Analysis of Provisional Attachment of Property under GST

Section 83 of the CGST Act: Provisional Attachment to Protect Revenue in Certain Cases

83. (1) Where during the pendency of any proceedings under section 62 or section 63 or section 64 or section 67 or section 73 or section 74, the Commissioner is of the opinion that for the purpose of protecting the interest of the Government revenue, it is necessary so to do, he may, by order in writing attach provisionally any property, including bank account, belonging to the taxable person in such manner as may be prescribed.

(2) Every such provisional attachment shall cease to have effect after the expiry of a period of one year from the date of the order made under sub-section (1).

Rule 159 of the CGST Rules: Detailed Procedure for Provisional Attachment

1. (1) Where the Commissioner decides to attach any property, including bank account in accordance with the provisions of section 83, he shall pass an order in FORM GST DRC-22 to that effect mentioning therein, the details of property which is attached.
2. (2) The Commissioner shall send a copy of the order of attachment to the concerned Revenue Authority or Transport Authority or any such Authority to place encumbrance on the said movable or immovable property, which shall be removed only on the written instructions from the Commissioner to that effect.
3. (3) Where the property attached is of perishable or hazardous nature, and if the taxable person pays an amount equivalent to the market price of such property or the amount that is or may become payable by the taxable person, whichever is lower, then such property shall be released forthwith, by an order in FORM GST DRC-23, on proof of payment.
4. (4) Where the taxable person fails to pay the amount referred to in sub-rule (3) in respect of the said property of perishable or hazardous nature, the Commissioner may dispose of such property and the amount realized thereby shall be adjusted against the tax, interest, penalty, fee or any other amount payable by the taxable person.
5. (5) Any person whose property is attached may, within seven days of the attachment under sub-rule (1), file an objection to the effect that the property attached was or is not liable to attachment, and the Commissioner may, after affording an opportunity of being heard to the person filing the objection, release the said property by an order in FORM GST DRC-23.
6. (6) The Commissioner may, upon being satisfied that the property was, or is no longer liable for attachment, release such property by issuing an order in FORM GST DRC-23.

Judicial Precedent (Gujarat High Court): “In the absence of pendency of any proceedings under sections 62, 63, 64, 67, 73 or, 74 of the GST Acts, the orders of provisional attachment of the bank accounts of the petitioners under section 83 of the GST Acts are without the authority of law and are rendered unsustainable³.”

15. “Power to provisionally attach bank accounts is a drastic power. Considering the consequences that ensue from provisional attachment of bank accounts, the Courts have repeatedly emphasized that this power is not to be routinely exercised. Under Section 83, the legislature has no doubt conferred power on the authorities to provisionally attach bank accounts to safeguard government revenue, but the same is within well-defined ambit. Only upon contingencies provided therein that the power under section 83 can be exercised. This power is to be used in only limited circumstances and it is not an omnibus power.”

16. “It is therefore not possible to accept the submission of the Respondents that even though specified proceedings have been launched against one taxable person, bank account of another taxable person can be provisionally attached merely based on the summons issued under section 70 to him.”

Seven Fundamental Guidelines Formulated in Valerius Industries (Para 52):

1. [1] Supervening Factor & Credible Material: The order of provisional attachment before the assessment order is made, may be justified if the assessing authority or any other authority empowered in law is of the opinion that it is necessary to protect the interest of revenue. However, the subjective satisfaction should be based on some credible materials or information and also should be supported by supervening factor. It is not any and every material, howsoever vague and indefinite or distant remote or far-fetching, which would warrant the formation of the belief.
2. [2] Drastic & Far-Reaching Power: The power conferred upon the authority under Section 83 of the Act for provisional attachment could be termed as a very drastic and far-reaching power. Such power should be used sparingly and only on substantive weighty grounds and reasons.
3. [3] Reasonable Apprehension of Default: The power of provisional attachment under Section 83 of the Act should be exercised by the authority only if there is a reasonable apprehension that the assessee may default the ultimate collection of the demand that is likely to be raised on completion of the assessment. It should, therefore, be exercised with extreme care and caution.
4. [4] Disposing Property to Thwart Collection: The power under Section 83 of the Act for provisional attachment should be exercised only if there is sufficient material on record to justify the satisfaction that the assessee is about to dispose of wholly or any part of his / her property with a view to thwarting the ultimate collection of demand and in order to achieve the said objective, the attachment should be of the properties and to that extent, it is required to achieve this objective.
5. [5] Harassment Prohibited: The power under Section 83 of the Act should neither be used as a tool to harass the assessee nor should it be used in a manner which may have an irreversible detrimental effect on the business of the assessee.
6. [6] Bank Accounts as Last Resort: The attachment of bank account and trading assets should be resorted to only as a last resort or measure. The provisional attachment under Section 83 of the Act should not be equated with the attachment in the course of the recovery proceedings.
7. [7] Revenue Neutrality & ITC Reversal: The authority before exercising power under Section 83 of the Act for provisional attachment should take into consideration two things: (i) whether it is a revenue neutral situation (ii) the statement of “output liability or input credit”. Having regard to the amount paid by reversing the input tax credit if the interest of the revenue is sufficiently secured, then the authority may not be justified in invoking its power under Section 83 of the Act for the purpose of provisional attachment.

The commissioner must be of the opinion that it is necessary to provisionally attach the property in order to protect the interest of the government revenue. Such an opinion cannot be formed without any substantive and material evidence. The power given under Section 83 is very drastic and affects the right of the person granted under Article 19(1)(g) (freedom to practice any profession or carry on trade) and Article 301 (freedom of trade, commerce and intercourse) of the Constitution of India. This contention has also been examined by various courts as follows:

Section 83 talks about the opinion which is necessary to be formed for the purpose of protecting the interest of the government revenue. Any opinion of the authority to be formed is not subject to an objective test. The language leaves no room for the relevance of an official examination as to the sufficiency of the ground on which the authority may act in forming its opinion. But, at the same time, there must be material based on which alone the authority could form its opinion that it has become necessary to order provisional attachment of the goods or the bank account to protect the interest of the government revenue. The existence of relevant material is a precondition to the formation of opinion⁷.

“It is obvious that the authorities have acted in a blatantly highhanded and illegal manner by keeping the provisional attachments in a state of continuance for the period from 5th June, 2019 (when the first order of provisional attachment ceases to operate) till 31st October, 2019 (when fresh order for provisional attachment was passed). Section 83(2) is crystal clear that the provisional attachment shall cease upon expiry of one year. It was therefore incumbent on the authorities to either release the provisional attachment by informing the bank or by issuing a fresh order of provisional attachment, if the law so allowed. The failure to do the above is nothing short of being an act of highhandedness.”

Comparison with Pre-GST & Other Tax Statutes:

In other laws, there was/is a provision for extension of the period of provisional attachment of property and there was an outer limit prescribed by which the said period can be extended, and in most cases, it is 2 years. However, in GST law there is no provision for extension of the period of provisional attachment. In GST law the property can be provisionally attached only for a period of 1 year without any extension and thereafter the officers are duty-bound to release the said property. Provisions related to provisional attachment in other laws include:

“Section 83 empowers the competent authority to issue an order for provisional attachment of property including bank accounts if it is of the opinion that such step is necessary for protecting the interest of the Revenue. It is palpably clear that Section 83(2) permits continuation of a provisional attachment order for a period of one year from the date of order after which it ceases to remain in effect. However, there is nothing in the section which indicates that upon completion of the prescribed period, a fresh order cannot be issued. To say this would amount to supplying such requirements into the section which would go against the well-established principles of interpretation of statutes. In the view point of the Court, after the expiry of the time period, the appropriate authority may be of the opinion that such an attachment is further required to protect the interest of Revenue, and may therefore, issue a fresh order upon compliance of the formalities in Section 83(1).”

Case Study on Third-Party Attachments:

In one such case, proceedings were initiated under Section 67 against M/s X, which is a proprietary concern. In this case, Commissioner attached bank accounts belonging to M/s X, Mr. Y (authorized signatory of M/s X), and Ms. Z (wife of Mr. Y). Neither Mr. Y nor Ms. Z was ‘taxable person’. Now, the legal issue is whether the personal bank account of Mr. Y and Ms. Z can be attached? In the opinion of the author, the action of the commissioner in provisionally attaching the bank account of Mr. Y and Ms. Z is illegal and in contravention of statutory provisions.

“Section 83 of the CGST Act is in juxtaposition to Article 19(1)(g) and Article 301 of the Constitution of India. The provisions being drastic in nature should not be used as a matter of course and while exercising the powers under section 83 the commissioner must strike the balance between the interest of the government revenue and the right of the assessee to carry on the business.”