Bombay High Court: GST Provisional Attachment Ceases to Exist After Expiry of Period of One Year

Bombay High Court: GST Provisional Attachment Ceases to Exist After Expiry of Period of One Year

The Bombay High Court while adjudicating three petitions challenging the provisional attachment of bank has held that the Goods and Services Tax (GST) provisional attachment order is not valid after one year.

The division judge’s bench of Justices G.S. Kulkarni and Jitendra Jain has observed that the communication dated 21 April, 2022, provisionally attaching the Petitioner’s bank account is rendered illegal and invalid by virtue of the provisions of Section 83(2) of the Central Goods and Services Tax Act, 2017 (CGST Act). The extension of the provisional attachment by communication dated 19 April, 2023 was per se illegal.

The factual matrix of the case is that the petitioner/assessee challenged the provisional attachment of the bank account of the Petitioner with the bank under Section 83 of the CGST Act, 2017 and a communication dated 19 April, 2023, by which the provisional attachment made on 21 April, 2022, was retained under Section 83 of the CGST Act.

The petition was filed after the objections of the Petitioner to provisional attachment were disposed of under Rule 159(5) of the CGST Rules by the Respondents.

The Petitioner contended that Section 83(2) states that the provisional attachment under Section 83(1) shall cease to have effect after the expiry of a period of ‘one year’ from the date of the order made under subsection (1). The provisional attachment order was made on 21 April, 2022, and a period one year from the date expired on 21 April, 2023.

On the other hand, the respondent argued that the letter was only a communication to the bankers, with a copy marked for the Petitioner. A copy of the fresh order passed, was noted on the order sheet and a copy was annexed to the reply of the Respondents.

The respondent claimed that as a fresh order was passed provisionally attaching the Petitioner’s account, as informed in the communication dated 19 April, 2023, was valid.

The bench on perusal of the facts, stated that it failed to find any fresh order having been passed by the Respondents to attach the bank account on 19 April, 2023.

In this regard, the bench observed, “We have perused the said order sheet referred to by the Respondents. The order sheet records the date of the noting as 21st April 2022, wherein after narrating the facts it is stated that same is submitted for necessary orders under Section 83 of the MGST Act. It further states that we may consider taking action of provisional attachment under Section 83 in respect of this bank account and, thereafter, the Joint Commissioner (Investigation) has opined that this bank account is required to be attached. The said order sheet is dated 21st April 2022 and formed the basis for issue of first provisional attachment on 21st April 2022 and which, as observed above, has ceased to expire by operation of sub-section (2) of Section 83.”

The Court held that mere noting’s in the file of the concerned Officer cannot constitute an order without a formal order, as the law may mandate being passed and, most importantly, an order being communicated to the affected person, whose bank account is attached.

The Court was of the considered view that the department had failed to show that the order was passed and served on the petitioner, much less prior to the provisional attachment order ceasing to operate by virtue of the provisions of Section 83(2) and the communication dated 19 April, 2023.

With respect to the third petition, the Court rejected the contention raised by the Petitioner- Sunbright Designers Pvt. Ltd. that the Respondents/Department did not have the jurisdiction to pass the provisional attachment order, since the Petitioner was situated in Chennai and the bank account, in respect of which the provisional attachment order was communicated, was also in Chennai and thus, the Respondents did not have the jurisdiction to pass the impugned order.

The Court observed that, “Sub-section (1) of Section 83 empowers the Commissioner for the purpose of protecting the interest of the revenue to provisionally attach any property, including bank account belonging to the taxable person or ‘any person’ specified in Section 122(1-A) in such manner as may be prescribed.”

The two persons referred to in Section 83(1) are (i) taxable person or (ii) any person specified in Section 122(1-A) of the Act. Therefore, in second limb the phrase ‘any person’ would include nontaxable person, the bench avowed.

Moreover, the Court referred to Section 122(1-A) which provides that any person, who retains the benefit of a transaction covered under clauses (i)(ii)(vii) or (ix) of subsection (1) and, at whose instance such transaction is conducted shall be liable to a penalty of a sum equivalent to the tax evaded or input tax credit availed of or passed on.

Thus, the Court affirmed that the powers conferred under Section 83(1) of the Act can be exercised in respect of a person, who may not be within the territorial jurisdiction of the Maharashtra GST Authorities.

The bench noted that the Petitioner had also failed to comply with the summons under Section 70 of the GST Act. The Petitioner had not produced any document before the authorities in support of its written submission that the amount received was on account of the sale of crypto currency.

“In these facts and on a true and proper construction of Section 83(1) read with Section 122(1-A), it cannot be said that the authorities do not have the jurisdiction over a person situated in other State,” the Court held.

Furthermore, Section 122(1-A), refers to ‘any person’, who has retained benefit of a transaction and in whose presence, transaction is conducted. It does not contemplate of a situation where the person should be located within the State in which the transaction is carried out.

Therefore, the Court was of the view that the Respondents had the jurisdiction to resort to the provisions of Section 83 of the Act with respect to the Petitioner located in Chennai.

The reckoned that in so far as the jurisdiction of the Commissioner to exercise powers under Section 83 is concerned, the provisions of Section 83 are to be read with Section 122(1-A) and must be read in the context of the legislation itself namely the CGST Act. As Section 1(2) would mandate, the CGST Act is operational throughout the country.

In view of the same, the Court quashed and set aside the extension of provisional attachment.