Law and its Breaches : The Illegality of GST Department
by Vishal
Introduction
Long ago it was written how kindness is to be shown : -
"He shall regard with fatherly kindness those who have passed the period of remission of taxes." ["Kautilya's Arthashastra", Translated by R. Shamasastry]
In an important Judgment, the action of GST Department was quashed. Had the action of GST Department been legal, the petition would have been dismissed. This reinforces that there is indeed a lack of respect for law by GST Department employees. Perhaps, the time is ripe for Hon'ble Courts to ensure that strong and timely disciplinary action against GST Department employees are initiated for acting in contravention of law. The controversy in this case revolved around attachment of bank account.
The Principles Which Were Violated by Tax Department
While allowing the writ petition, important legal principles were enunciated.
Even if it is assumed that the allegations as levelled by the GST department are correct and the credits though not available were wrongly availed since the tax had been paid, though it was not payable having regard to the fact that there was no supply of goods, the availment of credits could be said to be justified on two counts: (1) it is a revenue neutral satisfaction and (2) payment of tax although not payable yet is to be treated if unavailable credits are reversed if they were wrongly paid.
Section 83 of the State GST Act, 2017 empowers the Assessing Authority to make a provisional attachment of any property of the assessee during the pendency of any proceeding for the assessment or reassessment of any turnover, even though there is no demand outstanding against the assessee, if he is of the opinion that it is necessary to do so to protect the interest of the revenue. This provision has been made in order to protect the interest of the revenue in cases where the raising of demand is likely to take time because of the investigations and there is apprehension that the assessee may default the ultimate collection of the demand. In other words, Section 83 gives a power to be exercised during the pendency of any proceeding for assessment or reassessment, so that the assessee may not fritter away or secrete his resources out of the reach of the Commercial Tax department when the assessment or reassessment is completed.
Meaning of The Expression used in S. 83 of SGST Act, 2017
The expression "for the purpose of protecting the interest of the revenue" occurring in Section 83 of the SGST Act is very wide in its meaning. Further, the orders of provisional attachment must be in writing. There must be some material on record to indicate that the Assessing Authority had formed an opinion on the basis thereof that it was necessary to attach the property in order to protect the interest of the revenue. The provisional attachment provided under section 83 is more like an attachment before judgment under the Code of Civil Procedure. It is a liability on the property. However, the power conferred upon the Assessing Authority under Section 83 is very drastic, far reaching power and that power has to be used sparingly and only on substantive weighty grounds and for valid reasons. To ensure that this power is not misused, no safeguards have been provided in the Section 83.
The Power and the Conditions
One thing is clear that this power 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 circumspection. It should not be exercised unless there is sufficient material on record to justify the satisfaction that the assessee is about to dispose of the whole or any part of his property with a view to thwarting the ultimate collection of the demand. Moreover, attachment should be made of the properties and to the extent it is required to achieve the above object.
The Invocation of Provisional Attachment & Its Legal Limits
It 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. The attachment of bank accounts and trading assets should be resorted to only as a last resort because, the attachment of the bank accounts of the assessee would paralyse the functions and business of the assessee.
The Authority, therefore, should exercise the power conferred upon him under Section 83 of the SGST Act with circumspection and fairly and reasonably. No hard and fast rule can be laid down as to how and under what circumstances the power under Section 83 can be invoked by the Authority. The discretion conferred on the Authority shall be brought to bear having regard to the facts and circumstances of each case. It is not permissible for the Authority to equate the provisional attachment envisaged under Section 83 of the Act with attachment in the course of the recovery proceedings.
Case reference is Pranit Hem Desai v. Additional Director General [2019] GCtR 6512 (Gujarat).
Note : Use of Artificial intelligence has not been done at any stage of writing/research for this article.