SMITA AND SONS COAL PRIVATE LIMITED Vs STATE OF GUJARAT

Bank account cannot be attached if the guidelines as per Circular of CBEC on 23.02.2021 is not followed. The remedy of attachment being by itself very extra ordinary needs to be resorted to with at most circumspection and maximum care and caution. Gujarat High Court quashes Bank Account Freeze Order when the procedure for Bank attachment is not followed. We have the Judgement of Honourable Supreme Court in case of Radha Krishna Industries where Court has defined what is the meaning of Opinion framed. Bank account can be freezed only in case of Commissioner is of the Opinion that it is necessary to do so to protect the interest of Revenue. There is a difference between Opinion and Suspecting. As this is a harsh provision, Procedure needs to be followed as prescribed.

1. The petitioner challenges the order of provisional attachment of the Bank under section 83 of the Gujarat Goods and Services Tax Act, 2017 (‘the Act’ hereinafter) issued on 18.05.2022 issued in FORM No.GST DRC-22 by the respondent No.2 attaching the Bank account of the petitioner on the ground of the violation of provisions of law.

2. Brief facts leading to the present petition are as follow:

2.1 The petitioner is a private limited company engaged in the business of trading in coal. It is also having valid registration number under the Act.

2.2 The respondent No.2 is an officer under the provision of section 3 of the Act entrusted with the assessment and recovery of GST under various provisions of the Act.

2.3 The petitioner is regular in filing its return under the Act both annually and periodically.

2.4 During the period between 2018-19, the petitioner company had purchased Iron and Steel Waste Scrap from M/s. Arsh Enterprise, which has having valid GST registration at the time of purchase of goods. The goods worth Rs.37,31,420/- had been purchased where the value of goods was of Rs.31,53,746/- and the GST was Rs.5,67,674/-. The goods purchased from M/s. Arsh Enterprise also had been sold by the petitioner to various other purchasers and the sale proceeds were received in his Bank account. The GST registration of M/s. Arsh Enterprise had been cancelled on 31.10.2020.

2.5 On 04.01.2022 summons under section 70 of the Act was issued to the petitioner where he was called upon by the respondent No.2 to remain present for recording of statement and production of sales and purchase registers. The summons is silent regarding specific subject matter about the inquiry. The Director of the petitioner was unable to attend on specific date, the request of adjournment was made on 11.01.2022.

2.6 A detailed letter was addressed to the respondent No.2 as no new date was given on 11.02.2022 submitting all documents. The petitioner again served with a letter from respondent No.2 being the letter dated 10.03.2022 calling upon the petitioner to submit details of freehold immovable property, property card, index copy, etc. The respondent failed to indicate any live link with the document sought as well as with the inquiry which the summons under section 70 of the Act was issued.

2.7 It is averred by the petitioner that respondent No.2 had taken extreme coercive steps, whereby his entire business came to a grinding halt by attaching the Bank account without any pending proceedings. With communication on 18.05.2022, FORM GST DRC-22 was issued on the Bank under section 83 of the Act.

2.8 On 21.05.2022, request was made by the petitioner to the respondent No.2 to release the Bank account, however, till date the Bank account is not released and hence, this petition with the following prayers:

“7…

(A) YOUR LORDSHIPS may be pleased to admit and allow this petition.

(B) YOUR LORDSHIPS may kindly be pleased to issue a writ of mandamus or an appropriate writ, orders directions and thereby be pleased to quash and set aside the order of provisional attachment of the petitioner’s current account bearing A/C No.01592000001920 with Kotak Mahindra Bank Limited, Maninagar Branch, Ahmedabad dated 18.05.2022 passed by the respondent No.2;

(C) Pending hearing and final disposal of the present petition, Your Lordships may kindly be pleased to issue an appropriate writ, orders, directions and thereby be pleased to stay the operation and implementation of the orders dated 18.05.2022;

(D) Ex-parte ad interim relief in terms of para 7(C) may kindly be granted;

(E) To grant any other such relief in the nature of case may require.”

3. The emphasis on the part of the petitioner is that the recourse to the powers of section 83 of the Act could be only in exception circumstances. As a last resort, the Bank account be attached and hence, the present petition.

4. On issuance of the notice, appearance has been filed and affidavit-in-reply has also been brought on the record.

4.1 According to the respondent, the petitioner had purchased the goods from M/s. Arsh Enterprise as per its returns filed for the year 2018-19 and 2019-20. Directorate General of Goods and Service Tax Intelligence, Surat Zonal Unit, had gathered the intelligence that M/s. Arsh Enterprise having its place of business at Surat was involved in wrongfully availed and utilizing the Input Tax Credit without any actual receipt or supply of goods.  Hence, the search was conducted at the office premises of M/s. Arsh Enterprise and relevant documents were seized. The panchnama was also recorded on 09.04.2019.

4.2 The show cause notice was issued for the purpose of cancellation of registration of M/s. Arsh Enterprise on 16.10.2020 on the ground that M/s. Arsh Enterprise had obtained the registration by means of fraud, willful mis-statement and by suppression of facts. The proprietor of M/s. Arsh Enterprise was required to remain personally present before the authority and he did remain present.

4.3 It is the say of the respondent that 40 business entities as per the report of intelligence had passed on Input Tax Credit amounting to Rs.6.03 Crore (rounded off) during the period from April 2018 to June 2019 to M/s. Arsh Enterprise and most of these entities were bogus. On verification, it was noticed that M/s. Arsh Enterprise had wrongly availed and utilized the Input Tax Credit amounting to Rs.6,03,77,363/-.

4.4 M/s. Arsh Enterprise being the supplier of goods to the petitioner and since it was found to have availed the Input Tax Credit wrongly without any actual supply of goods and the registration also has been cancelled by means of fraud and by willful misstatement. The respondent authority issued a summons under section 70(1) of the Act intimating the proprietor of petitioner firm to give a statement on 04.01.2022 and produce the sale and purchase registers along with purchase invoices from effective date of GST registration.

4.5 M/s. Arsh Enterprise did not possess any godown/warehouse to restore the goods. The proprietor of the firm remained present and gave a statement on 23.02.2022 that he was not ready to pay any amount of tax along with interest and penalty arising out of the tax activities with M/s. Arsh Enterprise.

4.6 On 10.03.2022, a communication was issued upon the proprietor of the petitioner firm to give the details regarding the freeholds property of the firm and to attach the same under section 83 of the Act in order to protect the Government Revenue. Thus, neither the Director of the company nor the company had any freehold property in India. The respondent was compelled to issue a communication to the Bank.

4.7 These are the circumstances, which have been specified for the purpose of taking recourse to the extreme step of attaching the Bank account.

5. This Court has heard the learned advocate, Mr. Vijay Patel appearing for the petitioner, who has made a serious grievance of the provisional attachment of the Bank account having been made in the moth of May 2022 without taking any legal recourse as required under the law. He has also relied heavily on the Circular No.CBEC-20/16/05/2021-GST/359 so also the provisions of the Act to urge before this Court that the FORM DRC-01A had been issued by the respondent only on 18.01.2023, there was nothing pending for the authority concerned to take recourse to the provisional attachment. He has also brought to the notice of this Court that there had been a genuine purchase from M/s. Arsh Enterprise and its GST registration was also in tacked when the purchase had been made. Relying heavily on the decision of the Arya Metacast Pvt. Ltd. vs. State of Gujarat, Special Civil Application No.2787 of 2022 he has urged this Court to quash the order/communication, whereby the provisional attachment of the Bank account is made.

6. Per contra, the learned AGP, has vehemently submitted that for protecting the revenue’s interest the steps have been taken. More particularly, realizing that the dealing of the present petitioner was with M/s. Arsh Enterprise where about 40 suppliers in whose connection the verification was conducted by the senior intelligence officer. The process revealed that the supplier listed in the communication dated 23.06.2022 have passed on the Input Tax Credit amounting to Rs.6.03 Crore to M/s. Arch Enterprise. They were found to be bogus/fake firms. M/s. Arsh Enterprise since had wrongly availed and utilized the Input Tax Credit amounting to Rs.6.03 Crore on the strength of the invoice issued from supplier, further investigation was necessary. The preliminary verification in respect of the supplier had necessiate the action on the part of the respondent authority. More particularly, when the petitioner had been called and neither the director nor the company had any immovable property at his credit. He admits that FORM DRC-01A has been issued after about six to seven months’ period. The officer concerned is also conscious of the Circular No. CBEC-20/16/05/2021-GST/359.

7. Having thus heard the learned advocates on both the sides and having also perused the material on the record, it clearly appears that there had been a cancellation of registration of M/s. Arsh Enterprise. M/s. Arsh Enterprise is found to be receiving bogus bills and invoices without actual supply of goods. It did not have the godown/warehouse to store the goods. The officer was, therefore, of the prima facei opinion that the company was involved in availing and utilizing the Input Tax Credit without there being any actual supply of goods from the supplier. The petitioner company since did not have any freehold property and there was nothing, it could have offered pursuant to the summons issued by the respondent authorities, it had chosen to provisionally attache the Bank account for protecting the interest of revenue.

8. Undoubtedly, the powers exercise under section 83 of the Act are serious and harsh in nature. This Court in Special Civil Application No.2787 of 2022 in case of Arya Metacast (supra) had an occasion to deal with the very issue of attachment under section 83 of the Act of the Bank account. The Court also had an occasion to consider the Circular issued by the CBES to hold that sparingly the powers of section 83 of provisional attachment needs to be taken recourse of. It should not use as a tool to harass the assessee nor should it be used in any manner that it may have irresistible detrimental effect on the business of the assessee.

8.1 The summary of findings recorded by the this Court reads as under:

“8. We have carefully gone through the records as well as have also examined the documents and the judgments relied upon by the learned counsel for the writ applicants. Before we decide the aspect of the exercise of powers by the respondent authority, while passing the impugned order, it would be appropriate at this stage to look into the instructions issued by the Central Board of Indirect Taxes and Customs vide dated 23.02.2021.

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SMITA AND SONS COAL PRIVATE LIMITED

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