Formation of Opinion on Necessary Material Essential for Attaching Bank Account Provisionally under GST Act: Delhi HC [Read Order]

In a recent ruling, the Delhi High Court emphasized that the formation of an opinion based on necessary material is essential before a bank account can be provisionally attached under the Goods and Service Tax ( GST ) Act. The petitioner, M/s MJ Bizcrafts LLP, has challenged the order dated June 25, 2024, issued by respondent No.1, which upheld the provisional attachment of the petitioner’s four bank accounts maintained with ICICI Bank. The attachment order was originally issued on May 10, 2024, under Section 83(1) of the Central Goods and Services Tax Act, 2017 (CGST Act) and the Delhi Goods and Services Tax Act, 2017 (DGST Act). Get a Copy of GST Manual (Acts & Rules), Click here The petitioner filed an objection on May 20, 2024, against the provisional attachment order under Rule 159(5) of the CGST Rules, 2017. This objection was subsequently rejected by the impugned order. According to the impugned order, the petitioner operated a nightclub named 'PRIVEE' at Shangri-La, Eros Hotel, and New Delhi. Intelligence reports indicated tax evasion by the petitioner, specifically underreporting the sale of liquor in GST returns. On March 7, 2024, a search was conducted by the Anti-Evasion branch under Section 67(2) of the CGST Act, during which it was found that the petitioner used a POS machine for daily sales recordings. Data from this machine suggested a significant suppression of liquor sales. A statement recorded from a partner of the petitioner’s firm revealed that the actual liquor sales amounted to ₹66, 69, 81,943 with VAT of ₹16, 10,40,710 from June 2019 to March 2024. This statement supports allegations of understated sales. Respondents estimated the primary GST liability at approximately ₹4.7 crores. Consequently, the competent officer decided to provisionally attach the petitioner’s bank account, which contained ₹26, 96,726, to secure government revenue. Mr. R.P. Singh, representing the petitioner, argued that the order under Section 83(1) of the CGST Act/DGST Act was issued prematurely as the proceedings under Section 67 had concluded with a Show Cause Notice (SCN) dated July 31, 2024, under Section 74. According to the counsel, provisional attachment powers should only be exercised once proceedings have commenced and should be lifted once these proceedings are concluded. Get a Copy of GST Manual (Acts & Rules), Click here Further also argued that the issue is primarily a legal one regarding the GST liability on liquor sales, and thus the Commissioner should not have exercised powers under Section 83(1) of the CGST Act/DGST Act. The Division bench of Justice Vibhu Bakhru and Justice Sachin Datta observed that Section 83(1) of the CGST Act/DGST Act permitted provisional attachment after initiating proceedings under specified chapters of the Act. In this case, since proceedings under Section 67 were initiated before the order was issued, this condition is met. The court found no merit in the argument that the provisional attachment should be lifted upon conclusion of proceedings or based solely on legal questions. Further noted that the provisional attachment under Section 83(1) aims to protect government revenue, regardless of whether the issue involves a legal or factual question. The respondents' estimation of GST liability and the provisional attachment order were deemed appropriate to safeguard government revenue. The bench dismissed the petition, noting that dismissal does not prevent the petitioner from offering other assets for provisional attachment instead of the bank accounts. The dismissal also does not affect the consideration of alternative arrangements by the concerned officer. All rights and contentions regarding the merits of the case remain reserved, and all pending applications are disposed of. Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates