Apr 25 2021
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Commissioner is duty bound to deal with the objections to the attachment by passing a reasoned order: Supreme Court



Civil Appeal No 1155 of 2021


A Factual Background

1 This appeal raises significant issues of public importance, engaging as it does, the interface between citizens and their businesses with the fiscal administration. Legislation enacted for the levy of goods and services tax confers a power on the taxation authorities to impose a provisional attachment on the properties of the assessee, including bank accounts. The legislation in Himachal Pradesh, which comes up for interpretation in the present case, has conferred the power on the Commissioner to order provisional attachment of the property of the assessee, subject to the formation of an opinion that such attachment is necessary in the interest of protecting the government revenue. What specifically, is the ambit of this power? What are the safeguards available to the citizen? In interpreting the law, the court has to chart a course which will ensure a fair exercise of statutory powers. The legitimate concerns of citizens over arbitrary exercises of power have to be protected while ensuring that the legislative purpose in entrusting the authority to order a provisional attachment is fulfilled. The rule of law in a constitutional framework is fulfilled when law is substantively fair, procedurally fair and applied in a fair manner. Each of these three components will need to be addressed in the course of interpreting the tax statute in the present case.

2 This appeal arises from a judgment and order dated 1 January 2021 of a Division Bench of the High Court of Himachal Pradesh. The High Court dismissed the writ petition instituted under Article 226 of the Constitution challenging orders of provisional attachment on the ground that an alternate remedy is available.

The appellant challenged the orders issued on 28 October 2020 by the Joint Commissioner of State Taxes and Excise, Parwanoo1 provisionally attaching the appellant’s receivables from its customers. The provisional attachment was ordered while invoking Section 83 of the Himachal Pradesh Goods and Service Tax Act, 20172 and Rule 159 of Himachal Pradesh Goods and Service Tax Rules, 20173 . While dismissing the writ petition on grounds of maintainability the High Court was of the view that the appellant had an ‘alternative and efficacious remedy’ of an appeal under Section 107 of the HPGST Act.

3 At issue in this case is whether the orders of provisional attachment issued by the third respondent against the appellant on 28 October 2020 are in consonance with the conditions stipulated in Section 83 of the HPGST Act. The answer to this will require the court to embark on an interpretative journey of unravelling the substantive and procedural content of the power. The preliminary issue is whether the High Court was right in concluding that the provisional attachment could not be challenged in a petition under Article 226.

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 migrated to and was registered under GST - GSTIN No. 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 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.

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.

8 On 9 January 2019, a notice10 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, 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 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 Himachal Pradesh and the case was considered to fall into the category of a serious tax fraud.

11 On 21 October 2020, the Commissioner of State Taxes and Excise, Himachal Pradesh12 delegated his powers under Section 83 of the HPGST Act to the third respondent. In exercise of the powers delegated by the Commissioner, the third respondent issued two orders of provisional attachment13 dated 28 October 2020 attaching the receivables of the appellant from its customers, Fujikawa Power and M/s Deepak International. The attachment order issued to Fujikawa Power under Rule 159(1) of the HPGST Rules noted that it owed about Rs. 4 crores to the appellant. The order states that the appellant was found to be involved in an ITC fraud amounting to Rs.5,03,82,554/- (Rs. 5.03 crores) during 2017-18 and 2018-19. The order, in its relevant part, provides:

“In order to protect the interests of revenue and in exercise of the powers conferred/delegated by Commissioner of the State Taxes & Excise, HP vide office order No.12-4/78-EXN-Tax-Part278/22(a)- 26780-82 dated 21.10.2020 under section 83 of the Act, I, U.S. Rana, Joint Commissioner of State Taxes & Excise, South Enforcement Zone, Parwanoo, hereby provisionally attach the payment to the extent of Rs.5,03,82,554/- of M/s Radha Krishan Industries, Kala-Amb. Henceforth, no payment shall be allowed to be made from your company to M/s RadhaKrishan Industries without the prior permission of this department / office.”

A similar order was issued to Deepak International, noting that a payment of Rs. 2.91 crores was owed by it to the appellant.

12 On 4 November 2020, the appellant filed a representation and objections against the attachment and denied liability. By an order dated 6 November 2020, the third respondent rejected the objections of the appellant. The third respondent stated that collectively payments “only” worth Rs. 4.92 crores from both of the appellant’s customers were attached.

13 On 27 November 2020, the third respondent issued a notice to show cause to the appellant under Section 74(1) of the HPGST Act for recovering the ITC, interest and penalty. The notice was issued on the basis that the appellant had claimed ITC on the supplies received from GM Powertech and since the inward supplies made by GM Powertech were found to be fake, the appellant’s claim of ITC was also in question.

14 The orders of provisional attachment and the order passed by the Commissioner on 21 October 2020 delegating his powers under Section 83 of the HPGST Act to the third respondent, were challenged by the appellant before the High Court in a writ petition14 under Article 226.

15 While dismissing the writ petition, the High Court held that it was undisputed that the third respondent and the Divisional Commissioner, who has been appointed as Commissioner (Appeals) under the GST Act, are constituted under the HPGST Act, and therefore, it is assumed that there is no illegal or irregular exercise of jurisdiction. The High Court further observed that even if there is some defect in the procedure followed during the hearing of the case, it does not follow that the authority acted without jurisdiction, and though the order may be irregular or defective, it cannot be a nullity so long it has been passed by the competent authority.

16 The High Court held that a writ is ordinarily not maintainable when there exists an alternative remedy. The exceptions to this rule are where the statutory authority has not acted in accordance with the provisions of the legislation; or acted in defiance of the fundamental principles of judicial procedure or where an order has been passed in violation of the principles of natural justice. The High Court held that it would not entertain a petition under Article 226 of the Constitution, if an efficacious remedy is available to the aggrieved person or where the statute under which the action complained of has been taken contains a mechanism for redressal of grievances. The High Court held that when a statutory forum of appeal exists, an appeal should “not be entertained ignoring the statutory dispensation”.

17 Noting that the appellant has an alternative and efficacious remedy of appeal under Section 107 of the HPGST Act, the High Court refused to entertain the writ petition. The High Court held that it was fortified in this view by the fact that the writ petition filed by GM Powertech, has also not been entertained and that it has been relegated to avail of the alternative remedy.

18 Subsequent to the dismissal of the writ petition by the High Court, certain developments have taken place. On 12 January 2021, the appellant sought to inspect the files for GM Powertech and stated that no documents in this regard had been provided to it in context of the proceedings initiated under Section 74. In response, the third respondent allowed the appellant to inspect the contents of the appellant’s case file. According to the respondent, the appellant failed to exercise this option and did not reply to the show cause notice dated 27 November 2020. Thereafter, on 18 February 2021, an order under Section 74(9) of the HPGST Act was passed by the third respondent confirming a tax demand of Rs. 8,30,27,218. This order under Section 74(9) has been assailed by the appellant before the appellate authority under Section 107. The dismissal of the petition challenging the orders of provisional attachment is in question in the present proceedings.

E Summary of findings

72 For the above reasons, we hold and conclude that

  1. 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);
  2. The writ petition before the High Court under Article 226 of the Constitution challenging the order of provisional attachment was maintainable;
  3. The High Court has erred in dismissing the writ petition on the ground that it was not maintainable;
  4. 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;
  5. 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.
  6. The expression “necessary so to do for protecting the government revenue” implicates that the interests of the government revenue cannot be protected without ordering a provisional attachment;
  7. 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;
  8. 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;
  9. Under the provisions of Rule 159(5), the person whose property is attached is entitled to dual procedural safeguards:
    1. (a) An entitlement to submit objections on the ground that the property was or is not liable to attachment; and
    2. 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 law in coming into conclusion that he had a discretion on whether or not to grant an opportunity of being heard;
  10. 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;
  11. 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
  12. 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.

73 For the above reasons, we allow the appeal and set aside the impugned judgment and order of the High Court dated 1 January 2021.

74 The writ petition filed by the appellant under Article 226 of the Constitution shall stand allowed by setting aside the orders of provisional attachment dated 28 October 2020.

75 There shall be no order as to costs. Pending application(s), if any, stand disposed of.


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