Utkarsh Ispat LLP VS State of Gujarat

1. Petitioner is a Limited Liability Partnership (LLP) and is engaged in the business of manufacture and supply of goods like M.S. Billets (i.e. Mild Steel Billets). Petitioner No.2 is one of the partner of the petitioner.

2. Aggrieved by the communication dated 16.07.2022 received from the 3rd respondent, whereby proposal of the petitioner to replace provisionally attached movable property in the form of Fixed Deposits and Current Bank Accounts is rejected on 16.07.2022. Hence, this petition has been preferred.

3. The petitioner as a registered person is liable to pay GST on his taxable supplies by paying the tax in cash, or by utilizing Input Tax Credit (ITC). The tax paid on the input transactions is allowed as ITC under Section 16 of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as “the CGST Act”) and ITC so allowed on Input transactions can be utilized for discharging the GST liability on the transaction of the outward supplies.

3.1 It is the say of the petitioner that since the inputs in the raw-materials like M.S. scraps utilized by the petitioner are tax paid is been availing the ITC benefits of the taxes paid on the input/materials like M.S. scraps supplied to it by the registered persons under their tax invoices. The GST officers investigated in respect of certain suppliers of materials like M.S. scrap. The inputs that those persons were involved in passing on ITC on tax invoices issued by them without actually supplying tax paid materials under such invoices. It is averred that some of such suppliers who has sold and supplied to the petitioners during the period from May, 2019, the business premises of the petitioner had been searched along with the residences of one of the partners on 19.11.2021.

3.2 On 25.11.2021, the 3rd respondent had provisionally attached various movable and immovable properties of the petitioner as well as his partners by issuing various Forms DRC-22 on the self same date on 25.11.2021.

3.3 Order of provisional attachment was passed. On 27.11.2022, by the respondent No.3 on certain movable properties of the petitioner’s partner for which the Form DRC DRC-22 had been issued.

3.4 The 2nd petitioner was arrested on 30.11.2021, and thereafter, he has been released on bail by an order of the Court on 16.03.2022.

3.5 The petitioner filed objections before the respondent authorities under Rule 159(5) of the Central Goods and Services Tax (CGST) Rules, 2017 (hereinafter referred to as “the CGST Rules”) and made a request in writing to lift the provisional attachment of the properties. Respondent, since did not pay any heed to the same, aggrieved petitioner had preferred the Writ Petition being Special CA No.19216 of 2021, which was disposed of by this Court on 17.12.2021 directing the 3rd respondent to pass the order within 3 days as regards the petitioner’s objections filed under Rule 159(5) of the CGST Rules.

3.6 Pursuant to the said directions, the 3rd respondent passed the order dated 20.12.2021 and rejected the objections.

3.7 The petitioner preferred Special CA No.188 of 2022 before this Court seeking to quash the six provisional attachment orders in Form GST-DRC-22 and also prayed for the directions to bank to allow to use of banking facilities.

3.8 The said petition might be decided by this Court on 27.01.2022 and attachment of stock lying in the factory premises and attachment of the sundry debtors as also the attachment of the immovable properties of the second petition have been quashed and set aside. For other properties, which were attached, the Court declined to interfere while rendering the judgment.

3.9 The petitioner requested the 3rd respondent by a communication dated 28.03.2022 for lifting the provisional attachment of the properties, with an emphasis to allow the use of the FDs and the bank accounts with the Banks. It also referred to the guidelines issued by the Central Board of Indirect Taxes and Customs (CBIC) vide circular dated 23.02.2021 in support of the request for lifting the attachment of the properties since that hampered the normal business activities of the petitioner. No reply was given by the respondent authorities although the petitioner’s representatives that consistently pursued the matter. Petitioner’s financial conditions is going from bad to worse; once again requested the 3rd respondent in writing vide application dated 21.04.2022 and requested the authority concerned to lift the provisional attachment of the FDs and the current accounts of the bank. The said been also forwarded to the Chief Commissioner of State GST at Ahmedabad, the Special Commissioner of State GST at Ahmedabad and also to the Additional Commissioner of State GST (Enforcement) at Ahmedabad. No reply was given by any of these authorities, and therefore, he approached this Court by preferring Special CA No.10659 of 2022 (Hon’ble Mr. Justice A.J.Desai and Hon’ble Mr. Justice Bhargav D. Karia). The Court disposed of the petition by a following directions:

“Having heard learned advocate Mr. Paresh Dave with learned advocate Mr. Pankaj D. Rachchh for the petitioners as well as having considered the prayers made in the petition and the judgement delivered by Co-ordinate Bench of this Court dated 27.01.2022 in Special Civil Application No. 188 of 2022, the Joint Commissioner of State Tax, Rajkot-respondent No.2 and/or the Assistant Commissioner of State Tax, Rajkot-respondent No.3 are directed to decide the applications submitted by the petitioner vide communications dated 28.03.2022 as well as 21.04.2022 as early as possible preferably within a period of four weeks from the date of receipt of this order in accordance with law.

With the above direction the present petition stands disposed of. Direct service for respondent Nos. 2 and 3 is permitted.”

3.10 The petitioner had communicated the said order on 24.06.2022 by a communication and referring to the representations made on 28.03.2022, 21.04.2022 and CBIC Circular dated 23.02.2021 and urged for the release of Fixed Deposits in the form of the FDs.

3.11 The petitioner had also addressed another letter to respondent No.3 is to allow to convert the amount of Rs.4.11 Crores into Fixed Deposits. The amount of FDs credited automatically in the Current Account of Kalupur Commercial Cooperative Bank out of provisionally attached FDs and also withdrawal of the amount of Rs.13,00,000/- which was wrongly credited in Axis Bank Account. The respondent No.3 communicated on 19.07.2022, according to the petitioner, it completely ignored the fact that the part of offered GIDC land is mortgaged only on paper and free hold residential plot owned by petitioner No.2 was also offered in the communication dated 24.06.2022. He denied to accept the factory land in lieu of the Bank Account and Fixed Deposits. According to the respondent, the immovable property offered in lieu of movable property is owned by GIDC and is given on the lease to the petitioner. Again, it is mortgaged to the Kalupur Commercial Cooperative Bank, hence, it is not on the line of the guidelines issued by the CBIC and the Government of Gujarat.

3.12 The respondent’s attention was drawn to the content of the letter dated 24.06.2022 especially that certain plots were under mortgaged on paper only and other plots were not mortgaged and that it offered the free hold residential vacant land ad-measuring 1942.30 Sq. Mtrs. valued at Rs.12,78,03,000/- and the GIDC land are allotted on long lease for 99 years. The same are easily transferable to the third party registered under the Transfer of Property Act, 1882 and the stamp duty is also paid. Moreover, the GIDC plots are easily transferable and are sold and bought in the market. The bank also grants loan against the mortgaged on such plots. Aggrieved by this entire rejection, the petitioner is before this Court seeking following reliefs:

“(A) That Your Lordships may be pleased to issue a Writ of Mandamus, or any other appropriate writ, order or direction, directing Respondent Nos. 3 and 2 herein to allow the Petitioners to make use of funds lying by way of Fixed Deposits and bank accounts (listed at Annexure-“A”) with the banks thereby quashing and setting aside, or modifying appropriately, the GSTDRC- 22 dated 25.11.2021 and letter dated 16.07.2022 for provisionally attaching and continuing the above Fixed Deposits and Current accounts with the banks;

(B) That Your Lordships may be pleased to issue a Writ of Mandamus, or any other appropriate writ, order or direction, directing Respondent Nos. 3 and 2 herein to accept factory land of the Petitioner firm or Residential Plots of the Petitioner No. 2 as a security in lieu of Fixed Deposits and the money lying as balance in the Petitioner’s three Current accounts with the banks and thereupon lifting provisional attachment of Fds and bank accounts (listed at Annexure-“A”) with the banks;

(C) Pending hearing and final disposal of the present petition, Your Lordships may be pleased to direct Respondent No.3 and 2 herein to allow the Petitioner firm to make use of funds lying by way of Fixed Deposits and the balance in Current accounts (as listed at Annexure-“A”) and to instruct the banks to allow the Petitioner firm to use these Fixed Deposits and bank accounts, on the terms and conditions that may be deemed fit by this Hon’ble Court; or

(D) Pending hearing and final disposal of the present petition, Your Lordships may be pleased to direct Respondent No.3 and 2 herein to convert the amount of Rs. 4,11,25,000/- lying in current account of the Kalupur Commercial Co-op. Bank Ltd. into Fixed Deposits and allow to withdraw Rs.13,00,000/- inadvertently deposited in Bank of Axis Bank Ltd. after provisional attachment, on the terms and conditions that may be deemed fit by this Hon’ble Court;

(E) An ex-parte ad-interim relief in terms of Para 25(C) or

(D) above may kindly be granted;

(F) Any other further relief that may be deemed fit in the facts and circumstances of the case may also please be granted.”

4. Affidavit-in-reply is filed by Mr. Dharmendra Z. Patel, working as Assistant Commissioner of SGST, Rajkot stated that the genesis of controversy lies in the provisional attachment of the Factory and Shed, Land and Machinery, Stocks, Current Accounts, Sundry Debtors, Personal immovable properties of petitioner No.1 through attachment Orders passed by Office of the respondent. This was necessary pursuant to the alleged wrongful availment of Input Tax Credit through purchases made from bogus and fictitious firm and consequential sale of the same by the petitioner firm, which ultimately according to the respondent, has resulted into the evasion of the payment of tax. This evasion is to the tune of Rs.68,91,70,543/- (Rs. Sixty Eight Crores Ninety One Lacs Seventy Thousand Five Hundred Forty Three only).

4.1 The provisional attachment of this properties were subject matter of litigation before this Court in Special CA No.188 of 2022. Where the Court on 27.01.2022, quashed the provisional attachment Orders with regard to the attachment of immovable property of petitioner No.1 observing therein that the other properties of the petitioner firm shall remain under provisional attachment in accordance with law.

4.2 The petitioner firm addressed two communications on 28.03.2021 and 21.04.2022 on the Office of the respondent, where the firm had shown its inclination to have the provisional attachment of the 3 Current Accounts and 24 Fixed Deposits maintained by it in the various banks to be lifted. It approached this Court by way of Special CA No.10659 of 2022 where the Court directed the authorities to decide the applications within a period of four weeks.

4.3 The communication of 24.06.2022 indicates the inclination of the petitioner to have land bearing Plot No. 702+717, 718 and 719 situated at the address given in the communication to be provisionally attached in lieu of Fixed Deposits and the Current Accounts that continued to remain provisionally attached. The petitioner firm vide another communication addressed to the respondent on 24.06.2022 itself, has shown its inclination to have the Fixed Deposits and Current Accounts to be provisionally attached. Both these communications would reflect, according to the respondent, that the petitioner firm was inclined to have the factory land provisionally attached in-lieu of the Fixed Deposits and Current Accounts and on the other hand, it is also willing to have its Fixed Deposits and Current Accounts be continued to be provisionally attached. These are contrary suggestions. The two proposals from modifications of the Order of provisional attachment are given, which are not to be accepted by the respondent with the following reasons:

“i. Attachment of Plot No. 702+717, 718 and 719;

ii. Attachment of land in the ownership of Petitioner No. 1 (wrongly stated to be the ownership of Petitioner No. 2 in prayer clause of the Memo of the present address at Rev. Sr. Petition), having its No. 49/IP/3, Plot No. 7, 8, 9, 10 & 11, “Maruti Park”, Nr. 150 Ft. Ring Road, Opp. HP Petrol Pump, Ronki, Dist.Rajkot– 360003;

iii. The lifting of the Fixed Deposits and Current Accounts maintained maintained by the Petitioner Firm with various banks;

iv. The Central Board of Indirect Taxes and Customs has issued a circular dated 23.02.2021 laying down the guidelines for provisional attachment of property under section 83 of the Goods and Service Tax Act, 2017. Guidelines No.3.4.6 prescribes that;

“In cases where the movable property, bank to including account, belonging taxable person has been attached, such movable property may may be released if taxable person offers, in lieu of movable property, any other immovable property which is sufficient to protect the interest of revenue. Such immovable property should be of value not less than the tax amount in dispute. It should also be free from any subsisting charge, liens, mortgages or encumbrances, property tax fully paid up to date and not involved in any legal dispute. The taxable person must produce the original title deeds and other necessary information relating to the property, for the satisfaction of the concerned officer.”

In the present case, the Petitioner has proposed to offer the land which is already in the ownership of Gujarat Industrial Development Corporation and the same has been leased to the Petitioner Firm.

Therefore, the proposal of the Petitioner to have the land bearing Plot No. 702+717, 718 and 719 be provisionally lifted in-lieu of its Fixed Deposits and Current Accounts would be in violation of the Guidelines No. 3.4.6 of the circular issued by the Central Board of Indirect Taxes and Customs.

v. The Petitioner Firm has proposed to have its residential Plot situated at Rev. Sr. No. 49/IP/3, Plot No. 7,8,9,10 & 11, “Maruti Park”, Nr. 150 Ft. Ring Road, Opp. H.P. Petrol Pump, Ronki, Dist- Rajkot- 360003 be attached as a security in-lieu of its Fixed Deposits and Current Accounts maintained with the various other Banks. The afore-mentioned proposal cannot be accepted as the residential Plot is of the personal ownership of the Petitioner No. 1 and the same cannot be attached as per the judgment dated 27.01.2022 passed in Special Civil Application No. 188 of 2022, whereby the Hon’ble Court has quashed aside the very action of the Respondent authorities of attaching the very same afore-mentioned personal property belonging to the Petitioner No. 1. Therefore, the fresh proposal to have the said residential property being reattached provisionally would be in violation in the afore-mentioned Judgment and Order. Moreover, guideline no. 3.4.3 prescribes that provisional attachment can be made only of the property belonging to the taxable person against whom the proceedings is mentioned under section 83 of the Act are pending. The Petitioner Firm has been regarded as a ‘taxable person and therefore the personal property of the petitioner No.1 cannot be attached.”

4.4 According to the respondent, the tax liability increased to nearly to Rs.95 Crores, a provisional attachment should continue in order to protect the interest of government revenue.

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