GST Advisory

Provisional Attachment under GST: Amendment & Supreme Court Ruling

Recently Section 83 of the CGST Act, 2017 was amended in order to widen and raise the Commissioners’ power to provisionally attach the property in the interest of government revenue. Almost one month after that amendment, the Supreme Court made a judgement laying down four-part test to check the aforementioned power of the commissioner. In this article, we shall analyse provisional attachment under GST and examine the amendment with the Supreme Court ruling.

Provisional Attachment under GST: Section 83 (before amendment)

An order of provisional attachment under Section 83 of the CGST Act, 2017 could be passed by the commissioner at the time when proceedings were pending under the following sections:

• Section 62 (assessment of non-filers of return); or
• Section 63 (assessment of unregistered persons); or
• Section 64 (summary assessment in special cases); or
• Section 67 (power related to search, seizure and inspection); or
• Section 73 (determination of tax not paid or short paid or erroneously refunded or input tax credit or wrongly availed or used for any purpose other than fraud or any wilful misstatement or facts suppression) and;
• Section 74 (determination of tax not paid or short paid or erroneously refunded or input tax credit or wrongly availed or used for any purpose other than fraud or any wilful misstatement or facts suppression).

Hence a proceeding had to be pending under any of these sections in order to provisionally attach property.

Another condition for provisional attachment under GST was the formation of opinion by the commissioner that the attachment is needed for protecting the interest of government revenue. It was again preconditioned by the necessity of choosing this action and so to do.

Therefore when these conditions were met, then only the property of the taxpayer could be attached. Such order of attachment had to be in written form, and property such as bank account could be attached.

Provisional Attachment under GST: Section 83 (after amendment)

Recently the finance act^[1] amended and substituted section 83(1) with a new section. Such substitution means:

• Change in initiation of provisional attachment from during the pendency of proceeding to anytime after initiation of proceeding;
• Enhanced the scope of provisional attachment;
• Expansion of property to be attached from only the taxable person to taxable person/s specified in Section 122(1A).

Supreme Court Ruling

In the case of Radha Krishan Industries vs. State of Himachal Pradesh and Ors.

The Supreme Court, while delivering a judgement in the case mentioned above, laid down four-part test to check the aforementioned power of the commissioner to attach the property provisionally in the interest of government revenue.

The four-part test includes the following:

• Preliminary 6 point trigger test;
• Purpose;
• Necessity;
• Proportionality test.

Lets’ understand this one by one:

• Preliminary 6 point trigger test-

This requires the commissioner to form an opinion, and the opinion must be before passing an order of provisional attachment under GST. The Commissioners’ opinion should be based upon the tangible material. Further, such opinion should reflect that it’s necessary to attach the property. Such order for attachment should be in writing.

• Purpose test-

Under this, the commissioner must be content that there is an approximate and live nexus between the provisional attachment and the objective of protecting the interest of govt. revenue.

• Necessity test-

The commissioner should be satisfied that the government’s revenue can only be protected by provisional attachment and that it is not being done as it is expedient and is not a pre-emptive strike on the property.

• Proportionality test-

This test scrutinizes the existence of an approximate or a live nexus link between the requirement of attachment and the purpose which it seeks to attain; attachment nature and extent vis-a-vis purpose which it seeks to attain.

Analysis of the Amendment and Supreme Court Ruling on Provisional Attachment under GST

Applying the Supreme Court’s 4 part test when-

• Provisional assessment is due; or
• An assessee provides an unsatisfactory explanation at the time of scrutiny of returns; or
• Where the conveyancer fails to produce documents; or
• Person is arrested for tax evasion or wrongful refund availment; or
• Person is summoned to provide proof or documents; or
• A person collects tax but doesn’t pay to the government;
• The recovery proceeding is initiated.

Will show that the commissioner has a considerable burden to discharge before provisionally attaching property. The amendment was made with a view to generalize the powers of provisional attachment and use it more often however the ruling of the apex court in this regard makes it an exception as opposed to a rule.

It seems that attachment of property of other persons is intentional, but due to the four-part test laid down by the apex court, now, unless the commissioner is fully confident, the order of provisional attachment under GST can’t be made.

Conclusion

This ruling of the Supreme Court is a welcome move for the taxpayers as strict adherence will have to be ensured before an order in respect of provisional attachment under GST is made. The ruling has definitely kept a check on the power of the commissioner as compared with previously.

Read our article:Late Fee under CGST Act, 2017 with the Latest Amendments