The Delhi High Court has held that attaching a taxpayer’s bank account merely based on suspicion and without tangible material is invalid.
M/s Sidhivinayak Chemtech Private Limited – a company incorporated under the Companies Act 1956, engaged in the trade of industrial chemicals relating to the pesticide industry. Its Permanent Account Number under the Income Tax Act, 1961.
The petitioner has two principal places of business. One in the State of Uttar Pradesh and the other in Haryana. It is registered with the GST Department for its principal place of business in Uttar Pradesh for its place of business in the State of Haryana. For carrying out the import of industrial chemicals, the petitioner has been granted Importer-Exporter Code (IEC) No.0512052859 by the Directorate General of Foreign Trade, Ministry of Commerce and Industry, Government of India.
On 20.05.2022, respondent no. 2 issued a summons under Section 70 of the Central Goods and Service Tax Act, 2017 (CGST Act) to the petitioner company’s director, Shri Raman Kumar and Shri Indresh Kumar Yadav, who is employed as a supervisor with the petitioner, to appear at the office of respondent no.1 and tender statements in connection with investigations aboutthe fraudulent use of Input Tax Credit (ITC) of ₹36.6 crores by M/s Best Crop Science LLP and M/s Best Crop Science Pvt. Ltd.
On becoming aware that its bank account was provisionally attached, the petitioner filed its objection (in Form GST DRC-22A) under Rule 159(5) of the Central Goods and Services Tax Rules, 2017 (the Rules) with respondent no.1.
Respondent no.1 upheld the attachment order on the ground that the petitioner company had fraudulently transferred ITC amounting to ₹36.6 crore to M/s Best Crop Science Pvt. Ltd. and M/s Best Crop Science LLP, without supplying any goods to the said companies.
One of the principal conditions necessary for provisionally attaching a property (including a bank account) under Section 83 of the CGST Act is the formation of an opinion by the Commissioner that such attachment is necessary for protecting the interest of the Government and the Revenue. It is now well settled that the formation of the opinion cannot be a mere subjective satisfaction of the Commissioner empowered to take measures under Section 83 of the CGST Act but must necessarily be an opinion, which is formed on credible material having a live link with the formation of the opinion.
The principal reason for attaching the petitioner’s bank account – the sale proceeds of shares of M/s Best Agro Group and other group companies are parked in the bank account of the petitioner – is not founded on or has nexus with any tangible material. In the realm of unsubstantiated suspicion cannot be considered a ground for taking the drastic step of provisionally attaching a taxpayer’s bank account.
A two-judge bench comprising Justice Vibhu Bakhru and Justice Amit Mahajan observed that the said drastic action is impermissible merely based on suspicion and without any tangible material. The second reason that the petitioner is a dummy company is that the director of the petitioner is/was an employee of M/s Best Crop Group and is also somewhat in the realm of assumptions.
The mere suspicion that the petitioner is a dummy company, which is founded based on statements that one of the directors of the petitioner company was, or is an employee of M/s Best Agrolife Group, and is in complete disregard of the corporate documents of the petitioner, would fall foul of the requirement of forming an opinion, as it does not meet the standards required for taking an action under Section 83 of the CGST Act. The Court set aside the attachment.
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