Apex Court calls provisional attachment under GST ‘Draconian’

The Supreme Court on Tuesday came down hard on the GST (Goods & Services Tax) Department by terming the provisional attachment under GST law as ‘draconian’.

“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,” a division bench of justices Dhananjaya Y Chandrachud and MR Shah said in its ruling while setting aside the orders of provisional attachment dated October 28, 2020 in the matter of Radha Krishan Industries.

The GST Department had moved the Apex Court against the ruling of a Division Bench of the High Court of Himachal Pradesh on January 1, 2021. 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. 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 State GST law.

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.

‘Section 83’

After going through all the arguments, the Division Bench of apex court said that it is evident from the facts noted above that the order of provisional attachment was passed before the proceedings against the appellant were initiated under Section 74 of the HPGST Act. Section 83 of the Act requires that there must be pendency of proceedings under the relevant provisions mentioned above against the taxable person whose property is sought to be attached. “We are unable to accept the contention of the respondent that merely because proceedings were pending/concluded against another taxable entity, that is GM Powertech, the powers of Sections 83 could also be attracted against the appellant,” it said while disposing the petition

According to Aditya Singhania, Partner at Singhania's GST Consultancy, time and again various High Courts have directed for careful handling of the power to attach properties on provisional basis. In fact, CBIC has recently issued guidelines for provisional attachment of property taken into account the directions of the Courts. One of the significant clarifications which comes out from the verdict of the Apex Court on Tuesday is that the provisional attachment must come to an end when the final order has been passed under section 74(9) as because the proceedings under section 74 are no longer pending. “This will also bring the stay on the recovery of the balance amount if an appeal is filed on 10 per cent pre-deposit, as against the provisional attachment of 100 per cent of the alleged amount,” he said.

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