Article on Provisional Attachment of Property

Provisional Attachment of Property - A Special Power Under GST

Whenever any proceedings are initiated by the department under GST law it usually takes a considerable amount of time. Due to the pendency of any proceeding there can be delay in the earning of revenue of the government. Therefore, in order to protect the interests of the revenue during the pendency of any proceedings, the government has the power to provisionally attach any property of the taxpayer including his bank accounts. In this article we will discuss the power of provisional attachment of property, period of attachment, circumstances in which property can be provisionally attached and many other provisions about the attachment of the property.

The power to provisionally attach the property of the taxpayer is given under section 83 of CGST Act 2017 which states that where the Commissioner is of the opinion that for the purpose of protecting the interest of the revenue it is necessary to attach provisionally any property including bank account, then he shall pass an order for provisional attachment.

1. Only commissioner can exercise power of Provisional attachment:

As per section 83 of CGST Act 2017 it is clear that the provisional attachment should be carried out by the Commissioner. Further as per section 2(24) of CGST Act 2017 the Commissioner means the Commissioner of central tax and includes the Principal Commissioner of central tax appointed under section 3 and the Commissioner of integrated tax appointed under IGST Act.

Judicial Pronouncement in this support:

The Bombay High Court in case of Praful Nanji Satra [2021(03)LCX0174] also held that the provisional attachment in this case has been carried out by respondent no.3 i.e. Joint Commissioner of State Tax. The record does not disclose any authorization by the Commissioner to the Joint Commissioner to carry out provisional attachment. Further, section 83 does not provide for such delegation or authorization. The opinion contemplated under section 83 that to protect the interest of government revenue, it is necessary to provisionally attach any property including bank account has to be necessarily that of the Commissioner. Since the impugned attachment of the bank account has been found to be without jurisdiction, Consequently the impugned provisional attachment order cannot be sustained.

2. Circumstances under which the provisional attachment can be done:

The Commissioner must have formed the opinion that provisional attachment of the property belonging to the taxable person is necessary for the purpose of protecting the interest of the Government revenue.
There must be pendency of a proceeding against a taxable person i.e., the provisional attachment can be done during the pendency of the following proceedings:

Section 62: Assessment of non-filers of returns

Section 63: Assessment of unregistered persons

Section 64: Summary assessment in certain special cases

Section 67: Proceedings related to inspection, search and seizure

Section 73: Demand raised in cases other than those involving fraud or willful misrepresentation of facts

Section 74: Demand raised in cases involving fraud or willful misrepresentation of facts

Judicial Pronouncements in this support:

1. The Delhi High Court in case of Global Enterprises v/s the Commissioner of Central GST & Anr. [2021(03)LCX0146] held that the pre-requisite for exercise of powers of provisional attachment under Section 83 is the pendency of the proceedings u/s 62, 63, 64, 67, 73 or 74 of the Act. However, in this case the record shows that proceedings u/s 74 were initiated only after 10.11.2020. Thus it is clear that on the date i.e., 19.05.2020 when order for provisional attachment was issued, the necessary jurisdictional elements were not present. Therefore, the said order is not valid in the eyes of law and accordingly quashed.

2. Similarly, in case of Fine Exime Private Limited [2021(08)LCX0026] The Bombay High Court held that the order of provisional attachment which was made on 1st December 2020 is void ab initio since it suffers from an error of jurisdictional fact. The order of provisional attachment was made not during pendency of any proceedings under Sections 62 or 63 or 64 or 67 or 73 or 74 of the CGST Act but was made in view of contemplation of proceedings under section 73 thereof. The show cause notice having been issued on January 13, 2021 under Section 73(1) of the CGST Act, i.e., almost 45 days after the order of provisional attachment was made, the latter suffered from an error of jurisdictional fact in that, as on December 1, 2020, no proceedings of the nature referred to in sub-section (1) of Section 83 had been initiated; and, therefore, question of pendency of such proceedings did not and could not arise. The jurisdictional fact for exercise of power under section 83 being non-existent, accordingly the order dated December 1, 2020 is declared as void ab initio.

3. Procedure for provisional attachment:

When the Commissioner decides to provisionally attach any property (including bank account), he shall pass an order in FORM GST DRC-22 which will contain the details of the property attached.
A copy of said order shall be sent by Commissioner to the concerned Revenue Authority to place encumbrance on the said property and a copy of such order shall also be sent to the taxpayer.
Upon receipt of this order, the taxpayer can file an objection in FORM GST DRC-22A against it stating that such property was not liable to attachment.
If the Commissioner is satisfied that the property is not liable for attachment, he will release the attached property by passing an order in FORM GST DRC-23.
In case the property attached is of a perishable or hazardous nature, the taxpayer will have to either settle the relevant tax dues or pay the market price for the property, whichever is lower. Upon settlement, the Commissioner will release such property by passing an order in FORM GST DRC-23. If the taxpayer does not agree to either pay the market price of the property or settle the relevant tax dues, the Commissioner may dispose of the property and apply the proceeds against the dues of the taxpayer.

4. Cases fit for provisional attachment of property:

The provisional attachment should not be invoked in cases of technical nature and should be resorted to mainly in cases where there is an evasion of tax or where wrongful input tax credit is availed or utilized or wrongfully passed on. While the specific facts of the case need to be examined in detail before forming an opinion in the matter, the following are some of type of cases, where provisional attachment can be considered to be resorted to subject to specific facts of the case:

Where taxable person has:
a. supplied any goods or services or both without issue of any invoice, in violation of the provisions of the Act or the rules made there under, with an intention to evade tax; or

b. issued any invoice or bill without supply of goods or services or both in violation of the provisions of the Act, or the rules made there under; or

c. availed input tax credit using the invoice or bill referred to in clause (b) or fraudulently availed input tax credit without any invoice or bill; or

d. collected any amount as tax but has failed to pay the same to the Government beyond a period of three months from the date on which such payment becomes due; or

e. fraudulently obtained refund; or

f. passed on input tax credit fraudulently to the recipients but has not paid the commensurate tax

The above list is illustrative only and not exhaustive. The Commissioner may examine the specific facts of the case and take a reasoned view in the matter.

5. Period of provisional attachment:

As per section 83(2) of CGST Act 2017 every provisional attachment shall cease to have effect after the expiry of a period of one year from the date of the order made by the commissioner.

6. Other important points relating to Provisional Attachment:

The provisional attachment of property shall be to the extent it is required to protect the interest of revenue, that is to say, the value of attached property should be as near as possible to the estimated amount of pending revenue against such person.

More than one property may be attached in case the value of one property is not sufficient to cover the estimated amount of pending revenue against such person. Further, different properties of the taxpayer can be attached at different points of time subject to the conditions specified in section 83 of the Act.

It may be noted that the provisional attachment can be made only of the property belonging to the taxable person, against whom the proceedings mentioned under section 83 of the Act are pending.

Movable property should normally be attached only if the immovable property, available for attachment, is not sufficient to protect the interests of revenue.

As far as possible, it should also be ensured that such attachment does not hamper normal business activities of the taxable person. This would mean that raw materials and inputs required for production or furnished goods should not normally be attached by the Department.

In cases where the movable property, including bank account, belonging to the taxable person has been attached, such movable property may be released if taxable person offers, in lieu of movable property, any other immovable property which is sufficient to protect the interest of revenue. Such immovable property should be of value not less than the tax amount in dispute. It should also be free from any subsisting charge, liens, mortgages or encumbrances, property tax fully paid up to date and not involved in any legal dispute. The taxable person must produce the original title deeds and other necessary information relating to the property, for the satisfaction of the concerned officer.

Disclaimer: The information given in this article is solely for purpose of understanding the law. It is completely based on the interpretation of the author and cannot be constituted as a legal advise, the author of this article and Lawcrux team is not responsible for any legal issues if arises on the basis of the interpretation given above.