Gujarat High Court
M/S. Shree Dhanlaxmi Metal Industries ... vs The State Of Gujarat on 14 June, 2024
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/SCA/1084/2024 ORDER DATED: 14/06/2024
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 1084 of 2024
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M/S. SHREE DHANLAXMI METAL INDUSTRIES THROUGH ITS
PROPRIETOR KAPIL HUKMICHAND KOTHARI
Versus
THE STATE OF GUJARAT & ORS.
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Appearance:
MR SAURABH SOPARKAR, SENIOR ADVOATE WITH MR. HARDIK V
VORA(7123) for the Petitioner(s) No. 1
for the Respondent(s) No. 2,3
MS SHRUNJAL SHAH, AGP for the Respondent(s) No. 1,2,3
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE NIRAL R. MEHTA
Date : 14/06/2024
ORAL ORDER
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. Heard learned Senior Advocate Mr.Saurabh Soparkar with learned advocate Mr.Hardik V.Vora for the petitioner and learned AGP Ms.Shrunjal Shah for the respondent no.
2. By this petition under Article 226 of the Constitution of India the petitioner has prayed for the following reliefs: Page 1 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024
NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined "a. A writ of certiorari, or any other appropriate writ, order and/or directions in the nature of certiorari to quash the provisional attachment orders dated 14.09.2023 (Annexure A) and release the attachment over immoveable propertiesincluding factory land, factory building, plant and machineries and 2 residential flats;
b. A writ of certiorari, or any other appropriate writ, order and/or directions in the nature of certiorari to quash the provisional attachment orders dated 14.09.2023 (Annexure A) and release the attachment over moveable properties including stock lying at the premises, 2 current bank accounts, fixed deposit and all the debtors' balances;
c. A writ of mandamus, or any other appropriate writ, order and/or directions in the nature of mandamus directing the respondent to refrain from resorting to any coercive measure against the petitioner;
(cc) A writ of mandamus, or any other appropriate writ, order Page 2 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined and/or directions in the nature of mandamus directing the respondent to forthwith return 2 mobile phones being Apple i-phone 11 Pro Max (512 GB) and Infinixhot 30i (128 GB) seized during course of search;
(cd) Pending the admission, hearing and final disposal of this petition, this Hon'ble Court may direct the Respondent authorities to release the attachment over immoveable properties including factory land, factory building, plant and machineries and 2 residential flats; and release the attachment over moveable properties including stock lying at the premises, 2 current bank accounts, fixed deposit and all the debtors' balancesand return 2 mobile mobile phones being Apple i-phone 11 Pro Max (512 GB) and Infinixhot 30i (128 GB).
d. A writ of mandamus, or any other appropriate writ, order and/or directions in the nature of mandamus to allow protection to petitioner in any further proceedings consequent to search; e. A writ of Mandamus or writ, order, or direction in the nature Page 3 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined of Mandamus directing the respondents to carry out any further Summons through in camera proceedings or proceedings in front of Advocate;
f. Any other and further relief deemed just and proper be granted in the interest of justice;
g. To provide for the cost of this petition."
3. The brief facts of the case are has under:
3.1. The petitioner, a sole proprietorship firm engaged in the business of trading and processing of copper items, having its principal place of business at Plot nos.1,2,3 Opp. Pipe Factory, Kadodara Bardoli Road, Palsana, Surat-394315 and is registered under CGST Act, 2017 with registration No. 24AEBPK5633A1Z5.Page 4 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024
NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined 3.2. Since its inception more than 28 years ago, the petitioner has diligently served various customers, consistently delivering quality products and services and over this extensive period, he has garnered an impeccable reputation built on trust, reliability, and unwavering dedication to ethical business practices. The petitioner is a regular tax payer and has diligently fulfilled all the compliances. Turnover of business for Financial Year 2022-23 was Rs.207.54 Crore, for Financial Year 2021-22 was Rs.322.98 crores and for Financial Year 2020-21 was Rs.110.72 crores. 3.3. An information was received by the Respondent no.3 that certain firms which were engaged in bogus billing have Page 5 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined generated fake sale invoices to petitioner and fraudulently transferred input tax credit. Based on such information, it was alleged that the petitioner is one of the beneficiaries of fictitious billing activities and a search operation was conducted u/s 67(2) of the CGST Act and GGST Act at the residential premises as well as the business premises from 12.09.2023.
3.4. Various documents and digital data were verified by the officers but no incriminating documents were discovered at any of the premises. Moreover, during the course of the investigation, physical verification of stock was also conducted by the Respondent but no discrepancies were detected between the physical Page 6 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined inventory and the stock recorded in the books of accounts which substantiates the authenticity and legitimacy of petitioner's business operations. During the course of search, statement of the proprietor was also recorded. 3.5. It was alleged that the petitioner had made bogus purchases from 39 firms amounting to Rs. 214.27 crores during the period from July 2017 to August 2023 and claimed fake input tax credit of Rs.32.67 crores. Based on such accusations, the Respondent no.3 prepared grounds for provisional attachment and passed orders in Form GST DRC-22 for provisional attachment of immovable properties including factory land, factory building, plant and machineries and two residential Page 7 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined flats and movable properties including stock lying at the premises, two current bank accounts, fixed deposit and all the debtors' balances as on 14.09.2023. 3.6. Search continued till 16.09.2023 and the Respondent no.3 seized 17 purchase files and one pocket diary as per Order of Seizure in Form GST INS-02 dated 16.09.2023 and attached stock amounting to Rs.1,35,020/- as per Order of Prohibition in Form GST INS-03 dated 16.09.2023. 3.7 Further, an arrest memorandum was issued by Assistant Commissioner-3, Enforcement, Division-5, Vadodara and the proprietor was arrested at 04:30 p.m. on 16.09.2023. The investigation continued and eventually the Respondent concluded Page 8 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined that the petitioner has obtained bogus ITC of Rs.76.68 crores. He was released on bail vide order dated 11.12.2023 in Criminal Misc. Application no.21834 of 2023 by this Court.
3.8. On getting bail, the petitioner immediately approached the tax consultants to seek further assistance and accordingly filed the request letter on 03.01.2024 for copy of panchnama, statement recorded, documents seized and requested to return the mobile phones seized during the search proceedings. Further, the petitioner also filed an application in Form GST DRC-22A for release of provisional attachment over the assets as it adversely hampers the business. Moreover, the Petitioner also obtained the valuation report for fair Page 9 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined market value of factory land and two residential premises, and requested the Respondent no.3 to release other assets except the factory land having value of Rs.51.95 crores as it covers the majority of alleged bogus ITC.
3.9. Respondent no.3 issued a notice on 19.01.2024 granting an opportunity of personal hearing on 20.01.2024. In response to the same, the petitioner personally attended the hearing and filed a reply on 20.01.2024 requesting to lift the attachment over movable assets so that his business can be resumed. However, vide order dated 29.01.2024 bearing reference no. DCST/ENF-7/AC2/SRT/SDMI/PA ORDER/2023- 24/89, Respondent no.3 rejected the request.
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NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined 3.10. This Court by order dated 07.02.2024 asked the petitioner to furnish bank guarantee of Rs.15 crore so as to protect the interest of the revenue in order to lift the attachment over the stocks and the debtors and the bank account, however, the petitioner refused to provide such security to protect the interest of the revenue in order to see that the stock and debtors and the bank accounts of the petitioners are released so as to enable the petitioner to do the business. On inquiry it was found that the petitioner was in business for more than two decades however, the petitioner was unable to provide the security in form of bank guarantee to protect the interest of the revenue and insisted upon the lifting of provisional attachment over the immovable Page 11 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined properties.
4. Learned Senior Advocate Mr.Saurabh Soparkar with learned advocate Mr.Hardik Vora for the petitioner submitted that the respondent authorities have committed an error in attaching the movable properties of the petitioner by the impugned provisional Attachment Order dated 14.09.2023 passed under Section 83 of the Goods Service Tax Act.
5. It was further submitted that the impugned provisional Attachment Order using the Bank accounts of the petitioner has affected both personal and business activities making it very difficult for the petitioner to manage daily finances, payment to employees, conduct necessary transactions, resulting into damage to the Page 12 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined reputation of the petitioner by affecting relationship with debtors.
6. It was submitted that notices sent to the debtors regarding attachment of their outstanding balances have raised doubts about the stability of business jeopardizing future collaborations and trust. The petitioner is n affected by the provisional attachment of immovable properties. It was submitted that the petitioner is ready and willing to continue with the attachment over the immovable properties however the attachment of the stock and the debtors amounting to Rs.4,58,21,834/- as per order dated 14.09.2023 is not required and the petitioner maybe permitted to do the business in absence of any determination Page 13 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined of the tax liability by the respondent authority.
7. Learned Senior Advocate Mr.Soparkar relied upon the Circular dated 23.02.2021 issued by the CBEC and more particularly para no.3.4.5 of the Circular which provides as under:
"As far as possible, it should also be ensured that such attachment does not hamper normal business activities of the taxable person. This would mean that raw materials and inputs required for production or finished goods should not normally be attached by the Department."
8. It was therefore submitted that provisional attachment over plant and machinery, bank account, stock and debtors is contrary to the circular which is Page 14 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined binding upon the respondent authorities in as much as such assets are essential for day to day operations of running the business by the petitioner.
9. Learned Senior Advocate Mr.Soparkar also relied upon Para no.3.4.4 of the Circular which provides that movable property should normally be attached only if the immovable property, available for attachment, is not sufficient to protect the interest of the revenue. Reference was made to the valuation report dated 31.12.2023 estimating the value of the factory land at Rs.51.96 crores and residential flat at Chakwawala Complex valued at Rs.1.87 crores and residential flat at Vanilla Sky valued at Rs.4.75 crores. It was pointed out that as per the Page 15 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined satisfaction note for attachment of the properties, fraudulent income tax credit availed by the petitioner was Rs.32 crores. It was therefore submitted that considering the value of immovable properties, the same would be sufficient to protect the interest of the department and therefore prayed for lifting the provisional attachment over the movable properties.
10. Learned Senior Advocate Mr.Soparkar referred to and relied upon the following decisions in support office submissions:
Radha Krishan Industries Vs. State of Himachal Pradesh reported in [2021] 127 taxmann.com 26(SC):
"29. At this stage, we will advert to Page 16 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined relevant precedents outlining the contours of the power of provisional attachment and specifically, in the context of provisions worded similarly to Section 83 of the HPGST Act.
30. The decision of this Court in Raman Tech Process Engg Co and Anr v Solanki Traders26 was concerned with the power of a civil court under Order 38 Rule 5 of the CPC to order an attachment before judgment. In that case, proceedings had been instituted by the respondent, for the recovery of moneys due for the supply of material to the appellant. The plaintiff moved an application under Order 38 Rule 5, for a direction to the defendants to furnish security for the suit claim and if they failed to do so, for attachment before judgment. This Court described the power of attachment before judgment in the following terms:
"5. The power under Order 38, Rule 5 Civil Procedure Code is a drastic and extraordinary power. Such power should not be exercised mechanically or merely for the asking. It should be used sparingly and strictly in accordance with the Rule. The purpose of Order 38, Rule 5 not to convert an unsecured debt into a secured debt. Any attempt by a plaintiff to utilize the provisions of Order 38 Rule 5 as a leverage for Page 17 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined coercing the defendant to settle the suit claim should be discouraged. Instances are not wanting where bloated and doubtful claims are realized by unscrupulous plaintiffs, by obtaining orders of attachment before judgment and forcing the defendants for out of court settlements, under threat of attachment.
6. A defendant is not debarred from dealing with his property merely because a suit is filed or about to be filed against him. Shifting of business from one premises to another premises or removal of machinery to another premises by itself is not a ground for granting attachment before judgment. A plaintiff should show, prima facie, that his claim is bona fide and valid and also satisfy the court that the defendant is about to remove or dispose of the whole or part of his property, with the intention of obstructing or delaying the execution of any decree that may be passed against him, before power is exercised under Order 38, Rule 5 CPC. Courts should also keep in view the principles relating to grant of attachment before judgment [internal citation omitted]."Page 18 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024
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31. A body of precedent has emerged in the High Courts on the exercise of the power under Section 83 of the CGST Act (akin to the State GST Act27). The shared learning which emerges from these decisions of the High Court needs recognition. In Valerius Industries v Union of India28, the Gujarat High Court laid down the principles for the construction of Section 83 of the SGST/CGST Act. The High Court noted that a provisional attachment on the basis of a subjective satisfaction, absent any cogent or credible material, constitutes malice in law. It further outlined the principles for the exercise of the power:
"52. [...] 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...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.
(1) The power conferred upon the Page 19 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined 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) 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) 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) The power under Section 83 of Page 20 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined 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) 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) 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." (emphasis Page 21 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined supplied)"
41. Sub-Section (1) of Section 83 can be bifurcated into several parts. The first part provides an insight on when in point of time or at which stage the power can be exercised. The second part specifies the authority to whom the power to order a provisional attachment is entrusted. The third part defines the conditions which must be fulfilled to validate the power or ordering a provisional attachment. The fourth part indicates the manner in which an attachment is to be leveled. The final and the fifth part defines the nature of the property which can be attached. Each of these special divisions which have been explained above is for convenience of exposition. While they are not watertight compartments, ultimately and together they aid in validating an understanding of the statute. Each of the above five parts is now interpreted and explained below:
(i) The power to order a provisional attachment is entrusted during the pendency of proceedings under any one of six specified provisions: Sections 62, 63, 64, 67, 73 or 74. In other words, it is when a proceeding under any of these provisions is pending that a provisional attachment can be ordered;Page 22 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024
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(ii) The power to order a provisional attachment has been vested by the legislature in the Commissioner;
(iii) Before exercising the power, the Commissioner must be "of the opinion that for the purpose of protecting the interest of the government revenue, it is necessary so to do";
(iv) The order for attachment must be in writing;
(v) The provisional attachment which is contemplated is of any property;
(v) The provisional attachment which is contemplated is of any property including a bank account belonging to the taxable person; and
(vi) The manner in which a provisional attachment is levied must be specified in the rules made pursuant to the provisions of the statute.
48. Now in this backdrop, it becomes necessary to emphasize that before the Commissioner can levy a provisional attachment, there must be a formation of "the opinion" and that it is necessary "so to do" for the purpose of protecting the interest of the government revenue. The power to levy a provisional attachment is draconian in nature. By Page 23 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined the exercise of the power, a property belonging to the taxable person may be attached, including a bank account. The attachment is provisional and the statute has contemplated an attachment during the pendency of the proceedings under the stipulated statutory provisions noticed earlier. An attachment which is contemplated in Section 83 is, in other words, at a stage which is anterior to the finalization of an assessment or the raising of a demand. Conscious as the legislature was of the draconian nature of the power and the serious consequences which emanate from the attachment of any property including a bank account of the taxable person, it conditioned the exercise of the power by employing specific statutory language which conditions the exercise of the power. The language of the statute indicates first, the necessity of the formation of opinion by the Commissioner; second, the formation of opinion before ordering a provisional attachment; third the existence of opinion that it is necessary so to do for the purpose of protecting the interest of the government revenue; fourth, the issuance of an order in writing for the attachment of any property of the taxable person; and fifth, the observance by the Commissioner of the provisions contained in the rules in regard to the manner of Page 24 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined attachment. Each of these components of the statute are integral to a valid exercise of power. In other words, when the exercise of the power is challenged, the validity of its exercise will depend on a strict and punctilious observance of the statutory pre- conditions by the Commissioner. While conditioning the exercise of the power on the formation of an opinion by the Commissioner that "for the purpose of protecting the interest of the government revenue, it is necessary so to do", it is evident that the statute has not left the formation of opinion to an unguided subjective discretion of the Commissioner. The formation of the opinion must bear a proximate and live nexus to the purpose of protecting the interest of the government revenue.
49. By utilizing the expression "it is necessary so to do" the legislature has evinced an intent that an attachment is authorized not merely because it is expedient to do so (or profitable or practicable for the revenue to do so) but because it is necessary to do so in order to protect interest of the government revenue. Necessity postulates that the interest of the revenue can be protected only by a provisional attachment without which the interest of the revenue would stand defeated. Necessity in other words postulates a Page 25 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined more stringent requirement than a mere expediency. A provisional attachment under Section 83 is contemplated during the pendency of certain proceedings, meaning thereby that a final demand or liability is yet to be crystallized. An anticipatory attachment of this nature must strictly conform to the requirements, both substantive and procedural, embodied in the statute and the rules. The exercise of unguided discretion cannot be permissible because it will leave citizens and their legitimate business activities to the peril of arbitrary power. Each of these ingredients must be strictly applied before a provisional attachment on the property of an assesses can be levied. The Commissioner must be alive to the fact that such provisions are not intended to authorize Commissioners to make preemptive strikes on the property of the assessee, merely because property is available for being attached. There must be a valid formation of the opinion that a provisional attachment is necessary for the purpose of protecting the interest of the government revenue.
50. These expressions in regard to both the purpose and necessity of provisional attachment implicate the doctrine of proportionality. Proportionality mandates the existence of a proximate or live link between the need for the attachment and the purpose Page 26 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined which it is intended to secure. It also postulates the maintenance of a proportion between the nature and extent of the attachment and the purpose which is sought to be served by ordering it. Moreover, the words embodied in sub-Section (1) of Section 83, as interpreted above, would leave no manner of doubt that while ordering a provisional attachment the Commissioner must in the formation of the opinion act on the basis of tangible material on the basis of which the formation of opinion is based in regard to the existence of the statutory requirement. While dealing with a similar provision contained in Section 4536 of the Gujarat Value Added Tax Act 2003 , one of us (Hon'ble Mr Justice MR Shah) speaking for a Division Bench of the Gujarat High Court in Vishwanath Realtor v State of Gujarat37 observed:
"8.3. Section 45 of the VAT Act confers powers upon the Commissioner to pass the order of provisional attachment of any property belonging to the dealer during the pendency of any proceedings of assessment or reassessment of turnover escaping assessment. However, the order of provisional attachment can be passed by the Commissioner when the Commissioner is of the opinion that for the purpose of protecting the interest of the Government Revenue, it is necessary so to do. Therefore, before passing the order of provisional attachment, there must be an opinion formed by the Commissioner that for the Page 27 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined purpose of protecting the interest of the Government Revenue during the pendency of any proceedings of assessment or reassessment, it is necessary to attach provisionally any property belonging to the dealer. However, such satisfaction must be on some tangible material on objective facts with the Commissioner. In a given case, on the basis of the past conduct of the dealer and on the basis of some reliable information that the dealer is likely to defeat the claim of the Revenue in case any order is passed against the dealer under the VAT Act and/or the dealer is likely to sale his properties and/or sale and/or dispose of the properties and in case after the conclusion of the assessment/reassessment proceedings, if there is any tax liability, the Revenue may not be in a position to recover the amount thereafter, in such a case only, however, on formation of subjective satisfaction/opinion, the Commissioner may exercise the powers under Section 45 of the VAT Act." (emphasis supplied)
51. We adopt the test of the existence of "tangible material". In this context, reference may be made to the decision of this Court in the Commissioner of Income Tax v Kelvinator of India Limited38. Mr Justice SH Kapadia (as the learned Chief Justice then was) while considering the expression "reason to believe" in Section 147 of the Income Tax Page 28 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined Act 1961 that income chargeable to tax has escaped assessment inter alia by the omission or failure of the assessee to disclose fully and truly all material facts necessary for the assessment of that year, held that the power to reopen an assessment must be conditioned on the existence of "tangible material" and that "reasons must have a live link with the formation of the belief". This principle was followed subsequently in a two judge Bench decision in Income Tax Officer, Ward No. 162 (2) v Techspan India Private Limited39. While adverting to these decisions we have noticed that Section 83 of the HPGST Act uses the expression "opinion" as distinguished from "reasons to believe". However for the reasons that we have indicated earlier we are clearly of the view that the formation of the opinion must be based on tangible material which indicates a live link to the necessity to order a provisional attachment to protect the interest of the government revenue.
72. For the above reasons, we hold and conclude that
(i) The Joint Commissioner while ordering a provisional attachment under section 83 was acting as a delegate of the Commissioner in pursuance of the delegation effected under Section 5(3) and an appeal against the order of provisional attachment was not available under Section 107 (1);
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(ii) The writ petition before the High Court under Article 226 of the Constitution challenging the order of provisional attachment was maintainable;
(iii) The High Court has erred in dismissing the writ petition on the ground that it was not maintainable;
(iv) The power to order a provisional attachment of the property of the taxable person including a bank account is draconian in nature and the conditions which are prescribed by the statute for a valid exercise of the power must be strictly fulfilled;
(v) The exercise of the power for ordering a provisional attachment must be preceded by the formation of an opinion by the Commissioner that it is necessary so to do for the purpose of protecting the interest of the government revenue. Before ordering a provisional attachment the Commissioner must form an opinion on the basis of tangible material that the assessee is likely to defeat the demand, if any, and that therefore, it is necessary so to do for the purpose of protecting the interest of the government revenue.
(vi) The expression "necessary so to do Page 30 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined for protecting the government revenue"
implicates that the interests of the government revenue cannot be protected without ordering a provisional attachment;
(vii) The formation of an opinion by the Commissioner under Section 83(1) must be based on tangible material bearing on the necessity of ordering a provisional attachment for the purpose of protecting the interest of the government revenue;
(viii) In the facts of the present case, there was a clear non-application of mind by the Joint Commissioner to the provisions of Section 83, rendering the provisional attachment illegal;
(ix) Under the provisions of Rule 159(5), the person whose property is attached is entitled to dual procedural safeguards:
(a) An entitlement to submit objections on the ground that the property was or is not liable to attachment; and
(b) An opportunity of being heard;
There has been a breach of the mandatory requirement of Rule 159(5) and the Commissioner was clearly misconceived in Page 31 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined law in coming into conclusion that he had a discretion on whether or not to grant an opportunity of being heard;
(x) The Commissioner is duty bound to deal with the objections to the attachment by passing a reasoned order which must be communicated to the taxable person whose property is attached;
(xi) A final order having been passed under Section 74(9), the proceedings under Section 74 are no longer pending as a result of which the provisional attachment must come to an end; and
(xii) The appellant having filed an appeal against the order under section 74(9), the provisions of sub-Sections 6 and 7 of Section 107 will come into operation in regard to the payment of the tax and stay on the recovery of the balance as stipulated in those provisions, pending the disposal of the appeal."
11. Referring to the above decisions it was submitted by the learned Senior Advocate that the case of the petitioner is squarely covered by the conclusions Page 32 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined arrived at by the Hon'ble Supreme Court and the respondent authorities are therefore required to be directed to lift provisional attachment over the immovable properties of the petitioner.
12. Reliance was also placed on the decision of this Court in case of Arya Metacast (P.) Ltd. Vs. State of Gujarat reported in [2022] 137 taxmann.com 173 (Gujarat) wherein it is held as under:
"11. In the facts of the case, undisputedly, the respondent no.2 has not only provisionally attached the stock of goods lying at the factory premise of the writ applicants, at the same time, the respondent No.2 has also provisionally attached the demat account and current account of the writ applicants. These are the valuable assets of the writ applicants, more particularly, raw material and the finished goods are valuables which are otherwise Page 33 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined necessary for running of the business of the applicants. Even operating the demat account and current account are essentially required for the routine business of the writ applicants. Time and again, this Court as well as even the instructions instructions issued by the higher authority of the respondents, has directed the proper officer to ensure that their action of the provisional attachment should not hamper normal business activities of the taxable person. Even thereafter this Court vide judgment dated 27.01.2022 passed in Special Civil Application No.188 of 2022 in the case of M/s. Utkarsh Ispat LLP Vs. State of Gujarat had an occasion to deal with the similar facts whereby the respondent authorities have provisionally attached goods, stock and receivables and also bank accounts. This Court did not approve the provisional attachment of the goods, stock and receivables more particularly, when the entire stock and receivables have been pledged and a floating charge has been created in favour of the Kalupur Commercial Bank Limited for the purpose of availing the cash credit facility with the provisional attachment of the goods, stock and receivables the entire business will Page 34 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined come to a standstill.
12. For the aforesaid reasons, present writ application succeeds in part. We hereby quash and set aside the order of the provisional attachment dated 27.11.2021 qua the stock of goods, two demat accounts as well as current account of the writ applicants is concerned. So far the prayer of the writ applicants with regard to release of electronic items including Mobile Phone, laptop and other documents seized during the search proceedings are concerned, same is also directed to be released forthwith on condition that the writ applicants shall file an undertaking before the respondent no.2 thereby declaring that the aforesaid goods electronic items including mobile phone, laptop and other seized documents shall be retained in its original form and shall not be disposed of pending the investigation, if any. At the same time, we permit the respondent authorities to secure the original data by availing necessary certificate under Section 65B of the Information and Technology Act."
13. Reliance was placed on the decision of this Court in case of Utkarsh Ispat LLP Page 35 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined Vs. State of Gujarat reported in [2022] 136 taxmann.com 1 (Gujarat), wherein the Hon'ble Court relying upon the decision of the Hon'ble Supreme Court in case of Radha Krishan Industries (Supra) as well as circular dated 23.02.2021 held as under:
"38 What is relevant for our purpose is clause 3.4.5 of the guidelines referred to above. It says that as far as possible, the authority should ensure that the attachment does not hamper the normal activities of the taxable person. It has been clarified that the raw materials and input required for the production or finished goods should not normally be attached by the department.
39 In the case on hand, we do not approve the provisional attachment of the goods, stock and receivables, more particularly, when the entire stock and receivables have been pledged and a floating charge has Page 36 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined been created in favour of the Kalupur Commercial Bank Limited for the purpose of availing the cash credit facility with the provisional attachment of the goods, stock and receivables the entire business will come to a standstill."
14. Reliance was placed upon the decision of this Court in case of Patran Steel Rolling Mill Vs. Assistant Commissioner of State Tax reported in [2019] 101 taxmann.com 80 (Gujarat) wherein it is held as under:
"8. Before parting, the court deems it fit to caution the concerned authorities that while exercising powers under section 83 of The GGST Act, the authorities should try to balance the interest of the Government revenue as well as a dealer to ensure that while the interest of the revenue is safeguarded, the dealer is also in a position to continue with his business, because it is only if the dealer continues with the business that he would generate more revenue. The authorities should keep in mind Page 37 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined that bringing the business of a dealer to a halt does not in any manner serve the interest of the revenue. Therefore, while taking action under section 83 or 67(2) of the GGST Act, the concerned authorities should take care to ensure that equities are maintained and while securing the interest of the revenue, they should attempt to see that the dealer is in a position to continue with the business. This court does not intend to lay down any absolute proposition that in no case drastic action should be taken, but that the respondents should consider the background and history of the dealer as well as his financial position to ascertain as to whether or not he would otherwise be in a position to pay the dues that may be assessed upon the culmination of any assessment proceedings that may be initiated. If the dealer is a fly by night operator or a habitual offender or does not have sufficient means to pay the dues that may arise upon assessment, such action may be justified. Such drastic powers under section 83 of the Act should not be exercised as a matter of course, but only after due application of mind to the relevant factors."
15. Learned Senior Advocate Mr.Soparkar Page 38 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined also referred to and relied upon the Circular No.171 dated 06.07.2022, to submit that the Principle Commissioner GST in the said Circular has clarified the issues with regard to the issuance of the tax invoices without actual supply of goods and services or both and to ensure uniformity in the implementation of the provisions of the law across the formations the Board has clarified the issues. Reliance was also placed on the illustration given in issue no.3 to submit that when a registered person has issued tax invoice to another registered person without any underlying supply of goods or services or both and other person avails input tax credit on the basis of the said tax invoices and further passes on the said input tax credit to another Page 39 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined registered person by issuing invoices without underlying supply of goods or services or both, only shall be liable for penal action and not the third person who has received the input tax credit from the second person. It was submitted in the facts of the case of the petitioner also the issue of invoices by the petitioner, there is no allegation against the petitioner for passing on the ITC without underlying supply of the goods. It was therefore submitted that even on merits the petitioner has a very good case and there is no likelihood of any demand against the petitioner.
16. It was therefore submitted that considering the facts of the case the impugned provisional orders of attachment Page 40 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined upon a immovable properties of the petitioners maybe ordered to be lifted.
17. On the other hand learned AGP Ms.Shrunjal Shah submitted that the petitioner has indulged in issuing the fraudulent invoices without underlying supply of the goods by entering into bogus billing transaction with 79 dealers and wrongly availed ITC of Rs.76.68 crore and it was submitted that during the course of investigation it is found that only to claim ITC purchases were shown without any receipt of the goods. The modus operandi of the petitioner was found that the goods were purchased from unregistered person at low price and merely to get benefit of ITC, fabricated bills and invoices were issued by 79 suppliers.
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18. Learner AGP Ms.Shrunjal Shah referred to the statements of the transporters who have accepted that the lorry receipts produced by the petitioner are also fabricated. It was therefore submitted that provisional attachment order in Form DRC-22 is passed after considering the objections raised by the petitioners wherein it is observed that the immovable properties of the petitioner are not sufficient to fulfill the liability, which may arise and therefore as per the Circular dated 23.02.2021, the respondents were justified in passing the Provisional Attachment Order on movable properties in addition to the immovable properties as the same is not sufficient to protect interest of the revenue.
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19. It was pointed out that even if the valuation report submitted by the petitioners for immovable properties may be considered, still the immovable properties of the petitioners are not sufficient to protect the interest of the revenue considering the amount of evasion involved and in view of the finance statement of the petitioner after due application of mind, the respondent has passed the impugned orders of provisional attachment of the immovable properties of petitioners.
20. It was further submitted that the contention of the petitioners that it is difficult to continue his business considering the movable properties of the Page 43 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined petitioners are attached, 79 dealers who have been found bogus are approximately 31% of the total 256 dealers with whom the petitioner has undertaken the transactions and the total ITC claimed by the petitioners from the period from 2017-18 amounts to Rs.146.60 crores out of which the ITC of around Rs.276.68 crores is bogus and therefore more than 52% of the total ITC claimed by the petitioners appears to be bogus.
21. It was submitted that the evidence is found by the respondent Department showing bogus billings in case of the petitioners and therefore in the facts of the case, the respondent authorities have passed the impugned order of provisional attachment under Section 83 of the Act.
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22. Learned AGP Ms.Shah referred to the satisfaction note dated 14.09.2023 and further relied upon the averments made in the affidavit-in-reply filed on behalf of the respondent no.3 to submit that in the facts of the case when the petitioner has indulged into bogus billing which is further fortified from the statements of transport recorded in the investigation that there was no supply of the goods relating to the invoices generated by the petitioners, the respondent authority was justified in passing the impugned order of provisional attachment of movable properties of the petitioner in addition to the immovable properties to protect interest of the revenue.
23. It was submitted that as per Circular Page 45 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined no.171 dated 06.07.2022, the case of the petitioners would fall in second instance as the petitioners has availed and utilized the fraudulent ITC on the basis of the tax invoices, without receiving the goods or services or both in contravention of the provision of Section 16(2)(b) of the CGST Act and the petitioners shall be liable for the demand and recovery of the ITC along with penal action under Section 74 of the Act along with applicable interest under the provision of Section 50 of the CGST Act.
24. It was further submitted that Reliance placed by the petitioners on the decision of the Radha Krishan Industries (Supra) would not be applicable in view of the facts of the case of the petitioners. Page 46 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024
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25. Learned AGP Ms.Shah pointed out that the facts of the case before the Hon'ble Supreme Court are totally different than the facts of the case of the petitioners and referred to following facts recorded by the Hon'ble Supreme Court in the decision as under:
"4. The facts in the context of which this case arises are thus: the appellant manufactures lead according to the specific requirements of its clients, and has a factory at village Meerpur Gurudwara, Kala-Amb in the District of Sirmaur of Himachal Pradesh. The appellant has been in the same line of business since 2008. Upon the introduction of the Goods and Services tax4, the appellant "third respondent" "HPGST Act" "HPGST Rules" "GST" migrated to and was registered under GST - GSTIN No. Page 47 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined O2AAKFR7402H2ZE - with effect from 1 July 2017.
5. On 3 October 2018, a notice5 was issued to the appellant under Section 74 of the HPGST Act and the Central Goods and Services Tax Act6 by the third respondent requiring it to appear on 9 October 2018 and produce (i) invoices pertaining to inward and outward supplies for the years 2017-18 and 2018-19; (ii) party-wise summary/ledger of inward supplies; (iii) proof of payment of GST with a commodity-wise breakup; and (iv) copies of GSTR-1, GSTR-2 and GSTR-3 returns from July 2017 to July 2018. The appellant appeared before the third respondent and submitted original tax invoices pertaining to inward and outward supplies for 2017-18 and 2018-19 by a letter dated 15 October 2018.
6. On 10 October 2018, a 'detection case' was registered against GM Powertech, Kala-Amb7, one of the Page 48 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined suppliers of the appellant, under Section 74 of the HPGST Act and the CGST Act read with Section 20 of the Integrated Goods and Services Tax Act, 20178. This was through a search and seizure under Section 67 of the HPGST Act and CGST Act. The partners of GM Powertech were arrested on 3 December 2018 on the ground of raising fraudulent claims of input tax credit9 from fake/fictitious firms in Delhi and Kanpur.
7. The appellant received a memo by an e-mail dated 15 December 2018 from the third respondent directing it to be present on 17 December 2018 for explaining the allegedly illegal claim of ITC made during 2017-18 and 2018-19. By its letter dated 17 December 2018, the appellant contended that it had validly claimed ITC as it fulfilled the conditions under section 16 and other provisions of the HPGST Act and the CGST Act.Page 49 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024
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8. On 9 January 2019, a notice was issued to Fujikawa Power, Bagbania, BBN Baddi, one of the customers of the appellant, for provisionally attaching an amount of Rs. 5 crores due to the appellant, under Section 83 of the HPGST Act. On 19 January 2019, the third respondent passed an order of provisional attachment in respect of receivables worth Rs. 5 crores due from Fujikawa Power. This order inadvertently referred to Sarika Industries instead of the appellant. The appellant responded by a representation dated 29 January 2019, claiming inter alia, that the order of attachment was without affording a hearing. The appellant also claimed that on 26 December 2018, they had noticed that the ITC had been blocked without prior notice. On 30 January 2019, the notice of attachment was withdrawn by the third respondent.
9. According to the respondents, Page 50 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined after the case of GM Powertech was investigated, tax evasion was detected. GM Powertech was found to have claimed and utilized ITC against invoices issued by "fake fictitious firms without actual movement of goods..." GM Powertech had issued invoices to various recipients in Himachal Pradesh including the appellant. On 4 July 2020, the third respondent issued an intimation to the appellant under Section 74(5) of the HPGST Act of tax ascertained as being payable11, advising it to pay tax, interest "SCN" Form GST DRC-01A and penalty of Rs. 5.03 crores. The appellant was given an opportunity to file its submissions against the ascertainment of the amount by 4 August 2020.
10. A tax liability of Rs 39.48 crores was confirmed against GM Powertech on the conclusion of the proceedings against it. GM Powertech was found to have no business establishment or property in Page 51 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined Himachal Pradesh and the case was considered to fall into the category of a serious tax fraud."
26. Referring to the above facts it was submitted that in the facts of the case before the Apex Court, the detection case was registered against the GM Powertech one of the suppliers of the appellant and on investigation, tax evasion was detected and the GM Powertech was found to have claimed and utilized ITC against the invoices issued by fake fictitious forms without actual movement of the goods and GM Powertech had issued invoices to various recipients in Himachal Pradesh including the appellant. It was therefore submitted that the case before the Hon'ble Supreme Court would fall within the situation/instance given in the Circular Page 52 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined no.171 dated 06.07.2022, whereas the facts of the case of the petitioners are similar to that of GM Powertech who has utilized the ITC against invoices issued by the supplier's firms without actual movement of the goods. It was therefore submitted that the reliance placed by the petitioners on the decision of the Hon'ble Supreme Court in case of Radha Krishan Industries (Supra) are factually stands on different facts and therefore the same would not be applicable. It was submitted that the Hon'ble Supreme Court after considering that the order of the provisional attachment held that it contained no basis for formation of the opinion that provisional attachment was necessary to safeguard interest of revenue and accordingly quashed and set aside such Page 53 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined orders. Reliance was placed on the following observations of the Hon'ble Supreme Court in the context of such finding:
"66. Ex facie, the above order passed by the Joint Commissioner does not indicate any basis for the formation of the opinion that the levy of a provisional attachment was necessary to protect the interest of the government revenue. The order in the file noting refers to the fact that the case of GM Powertech had been decided under Section 74 resulting in an additional demand of Rs. 39 crores on account of a fraudulent claim of ITC for FY 2017- 18 and 2018-19. GM Powertech is alleged to have passed on the ITC to various Registered Tax Persons40 situated in Himachal Pradesh by issuing invoices inter alia to the appellant during 2018-19 for which a case under Section 74 had been initiated. The order records "RTP"
that the appellant had claimed ITC Page 54 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined of Rs 3.25 crores on the strength of the invoices issued by GM Powertech. The order merely records that the submissions which were urged by the appellant on 5 August 2020 "are not sustainable". "In view of the facts involved in the case", the Joint Commissioner concluded that it is necessary at this stage to safeguard the government revenue and since the appellant had sold goods to Fujikawa the payment due to it was being attached provisionally. The order of the Joint Commissioner contains absolutely no basis for the formation of the opinion that a provisional attachment was necessary to safeguard the interest of the revenue. No tangible material has been disclosed. The record clearly reveals a breach of the mandatory pre- conditions for the valid exercise of powers under Section 83 of the HPGST Act.
70 Clause (a) of sub-Section (6) provides that no appeal shall be filed without the payment in full, Page 55 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined of such part of the amount of tax, interest, fine, fee and penalty arising from the impugned order as is admitted. In addition, under clause (b), ten per cent of the remaining amount of tax in dispute arising from the order has to be paid in relation to which the appeal has been filed. Upon the payment of the amount under sub-Section (6) the recovery proceedings for the balance are deemed to be stayed. Thus, in any event, the order of provisional attachment must cease to subsist.
The appellant, having filed an
appeal under Section 107, is
required to comply with the
provisions of sub-Section (6) of
Section 107 while the recovery of
the balance is deemed to be stayed under the provisions of sub- Section (7). As observed hereinabove and under Section 83, the order of provisional attachment may be passed during the pendency of any proceedings under Section 62 or Section 63 or Section 64 or Section 67 or Section 73 or Section 74. Page 56 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024
NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined Therefore, once the final order of assessment is passed under Section 74 the order of provisional attachment must cease to subsist. Therefore, after the final order under Section 74 of the HPGST Act was passed on 18 February, 2021, the order of provisional attachment must come to an end.
71 Moreover, an order of provisional attachment was issued by the Joint Commissioner which was withdrawn on 30 January 2019, after considering the representations made by the petitioner. On the very ground, without any material change in circumstances. Another order of provisional attachment came to be issued by another Joint Commissioner. Therefore, it was the contention of the petitioner before the High Court that the subsequent order of provisional attachment is in substance and effect an order reviewing the earlier order withdrawing the order of provisional attachment which was not permissible Page 57 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined and therefore the subsequent order of provisional attachment is without jurisdiction. The High Court has not considered this aspect. Both the earlier and the subsequent orders of provisional attachment are on the same grounds. Therefore, unless there was a change in the circumstances, it was not open for the Joint Commissioner to pass another order of provisional attachment, after the earlier order of provisional attachment was withdrawn after considering the representations made by the petitioner. This is an additional ground to set aside the subsequent order of provisional attachment."
27. Referring to the above findings it was submitted that the Hon'ble Supreme Court in case of Radha Krishan Industries (Supra) in favour of the appellant in view of the facts of the said case, whereas in the facts of the case of the Page 58 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined petitioners, it is found that the petitioner has indulged in business of bogus billings without underlying supply of goods and materials and availed the ITC of more than Rs.76 crores. It was therefore submitted that the order passed by the respondent authority exercising powers under Section 83 of the Act to protect the interest of the revenue may not be interfered. No interference may be made in the impugned order.
28. Having heard learned advocates for the respective parties and having considered the facts of the case and material on record, prima facie it is apparent from the facts that the petitioner has indulged in to bogus billing and therefore without considering the veracity of the same as Page 59 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined investigation/inquiry is undergoing, it is necessary to find out as to whether there is any basis to pass the provisional attachment of the movable property in addition to the immovable properties already attached by the respondent Department while invoking provisions of Section 83 of the Act.
29. On perusal of the impugned order read with satisfaction note, the respondent authority has come to the conclusion that the immovable property of the petitioner is not sufficient to protect the interest of the revenue, which is further fortified from the averments made in the affidavit- in-reply to the effect that the petitioner has indulged into bogus billing by availing the ITC of more than Rs.76 crore. Therefore, considering such facts, it Page 60 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined cannot be said that the Commissioner has failed to form an opinion on the basis of tangible material that the petitioner is likely to be subject to demand which would be more than the value of the immovable properties and therefore it is necessary so to do for the purpose of protecting the interest of the Government revenue, provisional attachment of the movable property was also required. The respondent authorities have passed the impugned order of provisional attachment also in consonance with Circular no.171 dated 06.07.2022, which clarifies the issues involved in issuing tax invoices without actual supply of goods or services or both. The said Circular reads as under:
"Circular No.171/03/2022-GST [F.No.CBIC- 20001/2/2022-GST] Page 61 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined Clarification on various issues relating to applicability of demand and penalty provisions under the Central Goods and Services Tax Act, 2017 in respect of transactions involving fake invoices CIRCULAR NO.171/03/2022-GST[F.NO.CBIC- 20001/2/2022-GST], DATED 6-7-2022 A number of cases have come to notice where the registered persons are found to be involved in issuing tax invoice, without actual supply of goods or services or both (hereinafter referred to as "fake invoices"), in order to enable the recipients of such invoices to avail and utilize input tax credit (hereinafter referred to as "ITC") fraudulently. Representations are being received from the trade as well as the field formations seeking clarification on the issues relating to applicability of demand and penalty provisions under the Central Goods and Services Tax Act, 2017 (hereinafter referred to as "CGST Act"), in respect of such transactions involving fake invoices. In order to clarify these issues and to ensure uniformity in the implementation of the provisions of law across the field formations, the Board, in exercise of its powers conferred by section 168 (1) of the CGST Act, hereby clarifies the issues detailed hereunder.
Sl.No Issues Clarification .
1. In case where a Since there is only been an Page 62 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined registered person "A" issuance of tax invoice by has issued tax the registered person 'A' to invoice to another registered person 'B' registered person "B" without the underlying without any supply of goods or services underlying supply of or both, therefore, such an goods or services or activity does not satisfy both, whether such the criteria of "supply", as transaction will be defined under section 7 of covered as "supply" the CGST Act. As there is no under section 7 of supply by 'A' to 'B' in CGST Act and whether respect of such tax invoice any demand and in terms of the provisions recovery can be made of section 7 of CGST Act, no from 'A' in respect tax liability arises against of the said 'A' for the said transaction under the transaction, and provisions of section accordingly, no demand and 73 or section 74 of recovery is required to be CGST Act. Also, made against 'A' under the whether any penal provisions of section 73 or action can be taken section 74 of CGST Act in against registered respect of the same. person 'A' in such Besides, no penal action cases. under the provisions of section 73 or section 74 is required to be taken against 'A' in respect of the said transaction. The registered person 'A' shall, however, be liable for penal action under section 122 (1)(ii) of the CGST Act for issuing tax invoices without actual supply of goods or services or both.
2. A registered person Since the registered person "A" has issued tax 'B' has availed and utilized invoice to another fraudulent ITC on the basis registered person "B" of the said tax invoice, without any without receiving the goods underlying supply of or services or both, in goods or services or contravention of the both. 'B' avails provisions of section 16(2) input tax credit on (b) of CGST Act, he shall be the basis of the said liable for the demand and tax invoice. B recovery of the said ITC, Page 63 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined further issues along with penal action, invoice along with under the provisions of underlying supply of section 74 of the CGST Act, goods or services or along with applicable both to his buyers interest under provisions of and utilizes ITC section 50 of the said Act. availed on the basis Further, as per provisions of the above of section 75(13) of CGST mentioned invoices Act, if penal action for issued by 'A', for fraudulent availment or payment of his tax utilization of ITC is taken liability in respect against 'B' under section 74 of his said outward of CGST Act, no penalty for supplies. Whether 'B' the same act, i.e. for the will be liable for said fraudulent availment or the demand and utilization of ITC, can be recovery of the said imposed on 'B' under any ITC, along with penal other provisions of CGST action, under the Act, including under section provisions of section 122. 73 or section 74 or any other provisions of the CGST Act.
3. A registered person In this case, the input tax 'A' has issued tax credit availed by 'B' in his invoice to another electronic credit ledger on registered person 'B' the basis of tax invoice without any issued by 'A', without underlying supply of actual receipt of goods or goods or services or services or both, has been both. 'B' avails utilized by 'B' for passing input tax credit on on of input tax credit by the basis of the said issuing tax invoice to 'C' tax invoice and without any underlying further passes on the supply of goods or services said input tax credit or both. As there was no to another registered supply of goods or services person 'C' by issuing or both by 'B' to 'C' in invoices without respect of the said underlying supply of transaction, no tax was goods or services or required to be paid by 'B' both. Whether 'B' in respect of the same. The will be liable for input tax credit availed by the demand and 'B' in his electronic credit recovery and penal ledger on the basis of tax action, under the invoice issued by 'A', provisions of section without actual receipt of Page 64 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined 73 or section 74 or goods or services or both, any other provisions is ineligible in terms of of the CGST Act. section 16 (2)(b) of the CGST Act. In this case, there was no supply of goods or services or both by 'B' to 'C' in respect of the said transaction and also no tax was required to be paid in respect of the said transaction. Therefore, in these specific cases, no demand and recovery of either input tax credit wrongly/ fraudulently availed by 'B' in such case or tax liability in respect of the said outward transaction by 'B' to 'C' is required to be made from 'B' under the provisions of section 73 or section 74 of CGST Act.
However, in such cases, 'B' shall be liable for penal action both under section 122(1)((ii) and section 122(1)(vii) of the CGST Act, for issuing invoices without any actual supply of goods and/or services as also for taking/ utilizing input tax credit without actual receipt of goods and/or services.
2. The fundamental principles that have been delineated in the above scenarios may be adopted to decide the nature of demand and penal action to be taken against a person for such unscrupulous activity. Actual action to be taken against a person will depend upon the Page 65 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined specific facts and circumstances of the case which may involve complex mixture of above scenarios or even may not be covered by any of the above scenarios. Any person who has retained the benefit of transactions specified under sub- section (1A) of section 122 of CGST Act, and at whose instance such transactions are conducted, shall also be liable for penal action under the provisions of the said sub-section. It may also be noted that in such cases of wrongful/ fraudulent availment or utilization of input tax credit, or in cases of issuance of invoices without supply of goods or services or both, leading to wrongful availment or utilization of input tax credit or refund of tax, provisions of section 132 of the CGST Act may also be invokable, subject to conditions specified therein, based on facts and circumstances of each case.
3. It is requested that suitable trade notices may be issued to publicize the contents of this Circular.
4. Difficulty, if any, in implementation of the above instructions may please be brought to the notice of the Board. Hindi version would follow.
(Sanjay Mangal) Principal Commissioner (GST)"Page 66 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024
NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined
30. On perusal of the above circular the case of the petitioner would fall within second issue as the petitioner has received invoices without any underlying supplying goods and has availed input tax credit on the basis of the tax invoices and the petitioner has issued invoices along with underlying supply of goods or services to its buyers and utilized the ITC availed on the basis of the bogus invoices for payment of his tax liability in respect of outward supplies and hence the petitioner would be liable for the demand and recovery of the ITC along with penal actions, interest and penalty under the provisions of Section 74 of the CGST Act. Therefore, the facts of the case clearly shows that the facts emerging from the material on record are different than Page 67 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined that of the facts before the Hon'ble Supreme Court in case of Radha Krishan Industries (Supra) where the appellant before the Hon'ble Supreme Court was the person who has received tax invoices along with goods whereas in facts of the present case the petitioner is the person who has issued the tax invoice availed ITC fraudulently on the basis of the bogus bills without supply of the goods. Therefore the facts of the case before the Hon'ble Supreme Court are similar to that of the third instance whereas facts of the present case are similar to second instance as per the aforesaid circular.
31. Considering the facts of the case, it cannot be said that the respondents have committed breach of provision of Section 83 of the Act which is intended to Page 68 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined safeguard the interest of the revenue which cannot be said to any harassment to the petitioner as tried to be demonstrated. In the facts of the case, it cannot be said that the respondents have issued provisional attachment order over the movable properties with a view to harass the petitioner. The petitioner in the facts of the case appears to have indulged in the transaction of the fraudulent invoices resulting into loss of revenue by utilizing the ITC of more than Rs.76 crore.
32. In such circumstances, no interference is called for in the impugned order of provisional attachment so far as the attachment over the movable properties of the petitioner during the pendency of the investigation as respondent authority has Page 69 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024 NEUTRAL CITATION C/SCA/1084/2024 ORDER DATED: 14/06/2024 undefined rightly formed an opinion as required under Section 83 of the Act so as to protect the interest of revenue, and hence the provisional attachment over the movable and immovable properties of the petitioner is required to be continued. The petition therefore being devoid of any merit is accordingly rejected. Notice is discharged.
(BHARGAV D. KARIA, J) (NIRAL R. MEHTA,J) URIL RANA Page 70 of 70 Downloaded on : Fri Jun 28 21:33:34 IST 2024