Supreme Court on Provisional Attachment under GST Laws

Supreme Court - provisional attachment - GST laws - Taxscan

The Supreme Court in its judgment in Radha Krishnan Industries v. State of Himachal Pradesh &Ors. (CA 1155 of 2021 dated 20 April 2021) has laid down the law on the provisional attachment under GST laws. Further, the Supreme Court in detail has also discussed the issue of the writ petition and alternative remedy. 

Brief facts

Radha Krishnan Industries (Appellant) is a manufacturer of lead and in operation since 2008.  The Appellant was called by GST authorities to bring its records.  The Appellant appeared before the Authorities with the necessary details.  In the meanwhile, a detection case was registered against one of the suppliers of the Appellant (supplier being GM Powertech).  At about the same time, the Appellant was alleged to have illegally claimed Input tax credit during 2017-18 and 2018-19.  During the course of the entire investigation, the Commissioner delegated his power to the Joint Commissioner.  Under this delegated power the Joint Commissioner passed provisional orders dated 28 October 2020 against the Appellant under section 83 of HPGST Act attaching the receivables of the Appellant from its customers (Fujikawa Power and Deepak International).  It was alleged that the Appellant was involved in ITC fraud amounting to INR 5.03 crores (approx.).  Pursuant thereto, A show cause notice dated 27 November 2020 was issued to the Appellant under section 74 (1) of HPGST Act for recovery of ITC, interest, and penalty.  

The Appellant challenged the provisional orders and delegation of the Commissioner by way of a writ petition in the Himachal Pradesh High Court.  The High Court did not entertain the writ petition on the ground of alternative remedy available under section 107 of HPGST Act.

Subsequent to the dismissal of the writ petition, Order under section 74(9) of HPGST Act was passed against the Appellant confirming demand of INR 8.30 crores.  The Appellant filed an appeal under section 107 of the Act against this Order.  The Appellant by way of an SLP came before the Supreme Court against dismissal of the writ petition.

Supreme Court    

The Supreme Court framed two legal issues:

  • Whether a writ petition challenging the orders of provisional attachment was maintainable under article 226 of the Constitution before the High Court 
  • If yes, whether the orders of provisional attachment constituted a valid exercise of power

On writ petition and alternative remedy 

The Supreme Court again delineated the principles of law given in the matters of Whirlpool 1998 (8) SCC 1 and Harbanslal Sinha v. IOCL 2003 (2) SCC 107 and amongst other points held that power under article 226 to issue writs can be exercised not only for the enforcement of fundamental rights, but for any other purpose as well.  An alternate remedy by itself does not divest the High Court of its powers under article 226 in an appropriate case though ordinarily, a writ petition should not be entertained when an efficacious alternative remedy is provided by law.  

It was held that an appeal against order of provisional attachment was not available under section 107(1) HPGST Act and therefore the writ petition before the High Court challenging the order provisional attachment was maintainable.

On provisional attachment under GST laws

It was held: 

The power to levy a provisional attachment is draconian in nature. …The language of the statute indicates first, the necessity of the 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 and fifth, the observance by the Commissioner of the provisions contained in the rules in regard to the manner of attachment. Each of these components of the statute are integral to a valid exercise of power. The formation of the opinion must bear approximate and live nexus to the purpose of protecting the interest of the government revenue. 

The exercise of unguided discretion cannot be permissible because it will leave citizens and the legitimate business activities to the peril of arbitrary power. 

The Commissioner must be alive to the fact that such provisions are not intended to authorize Commissioners to make pre-emptive strikes on the property of the assessee, merely because property is available for being attached. There must be a valid formation of the opinion that a provisional attachment is necessary for the purpose of protecting the interest of the government revenue.

It was held that attachment can be undertaken only on the basis of “tangible material”.  For this, the Supreme Court relied on CIT v. Kelvinator of India Limited 2010 (2) SCC 723 an Income tax judgment which had considered the expression “reason to believe”.  It was held that while section 83 HPGST Act uses the expression “opinion” as distinguished from “reason to believe”; however, the Supreme Court was clear of the view that the formation of opinion must be based on tangible material which indicates live link between the need for the attachment and the purpose it is intended to secure (i.e. Government revenue).  

It was held that consequences of a provisional attachment is serious. It displaces a person whose property is attached from dealing with the property. Where a bank account is attached, it prevents a person from operating the account. The procedural safeguards inserted in rule 159(5) demand strict compliance.

In the facts of the instant case, it was held that the order of provisional attachment did not indicate any basis for the formation of the opinion that the levy of a provisional attachment was necessary to protect the interest of the Government revenue.  No tangible material had been disclosed by the Joint Commissioner.  It was held that merely because proceedings were pending/concluded against another taxable entity, i.e. GM Power Tech, the power under section 83 could not be attracted against the Appellant. Hence, it was concluded that the order of provisional attachment was ultra vires section 83 of HPGST Act.  

In conclusion 

This judgment will put to rest interpretation on the provisional attachment under GST laws.  It clearly stands laid down that tangible material will be required to be placed by Revenue authorities for justifying a provisional attachment.  Simply because proceedings have been initiated against another legal entity that by itself cannot be a ground for initiating a provisional attachment against an assessee.  It has also been stated by the Supreme Court that all procedures and safeguards given in law are required to be followed by Revenue authorities while undertaking a provisional attachment.  It is hoped that pursuant to this judgment, provisional attachment in GST matters is used by Commissioner only in exceptional circumstances and not as a routine exercise.

Vivek Sharma

Vivek Sharma is an Advocate.

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