30. … Therefore, the words, “reason to believe” or “in the opinion of” do not always lead to the construction that the process of entertaining “reason to believe” or “the opinion” is an altogether subjective process not lending itself even to a limited scrutiny by the court that such “a reason to believe” or “opinion” was not formed on relevant facts or within the limits or as Lord Radcliffe and Lord Reid called the restraints of the statute as an alternative safeguard to rules of natural justice where the function is administrative….
31. … There must therefore exist circumstances which in the opinion of the Authority suggest what has been set out in sub-clauses (i), (ii) or (iii). If it is shown that the circumstances do not exist or that they are such that it is impossible for anyone to form an opinion therefrom suggestive of the aforesaid things, the opinion is challengeable on the ground of non-application of mind or perversity or on the ground that it was formed on collateral grounds and was beyond the scope of the statute.

Again, in Bhikhubhai Vithlabhai Patel v. State of Gujarat[34],  the Supreme Court was concerned with the term “is of opinion” as appearing in Section 17 of the Gujarat Town

Planning and Urban Development Act, 1976, wherein the Supreme Court held that existence of relevant material is condition precedent for formation of opinion[35] and that such opinion cannot be on imaginary grounds or wishful thinking, however laudable they may be[36].

The Supreme Court also importantly went on to hold that construction placed on the expression “reason to believe” will equally be applicable to the expression “is of opinion”[37]. Therefore, one may argue that even the jurisprudence developed around Section 147 of the Income Tax Act, 1961[38], which uses the expression “reason to believe” may also apply to Section 83 of the CGST Act. These inter alia include holding of belief in good faith[39]; such belief not being based on mere suspicion, gossip, or rumour[40]; such belief not being irrational[41]; and the reasons to believe having a rational connection with the formation of belief[42].

Again, what is also important is the use of the word “necessary” as opposed to “expedient”. Necessity would mean something that is indispensable, unavoidable, and impossible to be otherwise or inevitable[43]. In J. Jayalalitha v. Union of India[44],  the Supreme Court, while interpreting the term “as may be necessary” used in Section 3(1) of the Prevention of Corruption Act, 1988[45], held that:

14. … The legislature had to leave it to the discretion of the Government as it would be in a better position to know the requirement. Further, the discretion conferred upon the Government is not absolute. It is in the nature of a statutory obligation or duty. It is the requirement which would necessitate exercise of power by the Government. When a necessity would arise and of what type being uncertain the legislature could not have laid down any other guideline except the guidance of “necessity”. It is really for that reason that the legislature while conferring discretion upon the Government has provided that the Government shall appoint as many Special Judges as may be necessary. The words “as may be necessary” in our opinion is the guideline according to which the Government has to exercise its discretion to achieve the object of a speedy trial. The term “necessary” means what is indispensable, needful or essential.[46]

Thus, it only when, on the basis of some tangible material, that the taxation authorities deem that to protect the interest of the revenue, provisional attachment of the properties of the assessee is the only viable solution, can such order of provisional attachment be made.

 Interpretation by the High Courts

From a bare reading of the provisions, it is discernible that the legislature had, in its wisdom, provided for safeguards as conditions precedent for the use of such a drastic power. The fact that the taxing authorities have been overzealous in their use of Section 83 of the CGST Act is evident from the considerable body of precedents that have emerged from the High Courts in India, despite the legislation being only at its nascent years. Assessees have been constrained to move to the High Courts for protection of their rights. The High Courts have responded fittingly and have had to constantly remind the taxing authorities about the drastic nature of powers of provisional attachment.

Gujarat High Court – The Gujarat High Court can be safely considered to be the flag-bearer of development of GST jurisprudence in the country. Several judgments of the Gujarat High Court have described the powers of provisional attachment and the principles thereof. So brazen have been the conduct of the tax authorities in the State, that it even led to the High Court remarking “No wonder, the State of Gujarat has topped the list of States with the highest collection of tax under the GST Act in the country for the year 2020-­2021”.

i) Valerius Industries v. Union of India[47]– The formation of opinion of the Commissioner must be based on some credible material disclosing the necessity to provisionally attach the property of the assessee. Further, the reasons to believe for exercise of powers under Section 67 (power of inspection, search and seizure) is in contradistinction to the formation of opinion under Section 83. Just because a search has taken place does not ipso facto necessitate provisional attachment of properties. If the interest of the revenue is sufficiently secured by reversal of the input tax credit (ITC), provisional attachment may not be justified.

ii) Jay Ambey Filament (P) Ltd. v. Union of India[48] – If the subjective satisfaction under Section 83 is arrived at in absence of any cogent or credible material, then such action amounts to “malice in law”. Mechanical exercise of powers under Section 83 ought to be set aside as being arbitrary.

iii) Patran Steel Rolling Mill Commr. of State Tax[49] – Firstly, no proceedings were pending against the petitioner under the sections mentioned in Section 83 above. Further, it was not the case of the department that the petitioner was a fly by night operator or a habitual offender or that it did not have the means to pay the sum that would be ultimately assessed. In such circumstances, order of provisional attachment was quashed.

iv) Vinodkumar Murlidhar Chechani v. State of Gujarat[50] – The Gujarat High Court has deprecated the practice of issuing orders of provisional attachment in a routine matter even when the law is well settled. It was suggested that Union of India may come up with appropriate guidelines in this regard.

Punjab and Haryana High Court

i) Bindal Smelting (P) Ltd. v. Director General[51] – Courts are entitled to determine whether the formation of opinion under Section 83 is arbitrary, capricious or whimsical. Mandate of Section 83 is to attach amount lying in fixed deposit account or savings bank account and not an account having a debit balance such as a cash credit account. Attachment of cash credit account having debit balance does not protect interest of revenue, instead it merely ruins the business of a dealer.

ii) Ufvindia Global Education v. Union of India[52] – The effect of proceedings under Section 83 comes to end as soon as the proceedings pending in any of the aforesaid Sections i.e. 63 or 64 or 67 or 73 or 74 are over because pendency of the proceedings is the sine qua non. Since proceedings under Section 67 were over, there did not arise any case for continuance of the provisional attachment[53]. It may also be noted that an order under Section 83 also loses its force after one year from the date of the order, as per Section 83(2) of the CGST Act.

 Bombay High Court

i) Kaish Impex (P) Ltd. Union of India[54] – Since proceedings were initiated under Section 70 of the CGST Act[55] (“power to summon persons to give evidence and produce documents”), the properties of the assessee could not have been attached, since Section 70 is not one of the sections prescribed in Section 83 of the CGST Act. Even the prescribed form i.e. DRC-22, specifies the particulars of a registered taxable person and which proceedings have been launched against the aforesaid taxable person indicating a nexus between the proceedings pending against a taxable person and provisional attachment of bank account of such taxable person[56].

ii) Siddharth Mandavia Union of India[57] – In exercise of powers under Section 83, the taxation authorities cannot attach bank accounts held by persons other than the taxable person – in this case, bank accounts held jointly by the petitioner with his wife and with his minor son. Moreover there was no allegation that any money belonging to the assessee or to his firm had been credited into the joint accounts with his wife or with his minor son.

iii) AJE India (P) Ltd. v. Union of India[58] – Section 83 order was passed against the assessee since proceedings under Section 67 had been initiated. It was held that merely because there is a proceeding under Section 67 would not mean that recourse to such a drastic power as under Section 83 would be an automatic consequence, more so when petitioner has cooperated with the investigation. Interim protection was thus granted.

Delhi High Court

1. Proex Fashion (P) Ltd. v. Govt. of India[59] – Following the judgments in Kaish Impex[60], Bindal Smelting[61]  and Valerius Industries[62], it was reiterated that powers under Section 83 are far reaching and cannot be invoked when no proceedings under the sections mentioned in Section 83 were pending.

 CBIC Guidelines – Clarification with caveats

 Ostensibly, the purport of Section 83 of the CGST Act has not been fully appreciated by the taxation authorities. The judgment of the Gujarat High Court in Chechani[63]  was perhaps the straw that broke the camel’s back, with the Gujarat High Court observing that judicial time was being wasted due to mechanical exercise of powers under Section 83. It was therefore suggested that Union of India should consider issuing appropriate guidelines in this regard.

Accordingly, the Central Board of Indirect Taxes and Customs (Board), on 23-2-2021 published certain guidelines for provisional attachment of property under Section 83[64]. Though the said guidelines do not mention the section under which it is issued, it clear that same has been issued under Section 168(1) of the CGST Act[65] which empowers the Board to issue instructions/directions to the Central Tax Officers.[66]

It was clarified that for forming an opinion, the Commissioner must exercise due diligence and examine facts of the case such as nature of offence, established nature of business and possibility of the assessee disposing of her/his assets[67]. Importantly, the guideline states that “The basis, on which, Commissioner has formed such an opinion, should be duly recorded in file.”[68] Since the power under Section 83 is “extraordinary”, it had to be resorted with utmost caution. It was clarified that property (preferably immovable property[69]) of only the taxable person should be attached[70] and in such a manner that it does not hamper the business activities of the taxable person[71]. A welcome direction (which is not borne from the rules) issued under the guidelines is that when bank accounts are attached, it may be released in lieu of certain immovable property furnished by the assessee.

The Board has also laid down certain non-exhaustive illustrations in which the power of provisional attachment can be exercised, such as where the taxable person has:

a) supplied any goods/services without an invoice;

b) issued an invoice without supply of goods or services;

c) fraudulently availed input tax credit;

d) fraudulently obtained refund;

e) collected tax but failed to pay the same to the exchequer within three months; and

f) fraudulently passed on input tax credit.

The Board seems to have a missed a trick. The power of provisional attachment is not so much dependent on the merits of the case (as enumerated in the six categories above) as it is on the possibility of the taxable person thwarting the ultimate demand by alienating its assets. A good working test was laid down in Patran Steel[72] i.e., where the taxable person is habitual offender or “fly-by-night” operator or where there exists a reasonable apprehension that such person will alienate assets to defeat the ultimate demand or that the assessee may not be in a position to pay the demand since the assessee is going into insolvency/liquidation. It is this apprehension that must form the basis of opinion of the Commissioner and not strictly the merits of the case itself, since there are multiple ways in which interest of the revenue can be protected.

Supreme Court’s analysis of provisional attachment – Death knell to arbitrary exercise of powers

 We may now turn to the judgment of the Supreme Court in Radha Krishan Industries[73], which, in a sense, seems to be a culmination of jurisprudence developed by the High Courts – with the Supreme Court referring to many of the cases stated hereinabove. It is interesting to note the observations of Justice D.Y. Chandrachud during the course of hearing of this particular case[74]. Justice Chandrachud is reported to have observed that “(t)he Parliament had intended the GST to be a citizen-friendly tax structure. The purpose of the Act is lost by the manner in which tax law is enforced in our country” and that the culture of “business are all fraudulent” needs to be given a go-by.

It was further observed that just because the department has account numbers of the assessee does not give them a licence to start attaching the bank accounts dehors any threat of alienation of assets or the assessee being subject to liquidation or winding up. An order of provisional attachment was likened to a “pre-emptive strike” and such powers were termed to be “draconian”. A need was felt to lay down the law regarding provisional attachment so that the message percolates to the actual authorities.

In the judgment authored by Justice Chandrachud, His Lordship has, in his inimitable style, succinctly and lucidly laid down the law in relation to provisional attachments under the GST regime. The author takes the liberty of summarising this for brevity:

i) The power to levy a provisional attachment is draconian in nature and the legislature was in fact conscious of the draconian nature of the power since it conditioned the exercise of such power by employing specific statutory language[75].

ii) The formation of the opinion must bear a proximate and live nexus to the purpose of protecting the interest of the government revenue[76].

iii) By using the word “necessary” instead of “expedient”, the legislature intended that that the interest of the revenue can be protected only by a provisional attachment. Necessity postulates a more stringent requirement than “expediency”[77].

iv) Provisional attachment orders must conform to both statutory and procedural requirements. Such provisions do not enable the Commissioner to make pre-emptive strikes merely because property is available for being attached[78].

v) There must exist a proximate or live link between the need for the attachment and the purpose which it is intended to secure. Moreover, the Commissioner, in the formation of such belief, acts on some tangible material[79].

vi)Rule 159(5) provides for post-provisional attachment right of (a) submitting an objection to the attachment; and (b) an opportunity of being heard. These dual safeguards have been provided since a business entity whose bank account is attached is seriously prejudiced by the inability to utilise the proceeds of the account (or her/his property) for the purposes of business[80].

vii) The Commissioner who hears such objection must pass a reasoned order accepting or rejecting such objections, lest the purpose of subjecting such order to judicial scrutiny be defeated[81].

viii) Although not provided in the rules, an opportunity should be given to the assessee to offer any alternative form of security in lieu of the attachment[82].

ix) After the final order under Section 74 was passed and an appeal had also been filed, the order of provisional attachment must come to an end[83].

x) In the facts of the case, it was noticed that it was the department’s case that the appellant had availed ITC on the strength of invoices issued by certain other company and such other company had fraudulently passed on the ITC to the appellant. Therefore “in view of the facts involved in (the) case”, it was deemed fit to order provisional attachment of the appellant’s account. The Supreme Court held that the order of the Joint Commissioner contains absolutely no basis for the formation of the opinion that a provisional attachment was necessary to safeguard the interest of the revenue and that no tangible material has been disclosed.

It is extremely germane to note at this stage that in the recent guidelines issued by the Board on 23-2-2021, one of the grounds on which provisional attachment order may be passed is fraudulent availment of ITC and fraudulent passing on of ITC. In the author’s humble opinion if these conditions are the only grounds for invoking such drastic powers, it would be in teeth of the Supreme Court’s judgment, which has held that even in such cases, there must be some tangible material to show that the taxable person intended to defeat the interest of revenue.

The Supreme Court’s judgment in Radha Krishan[84] provides much needed clarity on the scope of powers of Section 83. It is now up to the taxation authorities to follow the Supreme Court’s dicta in letter and spirit and refrain from arbitrary and unreasonable exercise of their discretionary powers.

 The amendment to Section 83 – Two steps backward

 From the body of the case law emerging above, it can be seen that courts had proscribed provisional attachments in cases where requirements of Section 83 were not met such as where proceedings were not pending under the sections mentioned in Section 83 or where attachment had been made of properties of persons/entities other than the taxable person. It seems however that this did not go down well with the Revenue Department.

The first tinge of disapproval can be seen in the 39th meeting of the GST Council held on 14-3-2020[85] wherein it was deliberated that there is a need to amend Section 83 of the CGST Act such that the words “during the pendency” be changed to proceedings initiated under Chapters 12, 14 or Chapter 15. The need to make such amendment was felt since once a search under Section 67 gets completed, the provisional attachment order ceases to exist. It was stated that such interpretation “defeated the very purpose of attachment”. Further, it was also deemed necessary to include not only the properties of the taxable person but also of the “beneficiary” since in most cases of fake invoices, the taxable person hardly has any assets[86].

It is in this background that Section 115 of the Finance Act, 2021[87] substituted Section 83(1) of the CGST Act with the following:

83. (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 (1-A) of Section 122[88], in such manner as may be prescribed.

The following comparative chart of the provision as it stood before and after its amendment, will shed light on the nature of changes made (although yet to be notified):

Section 83 before amendment	Section 83 after amendment
The power under Section 83 can be exercised during the pendency of proceedings under certain sections.	The powers under Section 83 can be exercised after the initiation of proceedings under certain chapters.
These sections are exhaustive – Sections 62, 63, 64, 67, 73 or  Section 74 of the CGST Act.	These chapters include – Chapter 12 (Assessment – Sections 59 to 64); Chapter 14 (inspection, search, seizure and arrest); and Chapter 15 (demands and recovery)
The power under Section 83 must be exercised by the Commissioner.	Same as before
The Commissioner must form an “opinion” that such attachment is “necessary”, for the purpose of “protecting the interest of the Government revenue”.	Same as before
The order of provisional attachment must be in writing.	Same as before
The provisional attachment must be of a property belonging to a taxable person.	The provisional attachment can be of a property belonging to a taxable person or any person specified in sub-section (1-A) of Section 122.

Therefore, there are three major areas where amendments have been made[89]. The amendments and few issues with regard thereto are delineated:

i) First and foremost is the change from “pendency” of proceedings to “initiation” of proceedings. Therefore, a provisional attachment can technically now continue, even if there are no pending proceedings under the Chapters 12, 14 and 15. The memorandum explaining provisions of Finance Bill, 2021[90] expressly states that such change was made so that provisional attachment shall remain valid for the entire period starting from the initiation of any proceeding under the said chapter till the expiry of period of one year from the date of order. This may have a disastrous impact on the working capital position of the business[91].

ii) Secondly, a provisional attachment can be issued under any of the sections mentioned in Chapters 12, 14 and 15. For instance, merely on issuance of summons under Section 70, the Commissioner may provisionally attach the properties of the taxable person. Further, even when the taxable person cooperates and produces all documents and evidences and seemingly the purpose of issuing summons is over, an order of provisional attachment can still continue since the condition now is “initiation” of proceedings and not its “pendency”. Another instance may be taken – Section 79 [92]authorises the Department to issue garnishee notices to bank for recovery of dues. Now, as per the amended Section 83, not only can the taxable person be subjected to recovery proceedings under Section 79 but also attachment of its bank account under Section 83. This makes little to no sense since, by issuing a garnishee notice, the interest of the revenue is already protected.

iii) The third change is bringing into its bracket, persons other than the taxable persons i.e. persons specified in Section 122(1-A) of the CGST Act. Although the intention of legislature to curb fake invoicing is laudatory, one cannot rule out the possibility of an innocent taxpayer being roped in and having her/his assets blocked only because of the malfeasance of the main taxpayer.

However, what remains after the amendment is the requirement of the Commissioner to form an opinion on tangible material that provisional attachment is “necessary” for the protection of the interest of the revenue. This may prove to be an important safeguard even though the scope of Section 83 may have been enlarged.

Conclusion

 From the entire gamut of the law revolving provisional attachment, it cannot be gainsaid that the power of provisional attachment is drastic and must be exercised sparingly. The High Courts have, even before the GST regime, and especially after coming into force of the GST regime, leaned towards a strict interpretation of these provisions. Provisional attachment is in fact detrimental to the revenue in the sense that if it is utilised in the overzealous manner that it has been, it will eventually lead to closure of business of the taxable person – which will only lead to a drop in revenue.

As rightly remarked by the Supreme Court, the change also needs to be brought in the mentality that all businessmen are fraudsters. The Department needs to be sympathetic to the fact that provisional attachment can lead to stifling one’s business. Such power should be invoked only when extremely necessary. No doubt this power is necessary – but as with any other discretionary power, it is subject to the rigours of judicial review on the grounds of arbitrariness and procedural infirmity.

Finally, the changes brought by the Finance Act, 2021, though yet to be notified, seems to be yet another attempt by the Department to retain unbridled powers unto themselves. These amendments, as highlighted above, expand the scope of exercise of its powers. However, they are still subject to formation of an opinion by the Commissioner, which may be the silver lining. It remains to be seen how such amendment is interpreted by the courts. If past experience is anything to go by, the taxation authorities must be cautious of any arbitrary exercise of their discretion, lest the constitutional courts may have to step in to remind them of their duty to act in furtherance of public good.

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* Advocate, Jharkhand High Court.

[1] http://www.scconline.com/DocumentLink/4386Cb1k.

[2] http://www.scconline.com/DocumentLink/ZN57RKH6.

[3] http://www.scconline.com/DocumentLink/HFf8fXg7. Please note that S. 83 of the CGST Act is pari materia to S. 83 the State GST Acts. Thus, all references in this article to S. 83 of the CGST Act may deem to be a reference to Section 83 of the State GST Acts.

[4] http://www.scconline.com/DocumentLink/e2MJL2hh.

[5] http://www.scconline.com/DocumentLink/5d4FLa80.

[6] http://www.scconline.com/DocumentLink/wdV8quZz.

[7] http://www.scconline.com/DocumentLink/90xSH4G7.

[8] http://www.scconline.com/DocumentLink/1M50Giwx.

[9] http://www.scconline.com/DocumentLink/4WfogRLL.

[10] Union of India v. ABN Amro Bank, (2013) 16 SCC 490, para 38

[11] R. 159 of the Central Goods and Services Rules, 2017

[12] 2021 SCC OnLine SC 334

[13] http://www.scconline.com/DocumentLink/6j9ulrSh.

[14] http://www.scconline.com/DocumentLink/wD8UgpM8.

[15] http://www.scconline.com/DocumentLink/Pf23wTW0.

[16] http://www.scconline.com/DocumentLink/fN5HmKk7.

[17] http://www.scconline.com/DocumentLink/CU2Jmtq6.

[18] Barras  v. Aberdeen Steam Trawling and Fishing Co., 1933 AC 402 (HL) http://www.scconline.com/DocumentLink/N9wriQ30

[19] Greaves v. Tofield, (1880) 14 Ch D 563 (CA) ; Cathcart, Ex parte, Camphell, In re, [1870] 5 Ch App 703 ; Webb v. Outrim, 1907 AC 81 (PC) .

[20] See Banarsi Debi v. ITO, AIR 1964 SC 1742; Diwan Bros. v. Central Bank of India, (1976) 3 SCC 800.

[21] (2008) 2 SCC 302   (para 4).

[22] Id., para 5.

[23] Id., para 7.

[24] 1999 SCC OnLine Bom 967 

[25] 2000 SCC OnLine Del 575

[26] 2001 SCC OnLine AP 1457 

[27] 2010 SCC OnLine All 654 

[28] 2015 SCC OnLine Guj 6564

[29] 2014 SCC OnLine Guj 14217.

[30] See Bengal Immunity Co. Ltd. v. State of Bihar, AIR 1955 SC 661, para 104

[31] 1891  AC  666 (HL)

[32] 1966 Supp SCR 311

[33] http://www.scconline.com/DocumentLink/4l3F59pj.

[34] (2008) 4 SCC 144

[35] Id., para 23.

[36] Id., para 24.

[37] Id., para 32.

[38] http://www.scconline.com/DocumentLink/2qy820dO.

[39] Calcutta Discount Co. Ltd. v. ITO, AIR 1961 SC 372

[40] Sheo Nath Singh v. Appellate CIT, (1972) 3 SCC 234

[41] S. Ganga Saran & Sons (P) Ltd. v. ITO, (1981) 3 SCC  143

[42] ITO v. Lakhamani Mewal Dass, (1976) 3 SCC 757 

[43] P. Ramanatha Aiyar, Advanced Law Lexicon (6th Edn. 2009, LexisNexis).

[44] (1999) 5 SCC 138

[45] http://www.scconline.com/DocumentLink/08xrs9fS.

[46] ITO v. Lakhamani Mewal Dass, (1976) 3 SCC 757 , pp. 154-155.

[47] 2019 SCC OnLine Guj 6866

[48] 2020 SCC OnLine Guj 3009

[49] 2019 SCC OnLine Guj 6867

[50] 2020 SCC OnLine Guj 3010 

[51] 2019 SCC OnLine P&H 6015

[52] 2020 SCC OnLine P&H 2796

[53] It is relevant to note that the Punjab and Haryana High Court, has, in reaching the above conclusion that Section 67 proceedings had culminated, relied on the judgment of the Gujarat High Court in Kushal Ltd. v. Union of India, SCA No. 19533 of 2019. Against the said judgment, the Union of India had approached the Supreme Court and vide order dated 16-11-2020 it was directed that the Kushal Ltd. (Supra) shall be kept in abeyance and cannot be followed in other cases.

[54] 2020 SCC OnLine Bom 125 .

[55] http://www.scconline.com/DocumentLink/SsAK2flL.

[56] This judgment has been repeatedly followed to grant similar reliefs in similar fact situations (See DNB Multitrade India (P) Ltd. v. Union of India, 2020 SCC OnLine Bom 2117; Gehna Trading LLP v. Union of India, 2020 SCC OnLine Bom 2115 ).

[57] 2020 SCC OnLine Bom 2110

[58] 2020 SCC OnLine Bom 4489

[59] 2021 SCC OnLine Del 2082.

[60] DNB Multitrade India (P) Ltd. v. Union of India, 2020 SCC OnLine Bom 2117; Gehna Trading LLP v. Union of India, 2020 SCC OnLine Bom 2115.

[61] 2020 SCC OnLine P&H 2796

[62] 2020 SCC OnLine Guj 3009 .

[63] 2019 SCC OnLine P&H 6015

[64] Circular No. CBEC-20/16/05 /2021-GST/359 issued GST Policy Wing, Central Board of Indirect Taxes and Customs available at <https://www.cbic.gov.in/resources//htdocs-cbec/gst/Guidelines%20for%20Provisional%20Attachment.pdf>.

[65] http://www.scconline.com/DocumentLink/9BLU3b0a.

[66] One may refer to Commr. of Customs v. Indian Oil Corpn. Ltd., (2004) 3 SCC 488  which states that circulars/instructions by the department are binding on the department.

[67] 2000 SCC OnLine Del 575 , Para 3.1.3.

[68] Ibid, Para 3.1.4.

[69] Ibid, Para 3.4.4.

[70] Ibid, Para 3.4.3.

[71] Ibid, Para 3.4.5.

[72] 2020 SCC OnLine Guj 3010

[73] 2021 SCC OnLine SC 334

[74] Mehal Jain, Parliament Intended GST as Citizen-Friendly Tax Structure, But its Purpose Lost by the Manner in which it is Enforced: Supreme Court, LiveLaw, 6-4-2021 (available at <https://www.livelaw.in/top-stories/supreme-court-gst-parliament-citizen-friendly-purpose-lost-by-enforcement-government-172211>).

[75] 2021 SCC OnLine SC 334

[76] Id., para 48.

[77] Id., para 49.

[78] Id., para 49.

[79] Id., para 50.

[80] Id., para 56.

[81] Id., para 56.

[82] Id., para 56. Please note that this in line with the guidelines issued by the Board on 23-2-2021 which also speaks of an alternate security.

[83] Id., para 70.

[84] 2021 SCC OnLine SC 334

[85] Minutes of Meeting of the 39th GST Council held on 14-3-2020 in New Delhi (available at <http://www.gstcouncil.gov.in/sites/default/files/Signed%20Minutes%2039th%20GSTCM.pdf> ).

[86] Id., Para 25.4.

[87] http://www.scconline.com/DocumentLink/5cJ44q8n

[88] http://www.scconline.com/DocumentLink/JX2Y8U1V.

[89] It may be noted that Section 115 of the Finance Act, 2021 is yet to be notified.

[90] Memorandum Explaining the Provisions in Finance Bill, 2021, Government of India, available at <https://www.indiabudget.gov.in/doc/memo.pdf>.

[91] Deepak Joshi, Drastic Amendments to The Power of Provisional Attachment Under CGST Act, 2017 – Department Proposes, Budget Disposes, [2021] 83 GST 57 (Mag.).

[92] http://www.scconline.com/DocumentLink/6102yHzR.