AKSHAY KSHIRSAGAR
Provisional attachment under GST- can a cash credit account be attached?
By Adv Akshay Kshirsagar on 02nd October 2021 2.38pm
Provisional Attachment of Property Under section 83
If taxpayer is committing any offence under GST or commissioner believes that taxpayer may escape in order to avoid tax, commissioner can under section 83 of CGST act, may make provisional attachment of tax payer property / bank account in such manner as may be prescribed.
Movable property can only be attached if immovable property is not sufficient for attachment. If movable property is attached including bank account, tax payer can offer immovable property for attachment instead.
Intention behind this is, taxpayer’s business may not suffer due to such attachment. GST authorities cannot make provisional attachment of property which directly affect taxpayer day to day business such as raw material or goods.
Can Cash Credit Account be Provisionally attached by GST Authorities?
Gujarat High court held that cash credit account cannot be provisionally attached by GST authorities under section 83 of CGST act 2017. Cash credit is account that is enabled to borrow cash from the bank for running business. Hence, all money in cash credit account is considered as loan facility availed by the bank.
The object and intention of legislature to endow commissioner with the power of attachment u/s is very clear. The power should be used only to protect the interest of revenue and not to ruin business or harass taxpayer.
Attaching cash credit account is of no interest to revenue nor it will serve purpose of section 83. It will make taxpayer suffer as it can lead to business disruption by stopping source of working capital.
The decision of this Court in the case of Kaneria Granito Ltd. has been followed in various other matters of the present type over a period of time. Various orders have been passed over a period of time condemning the action on the part of the department in provisionally attaching the cash credit account in exercise of powers under Section 83 of the Act.
Circumstances under which property can be attached
Under Section 62 – If the registered taxable person does not file his return, he will be sent a notice u/s 62. If he does not file return even after sending notice, the proper officer will assess the tax liability or may attach property in such manner as may be prescribed.
Under Section 63 – Where a taxable person fails to obtain registration even though liable to do so or whose registration is cancelled.
Under Section 64 – The proper officer on sufficient grounds to believe that a person is liable to pay tax, he may issue an assessment order in interest of revenue
Under Section 67 – Proceedings related to inspection, search, and seizure.
Under Section 73 -Demand raised in cases other than those involving fraud or willful misrepresentation of facts
Under Section 74 – Demand raised in cases involving fraud or willful misrepresentation of facts.
Procedure for attachment of Property under GST law
If the commissioner has material evidence, he may in interest of revenue pass an order in Form GST DRC -22 with proper Document Identification Number (DIN) for attachment of property of the taxpayer.
Copy of attachment order will be provided to taxpayer, in case of any objection same can be filed within 7 days.
In case, the Commissioner is satisfied that the property was or is no longer liable for attachment, he may release such property by issuing an order in FORM GST DRC- 23.
Attachment of Property in the custody of court
The proper office shall send the order of attachment to such court requesting that such property shall be in the custody of the court till the assessment completion.
Court will release the property upon clearing all outstanding assessed by the officer. Such property shall be released by an order in FORM DRC-23 on proof of payment.
Any person whose property is attached may, within 7 days of such attachment, file an objection. And commissioner on satisfaction of hearing may release the attached property in form DRC 23.
High Court and Supreme Court decision
Gujarat High Court held that provisional attachment can hamper business drastically especially in the cases where taxpayer has no mala fide intention. This provision can be harassment to the taxpayer and should be used as the last resort. It should be used only when authorities have material evidence and not just imaginary belief. It should be beyond the reasonable doubt.
The Gujarat High Court in case of Vinodkumar Murlidhar Chechani v. State of Gujarat [2021] 123 taxmann.com 329 (Gujarat) stated that the mechanical exercise of the powers given under the provision of provisional attachment is not appreciated.
The Supreme Court said the power to order a provisional attachment of the property including bank account of the taxable person is draconian in nature and must be based on tangible material.
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,” the bench said. (source economic times)