Normal Business Activities should not be hampered by Provisional Attachment: HC Quashes Attachment Order

The writ applicants are a Private Limited Company and the Managing Director of the said company.

The company is engaged in the manufacture and sale of ingots, having a factory situated near Rajkot, Gujarat State, and is duly registered under the GST Act and is thus a registered taxable person.

The writ applicants have claims to have regularly paid output tax for three Financial Years i.e. A.Y. 2018-19, 2019-20, and 2020-21. It is further pleaded by the writ applicants that they have entered into the business transaction only with genuine dealers who are registered taxable persons under the GST act. In support, the writ applicants have placed on record regularly maintained records of the purchase transactions, which include invoices, e-way bills, weightment slips, photographs of material being unloaded and material received inspection reports, etc.

The office of the Deputy Commissioner of State Tax, Vadodara, suspected that the writ applicant had shown purchases from fictitious firms, which are otherwise non-existent.

Proceedings were launched against the writ-applicants whereby a search was carried out at the business premises as per the procedure prescribed under Section 67 of the GST Act.

In the said search, the dispute arose with regard to the claim for input tax credit availed by the writ applicants on the ground that the Firm from whom the writ applicants had made the purchase, was not found to be genuine.

Pursuant to such search, the writ applicants were served form GST DRC-22 dated 27.11.2021, whereby the respondent authority had passed an order of provisional attachment of various properties of the writ applicant.

Submission of Petitioner:

Mr. Sheth referred to and relied upon the decision of the Supreme Court in the case of Radhe Krishan Industries Vs. State of Himachal Pradesh reported in (2021) 6 SCC 771. Mr. Sheth has further drawn attention of this Court to the Circular bearing No. CBEC-20/16/05/2021-GST dated 23.02.2021, whereby the Central Board of Indirect Taxes and Customs of the Revenue Department have laid down various guidelines for provisional attachment of the property under Section 83 of the CGST Act, 2017. It would be apposite at this stage to look into the guidelines issued by the Central Board of Indirect Taxes and Customs. Mr. Sheth by referring to and relying upon the aforesaid guidelines has submitted that the respondent authority should not have acted in manner to hamper normal business activities of the writ applicants by provisionally attaching the stock of goods worth Rs. 4.91 Crore, demat account worth Rs. 57,17,413/- as well as current account having closing balance amount of Rs. 1,03,374/-.

He further submitted that even considering the satisfaction note, even if accepted then also the prima facie tax liability of the writ applicant company comes to around Rs.4,73,39,338/- which in future with penalty and interest may result into total amount of Rs. 10,76,61,243/-. He further submitted that as on date no substantial proceedings have been initiated against the writ applicants and on the other than the period of almost four months have passed since the order of provisional attachment dated 27.11.2021. He therefore urged this Court to grant reliefs as prayed for.

Submission of Department:

Learned AGP has referred to list of 15 fictitious firms and has submitted that prima facie the investigation so far undertaken reveals that the writ applicants have wrongly availed the input tax credit worth Rs. 4, 73, 39, 338/- which has ultimately resulted into tax evasion and as on date the total evasion of tax including penalty and interest comes to Rs. 10, 76, 61, 243/-. Mr. Sharma has further contended that the Assistant Commissioner of State Tax, during the course of inquiry, has seized various invoices of the aforesaid fictitious firms. He further emphasize that such tangible material has lead to believe the Assistant Commissioner of State Tax(4) to prima facie arrived at subjective satisfaction that the assessee is likely to defeat the demand and at the same time, the quantum of tax evasion involved is likely to increase further which may enhance the gravity of the case. Mr. Sharma further submitted that the Assistant Commissioner of State Tax (4) in order to protect the interest of Revenue has formed the opinion to provisionally attached various properties of the writ applicants in exercise of power conferred under Section 83 of the Act. It was therefore, submitted that the respondent Authorities have duly adhered to the provisions of law as well as guidelines issued by the Central Board of Indirect Taxes and Customs before passing the impugned order of provisional attachment. He therefore, prayed to not to interfere at this stage.

Order of Court:

11. In the facts of the case, undisputedly, the respondent no.2 has not only provisionally attached the stock of goods lying at the factory premise of the writ applicants, at the same time, the respondent No.2 has also provisionally attached the demat
account and current account of the writ applicants. These are the valuable assets of the writ applicants, more particularly, raw material and the finished goods are valuables which are otherwise necessary for running of the business of the applicants. Even operating the demat account and current account are essentially required for the routine business of the writ applicants. Time and again, this Court as well as even the instructions instructions issued by the higher authority of the respondents, has directed the proper officer to ensure that their action of the provisional attachment should not hamper normal business activities of the taxable person. Even thereafter this Court vide judgment dated 27.01.2022 passed in Special Civil Application No.188 of 2022 in the case of M/s. Utkarsh Ispat LLP Vs. State of Gujarat had an occasion to deal with the similar facts whereby the respondent authorities have provisionally attached goods, stock and receivables and also bank accounts. This Court did not approve the provisional attachment of the goods, stock and receivables, more particularly, when the entire stock and receivables have been pledged and a floating charge has been created in favour of the Kalupur Commercial Bank Limited for the purpose of availing the cash credit facility with the provisional attachment of the goods, stock and receivables the entire business will come to a standstill.

12. For the aforesaid reasons, present writ application succeeds in part. We hereby quash and set aside the order of the provisional attachment dated 27.11.2021 qua the stock of goods, two demat accounts as well as current account of the writ applicants is concerned. So far the prayer of the writ applicants with regard to release of electronic items including Mobile Phone, laptop and other documents seized during the search proceedings are concerned, same is also directed to be released forthwith on condition that the writ applicants shall file an undertaking before the respondent no.2 thereby declaring that the aforesaid goods electronic items including mobile phone, laptop and other seized documents shall be retained in its original form and shall not be disposed of pending the investigation, if any. At the same time, we permit the respondent authorities to secure the original data by availing necessary certificate under Section 65B of the Information and Technology Act.