[Amritesh Anand is a penultimate year student at NALSAR University of Law, Hyderabad]
Enforcement authorities under the GST regime have been vested with a powerful tool under section 83 of the Central Goods & Services Tax Act, 2017 (“CGST Act”) to carry out provisional attachment of property of assessees. The rationale is to ensure that Government interest in revenue is not prejudiced by crafty assessees diverting funds or property in order to circumvent tax liability. Considering the far-reaching implications of such power vis-a-vis an assessee’s rights, it becomes imperative that its exercise be confined to exceptional cases.
In stark contrast, the proliferation of property attachment cases in the last few years manifests how authorities have artificially enlarged the scope of this power and have been invoking it feverishly. The resultant hardships for taxpayers have engendered judicial intervention, wherein several High Courts have repeatedly expressed consternation with the state of affairs, but to no avail. The perpetuation of this highhandedness recently reached its tipping point, with the Supreme Court coming down heavily on GST authorities and labelling the practice “draconian”. Although the Court has been widely appreciated for laying down explicit parameters in order to curb the blatant misuse, the suggested amendments to section 83 by way of the Finance Bill, 2021 have the potential to nullify the progress and further aggrandize the scope of already expansive powers.
Section 83 of the CGST Act is the principal provision governing provisional attachment wherein, “during the pendency of certain specified proceedings, the Commissioner is empowered to pass an order for attachment of property of an assessee if he/she is of the opinion that it is necessary for protecting the interests of revenue”. Such opinion needs to be recorded in file and the attachment order is passed in FORM GST DRC-22, which contains credentials of the property attached. Furthermore, under rule 159 of the Central Goods and Services Tax (CGST) Rules, 2017, a copy of the order needs to be furnished to the assessee so that they can file objections, if any, within the prescribed timeframe
Abuse of Powers & Judicial Pushback
In spite of the drastic nature of provisional attachment powers and the capacity to markedly place fetters on the assessee’s rights vis-a-vis conducting their business, authorities have been overzealously resorting to its application. Such hasty invocation manifests the glaring highhandedness of the GST authorities and how, in practice, they have substituted the element of ‘necessity’ mandated under section 83 for ‘expediency’. This problem is further exacerbated by the lack of legislative guidelines for enforcement accompanying the provision. The inordinate manner of exercise has typically been observed in the form of frequent attachments, attaching property of third parties, attachment before proceedings, and the like. Many such instances of attachment invariably end up languishing in courts and cause immense wastage of precious judicial time.
The resultant onslaught of litigation, mainly spearheaded by the Gujarat High Court, has been instrumental in both rescuing innocent taxpayers from mechanical attachment orders and evolving the enforcement jurisprudence through judicially conceived standards. Such timely interventions, through recognizing the restrictive nature of attachment powers and striking down arbitrary exercise, have been vital towards militating against enforcement authorities running amuck.
The Gujarat High Court pertinently noted how these drastic and far-reaching powers “should neither be used as a tool to harass nor should have irreversible detrimental effect on business of assessee”. Furthermore, the Punjab High Court elucidated the manner in which ‘is of the opinion’ was to be interpreted, highlighting how the construction placed on the expression ‘reason to believe’ would equally be applicable and such subjective satisfaction could not be based on imaginary grounds. Several other rulings have attempted to concretize the interpretation of other elements required under section 83, for instance, when could powers be exercised, by whom and what could be legally attached. Despite these judicial endeavors, the Gujarat High Court recently noted how “in each and every matter in which proceedings under Section 67 are initiated, an order of provisional attachment of the bank accounts would follow”. To curb such mechanical exercise, the Central Board of Indirect Taxes & Customs (CBIC) was requested to issue enforcement guidelines.
The issued guidelines succinctly condensed the standards proposed by various courts, underlining the ‘extraordinary’nature of powers and need for ‘opinion’ to be based on credible material, onus on the Commissioner to exercise due diligence while contemplating an attachment order and basis for formation of opinion to be ‘recorded in file’. But considering their non-binding nature, the utility has been limited vis-a-vis mitigation of abuse and this inordinate practice has persisted.
Radha Krishnan Industries – Sounding the Death Knell?
The continued phenomenon of mechanically issuing attachment orders recently underwent a showdown in the case of Radha Krishnan Industries v. State of Himachal Pradesh, with a division bench of the Supreme Court coming down heavily on enforcement authorities citing ‘blatant misuse’ of such powers. To an extent, this judgement is a culmination of the jurisprudence developed by High Courts.
The brief facts pertained to an appeal by a lead manufacturer, whose suppliers and consumers were facing GST proceedings in relation to fraudulent input tax credit (ITC) claims. A notice under section 74 of the Himachal Pradesh GST Act to produce certain documents was issued against the party. The basis for such issuance was the ITC claims made by the party on supplies received from its suppliers. Since the inward supplies made by suppliers were declared fake, the party’s ITC claims were also under question. Although the initial provisional attachment order was withdrawn, a subsequent order was passed. Aggrieved, the party approached the court.
The Supreme Court took this opportunity to severely reprimand the routine and excessive invocation of attachment powers, likening it to a “pre-emptive strike” and deeming the nature of powers “draconian”. Chandrachud, J observed how “Parliament had intended GST to be a citizen-friendly tax structure & the purpose of the Act is lost by the manner in which tax law is enforced in our country”. The Court went on to engage in an exhaustive interpretative exercise of section 83, enumerating concrete parameters that needed to be satisfied before any issuance of attachment orders could be made.
Firstly, an attachment under section 83 could only be issued during ‘pendency of proceedings’ exclusively under the six specified sections enumerated therein. Secondly, before exercising such powers, the Commissioner should be satisfied that it is ‘necessary to do so’ and, without such invocation, government revenue could not be protected. Thirdly, any such attachment must accompany a reasoned written order which is communicated to the assessee and a fair opportunity for hearing needs to be provided. In this regard, it was also clarified that attachment orders could only be passed against the taxable entity against which proceedings are pending. The Court further cited the need for the ‘doctrine of proportionality’ to be read into section 83, which essentially requires the presence of a proximate link between the need to invoke attachment powers and the objective it intends to secure. The Court pointed to the restrictive nature of attachment powers and emphasized on the need to “strike a balance between protecting government revenue & allowing genuine businesses to operate”. Through the above exposition, the Court has laid down strict and punctilious parameters that would vastly aid in bringing down the frequency of undue attachment orders.
Proposed Amendments – Undoing the Progress Made?
In an attempt to override the body of protections for assessees carved out by courts until now, the proposed amendments to section 83 aim to enlarge by many folds the already excessive powers given to officers. The suggested modifications have completely disregarded all adverse comments made by courts & have the potential to effectively nullify the progress made so far.
Under clause 106 of the Finance Bill, 2021, the following amendments have been proposed: Firstly, from the currently ‘six specified sections’ under which attachment can be ordered, the amendments seek to enable attachment under any of the sections under chapters 12, 14 and 15. Hence, attachment orders could be issued even in relation regular proceedings like search, assessments. Secondly, the amendments seek to substitute the word ‘initiation’ in place of ‘pendency’ vis-a-vis proceedings under section 83. This would technically allow attachment to be carried out, even if no proceedings were pending against the assessee. For instance, the Commissioner would be entitled to attach property solely on the basis of a summons issued under section 70. Thirdly, while currently, the Commissioner is only allowed to attach property of an assessee against whom proceedings are pending, the amendments will enable attachment orders against any other person as mentioned under section 122 (1A). The possibility of such empowerment being used to harass innocent taxpayers cannot be ruled out.
Thus, the proposed amendments, though yet to be notified, are completely antithetical in their purport vis-a-vis the judicially envisioned safeguards and seemingly yet another attempt at aggrandizing the already unbridled powers that enforcement authorities currently retain. In light of the same, the manner in which these amendments would reconcile with the judicially crafted standards is what remains to be seen.
– Amritesh Anand