GST: Provisional Attachment Power Draconian, Says Supreme Court
The provision under the Goods and Services tax regime that allows the revenue department to provisionally attach property, including bank accounts, of a taxpayer is draconian in nature. And before this power is exercised, conditions prescribed under the law must be strictly fulfilled, the Supreme Court said on April 20.
In saying so, the apex court overturned the Himachal Pradesh High Court’s order which had denied relief to the taxpayer Radha Krishan Industries.
The issue of provisional attachment was gaining a lot of traction, and hopefully, this will be the end of the witch hunt which the revenue officers seem to be on, Jigar Doshi, partner at TMSL LLP, told BloombergQuint.
The Supreme Court needs to be commended for a detailed and explanatory decision. The questions that the decision has raised on the entire process of provisional attachment are relevant and universally applicable.Jigar Doshi, Partner, TMSL LLP
It was high time that the judiciary intervened in the attachments happening across the country at lightning speed, mostly unwarranted, he added.
What’s The Case About
The Joint Commissioner of State Taxes and Excise, of industrial town Parwanoo in Himachal Pradesh, had provisionally attached the company’s receivables saying it was found to be involved in tax credit fraud. The attachment, amounting to Rs 5 crore, was done based on the directions of Commissioner of State Taxes and Excise.
Radha Krishan Industries challenged this order before the high court.
The court had dismissed the petition saying even if there was some defect in the procedure followed during the hearing of the case, it can’t be said the tax authority acted without jurisdiction. Though the order may be irregular or defective, it cannot be a nullity so long it has been passed by the competent authority. And since an alternate remedy, by way of an appeal before the appellate authority is available, the writ is not maintainable, the high court had said.
GST: The Attachment Provisions
The State and Central GST laws give the commissioner power to provisionally attach property in specific cases. This includes instances where any tax has not been paid, tax has been short paid or erroneously refunded, input tax credit has been wrongly availed or utilised by reason of fraud, among other reasons.
The commissioner can do so, by recording reasons in writing, where such an action is necessary to protect the interest of government revenue.
Attachment Provisions Are Draconian, Supreme Court Says
The apex court said the high court erred in saying the petition isn’t maintainable. This, since under GST, the appellate authority can entertain appeals only against the orders of an adjudicating authority, and not the commissioner. So, the company had no other remedy but to come to the high court for relief. In saying so, the apex court set aside the provisional attachment order against Radha Krishan Industries.
The apex court didn’t stop there.
It went on to examine the provisional attachment provisions and noted that they’re draconian in nature. And that in the exercise of this power, any property belonging to the taxable person may be attached, including a bank account.
The Supreme Court laid down specific steps that must precede such an order:
- First, the section necessitates formation of opinion by the commissioner.
- Second, the formation of opinion before ordering a provisional attachment.
- Third, the existence of opinion that it is necessary so to do for the purpose of protecting the interest of the government revenue. The formation of the opinion must bear a proximate and live nexus to the purpose of protecting the interest of the government revenue. Necessity postulates that the interest of the revenue can be protected only by a provisional attachment without which the interest of the revenue would stand defeated.
- Fourth, the issuance of an order in writing for the attachment of any property of the taxable person.
- And fifth, the observance of rules and manner of attachment by the commissioner.
“Each of these components of the statute are integral to a valid exercise of power. In other words, when the exercise of the power is challenged, the validity of its exercise will depend on a strict and punctilious observance of the statutory preconditions by the commissioner.” - Supreme Court
The decision emphasizes upon the purpose and necessity of provisional attachment, the formation of opinion based on tangible material, safeguards allowed to the taxpayer against provisional attachment and violation of principle of natural justice, Doshi pointed out.
The exercise of unguided discretion cannot be permissible because it will leave citizens and their legitimate business activities to the peril of arbitrary power. Each of these ingredients must be strictly applied before a provisional attachment on the property can be levied, the apex court said.