GST

Attachment of Property under GST: A Detailed Study

Section 83 of the Central Goods and Service Tax Act contains the provision relating to the attachment of property under GST. It provides for provisional attachment of the assessee’s property to protect the interest of the tax department during the pendency of the proceedings under the GST Act. This article attempts to provide a detailed understanding of the attachment of property under GST with the relevant case laws.

Attachment of Property- Meaning

Attachment of property is the action of seizing property of the accused. It is an initial step whereby the property is seized before a final judgment is passed by the court. The demand and recovery proceedings under the take a lot of time during this period, so the property is attached to prevent the taxpayer from escaping the clutches of the law. Even the bank accounts of the concerned individualcan be frozen so that money cannot be transferred.

When the property is attached during the pendency of proceedings, the owner of such property will be unable to transfer the attached property to someone else. If the property is transferred while attached, such transfer will be deemed void and shall not be recognized under the law. Therefore attachment of property renders the attached property immobile and frozen.

Grounds for Provisional Attachment of Property under GST

As per GST law, the following grounds must exist for provisionally attaching the property under Section 83 of the CGST Act 2017-

• There should be a pendency of proceedings against a taxable person under different sections mentioned under the CGST Act^[1].
• The Commissioner of tax should form an opinion where he thinks that provisional attachment of the property of the taxable person is necessary to protect the interest of the government revenue.

The law states that to form such an opinion, the commissioner should ensure due diligence and carefully examine the case’s facts, including the type of the offence, amount of the revenue involved, nature of business, and investment in the capital assets.

Further, there must be a reason to believe that the person against whom the proceedings are pending may dispose of the property if such property is not attached.

The Commissioner must duly record the basis upon which he has formed the opinion.

The law states that the commissioner cannot exercise the power of provisional attachment in a routine or a mechanical manner. Only upon careful examination of the case the commissioner can take a decision. The collective evidence must indicate that prima facie a case has been made against the taxpayer. Then, only the commissioner can move ahead with the attachment process.

Below we have given a few instances where provisional attachment orders can be passed subject to facts of a particular case-

• Where the taxable person has supplied goods or services or both without issuing an invoice and in violation of the provisions of the CGST Act with an intention to evade tax;
• Where the taxable person has issued any invoice or has issued a bill without supply of goods and/or services in violation of the provisions of the CGST Act;
• Where the taxable person has fraudulently availed input tax credit without any invoice or bill;
• Where the taxable person had collected a particular amount of money as tax but fails to pay it to the government beyond 3 months from the time when the payment had become due;
• Where the taxable person has fraudulently obtained the refund;
• Where the taxable person fraudulently passed on the input tax credit to the recipient but failed to pay the commensurate taxes.

Attachment of Property under GST- Essential Conditions

With respect to the properties that can be attached under GST, the following points may be noted-

• The value of the property that is attached provisionally cannot be excessive;
• Attachment of property under GST shall be to the extent required to protect the interest of the revenue department. This means that the value of such property must be as close as possible to the amount of pending revenue against the person;
• If the value of one property is not enough to cover the estimated amount that is pending against the person, then in such case, more than one property can be attached;
• Different properties belonging to the taxpayer can be attached at different points as per the conditions under the GST Act;
• An order of provisional attachment of property under GST can be made only against the person against whom proceedings under Section 83 of the CGST Act are pending;
• Moveable property of the taxable person can be attached only where the immoveable property available for attachment cannot protect the interest of the revenue department;
• The attachment proceedings should not affect the normal business operations of the person in question;
• Suppose the moveable property of the taxable person has been attached along with the bank account. In that case, such moveable property can be released if the taxable person offers any other immovable property in lieu of the moveable property. The value of the immovable property should value not less than the tax amount in dispute.
• The taxable person must furnish the original title deeds and other information about the property to the concerned officer.

What is the process of Provisional Attachment of Property under GST?

The following process is followed to provisionally attach a property under GST:

• If the commissioner of tax forms an opinion to attach the property of a taxable person under GST, he shall duly record the basis of such opinion.
• After that, he shall pass an order in Form GST DRC-22 with a document identification number, which shall contain the details of the property being attached;
• The copy of the attachment order is sent to the revenue authority or to, the transport authority or bank, or the relevant authority, which shall place an encumbrance on the moveable or immovable property. The property can be removed only when Commissioner provides written instruction;
•  A copy of the attachment order is also given to the taxable person so that such person can raise objections against the attachment of property;
• If the taxable person files an objection against the attachment, then the commissioner shall provide an opportunity of being heard by that person;
• Once the opportunity has been given, the commissioner shall take a decision as to whether the property is still required to be attached or not;
• If the commissioner thinks that the property doesn’t need to be attached, then he can release the property by issuing an order in Form GST DRC-23;
• Even if the objection is not filed within the time limit prescribed for such filing still, the commissioner shall consider the grounds mentioned in the objection;
• Every provisional attachment will cease to be effective after the expiry of one year from the date of attachment order;
• If the property is perishable or hazardous, then the property will be released by issuing an order in Form GST DRC 23, provided the taxable person pays an amount equal to the property’s market price. In case the payment is not made within the due date, then the perishable or hazardous property will be disposed of. The amount recovered from such disposal shall be adjusted with the person’s tax, fee, and interest payable.

Attachment of Property under GST- Analysis Through Case Laws

M/S Radha Krishnan Industries v. State of HP & Ors

In this case, the Apex court had observed that the power of provisionally attaching the property of taxable persons should be exercised as a measure of last resort. The Court had held that such power could be exercised based on the opinion of the Commissioner that such attachment is necessarily required to protect the interest of the government revenue. The Court has emphasized that the opinion should be based on tangible material.

In this case, the Supreme Court had observed that there was a clear non-application of mind by the prosecutors. The Court rendered the attachment illegal. The Court laid down the guideline that the authorities must deal with the objections to the attachment by providing a reasoned order and that the order needs to be communicated to the person whose property has been attached.

The Court went on to quash the attachment proceedings in this case.

Justice DY Chandrachud had observed in this case that the GST law, intended to be a citizen-friendly tax structure,could lose its purpose if enforced arbitrarily.

The Court had laid down a list of guidelines pertaining to the provisional attachment of property under GST. Some of them are as follows-

• The power of imposing provisional attachment is draconian, and the legislature was aware of this as it conditioned the use of such power by including specific statutory language.
• The opinion formed by the commissioner must bear a proximate as well as live nexus to protect the interest of the government revenue.
• Usage of the word ‘necessary’ in the section indicates that the legislature intended that the interest of the revenue can be safeguarded by provisional attachment.
• The order of provisional attachment should conform to statutory and procedural needs. This will prevent the commissioner from making pre-emptive strikes just because the property is attached.
• There should be a proximate between the requirement for property attachment and the aim it intends to secure.
• The post provisional attachment right under the Act has been provided considering a situation for a business entity whose bank account when attached, will be prejudiced by his or her inability to use the proceeds of the account for business purposes.
• The Commissioner hearing the objections against the attachment under GST is required to pass a reasoned order accepting or rejecting objections.
• The order of provisional attachment must end once the final order has been passed under Section 74 and the appeal has also been filed.

M/S Nitin Singhania v. Commissioner of Central Tax GST

In this case, the Delhi High Court quashed the order whereby the assessee’s bank account was attached for more than one year. Section 83 of the CGST Act 2017 provides the prescribed time for the provisional attachment of property. It states that every provisional attachment order shall cease to have effect after a year.

In this case, the respondent authorities provisionally attached the bank accounts and the immovable property of the petitioner-assessee. The petitioner approached the Delhi High Court with a prayer seeking quashing of the attachment order issued by the authority.

The petitioner’s plea that the maximum time frame for keeping the property attached was one year.

The Court now had to consider whether a provisional attachment of property under GST could be extended beyond the period. The Court noted that Section 83 of the CGST Act categorically stated that the order of attachment of property could not continue beyond the period of one year. Therefore, the Court directed the respondent authorities to lift the attachment. The Court also directed to convey this information to the concerned bank within three days. The petition came to be disposed of accordingly.

The above ruling indicates that the attachment order under GST ceases to have effect after the completion of one year from the date of such order.

Arya Metacast Pvt Ltd. v State of Gujarat

Another case law pertaining to the provision of provisional attachment of property under GST is of Gujarat High Court, where the Court held that such attachments should not affect or hamper the normal business activity of the taxable person.

In this case, the assessee had a business of manufacturing and selling in Gujarat state. The assessee had claimed that he had paid output tax regularly. He further claimed that he dealt with only registered taxable persons under GST and placed various pieces of evidence on record to prove his innocence. However, the officer, the commissioner of state tax, suspected him of fraud. A search was carried out on his business premises.

The assessee submitted before the Court that the department seized mobile, laptops, and other documents apart from the properties. Even after making representations before the authority, there was no response.

The High Court mentioned that the power provided under Section 83 should not be used to harass the assessee. It was further observed that it should not have an irreversible negative impact on the assessee’s business.

The Court relied upon the decision in the case of Valerius Industries v. Union of India, wherein it was held that the power of provisional attachment should be used when there is reasonable apprehension that the assessee may default on the collection of the demand.

In the end, the Court went on to quash the provisional attachment orders.

Conclusion

Instances of tax evasion and tax fraud have seriously affected the tax collection process by the government. Therefore, time and again, the government has come up with laws and amendments that seek to protect the revenue interest. However, there have been instances where genuine taxpayers had to bear the brunt. Hence, the Supreme Court guideline on the provisional attachment of property under GST has been significant, which checks the powers of attachment. Further, there is a need to have more measures that protect the interest of the revenue and taxpayers.

Read our Article: Provisional Attachment under GST: Amendment & Supreme Court Ruling