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Power of Provisional Attachment of Property Under GST Is Draconian: Supreme Court

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Case Name: Radha Krishan Industries vs. State of Himachal Pradesh [CA 1155 of 2021]


In a judgement on Tuesday (April 20, 2021), the Supreme Court of India observed that the power which was provided under GST for provisional attachment of property was a draconian power and should be strictly construed and exercised only on the basis of tangible material.

Facts of the Case

In the present case, the Appellant had a factory in a village of Himachal Pradesh and when the GST was introduced, he had registered under GST with effect from July 1, 2017. Later in October 2018, a notice was issued to the Appellant, under section 74 of HPGST and CGST requiring him to produce certain documents on Oct. 9, 2018. He produced the original tax invoice by a letter dated Oct.15, 2018, before the 3rd Respondent. Meanwhile, a detection case was registered against one of the suppliers of the Appellant. After the search and seizure, that supplier was arrested for raising fraudulent claims of the input tax credit from fake firms of Delhi and Kanpur.

Again, a memo was sent to the Appellant explaining the allegedly illegal claim of ICT made during 2017-18 & 2018-19 which was declined by him. Thereafter, on Jan. 2019 a notice was sent to one of the consumers of the Appellant for provisionally attaching an amount of RS.5 Crores due to the Appellant under Section 83 of HPGST Act and later the Order was passed. the Respondent claimed detection of tax evasion and the utilization of ITC against the invoice, by the said supplier, which was issued to various recipients in the state including the Appellant. As a result, the Appellant was asked to pay tax, interest and penalty of Rs.3.5 Crores. Also, after the proceedings, a tax liability of Rs.3.49 Crores was confirmed against the supplier and the case came into the category of serious tax fraud. 

After the delegation of power by the Commissioner of State Taxes and Excise, HP, to the 3rd Respondent, two Orders of provisional attachment were issued by him to two of the customers of the appellant for the payment owed by them to the Appellant which was objected by him and liability was denied. This objection was rejected by the 3rd Respondent and a show-cause notice was issued to the Appellant for recovering ITC, interest and penalty. The Appellant challenged the Order of provisional attachment and order of delegation of powers by the Commissioner which was dismissed by the High Court. As a result, the appeal was filed before the Supreme Court.   

Pleadings before the Court

The Learned Counsel on behalf of the Petitioner submitted that the orders of provisional attachment issued under Section 83 of the HPGST Act have no effective alternative remedy except to file a writ petition. Furthermore, the impugned provisional attachment orders were in violation of the procedure set out in sub-rule (5) of Rule 159 of the HPGST Rules, which mandates that an opportunity to be heard be provided in opposition to the provisional attachment. When the provisional attachment was objected to, in this case, the 3rd Respondent dismissed the objection without giving the Appellant an opportunity to be heard. It was further submitted that the provisional attachment power under Section 83 of the HPGST Act is a severe power that must be used with extreme caution. It can only be used if there was ample evidence on record that the assessee was about to dispose of all or part of its property to thwart the ultimate collection of tax.

On the other hand, the learned counsel for the Respondent submitted that the SLP should be dismissed because the claimant has the option of filing an appeal under Section 107 of the HPGST Act, which was a more effective and efficient remedy. Furthermore, the SLP has been made ineffective as a result of the Order dated 18 February 2021 issued under Section 74(9) of the HPGST Act and the Appellant’s subsequent appeal to the appellate authority. It was further submitted that after the proceedings against the supplier were completed and it was discovered that the supplier had no company or assets in Himachal Pradesh, the impugned Orders of provisional attachment were issued based on a new collection of allegations. Furthermore, it was argued that the provisional attachment is intended to protect the revenue’s interests when the proceedings were ongoing, not only for the purpose of recovery.

Court’s Observation

The bench of the Supreme Court comprising Justices DY Chandrachud and MR Shah observed that although ordering a provisional attachment under section 83 is a draconian power, the Joint Commissioner was acting as a delegate of the Commissioner pursuant to the delegation effected under Section 5(3), and there was no right of appeal against the provisional attachment order under Section 107. Also, before the Commissioner can levy a provisional attachment, the Commissioner must form “the opinion” and determine that it was appropriate “to do” to protect the government’s revenue interests.

It was further observed that through using the phrase “it is necessary so to do,” the legislature has indicated that an attachment was approved not simply because it was expedient (or lucrative or practicable for the revenue to do so), but because it was necessary to protect the government’s revenue interests. The term “necessity” implies a more stringent condition than “opportunity.”

Court’s Judgement

The Supreme Court set aside the impugned judgement of the High Court and held that the power to order a provisional attachment of a taxable person’s property, including a bank account, was draconian in nature and the statute’s provisions for a legal exercise of the power must be strictly followed.

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