Provisional
Attachment Under GST Struck Down: A Landmark Judgment by Madras High Court
By Yogesh Verma (CS/LLB) / 2 min read / GST Case Law
Introduction
The Goods and Services Tax (GST) framework has granted
extensive powers to tax authorities to safeguard government revenue. One such
provision is Section 83 of the CGST Act, 2017, which allows the
provisional attachment of a taxpayer’s property, including bank accounts,
during an ongoing investigation. However, this power has been subject to
judicial scrutiny due to its draconian nature and potential for
misuse.
In a recent case, Kesar Jewellers vs. Directorate General
of GST Intelligence (DGGI) & Axis Bank (W.P. No. 20967 of 2024), the Madras
High Court set aside a provisional attachment order, citing a lack of tangible
material, procedural fairness, and natural justice. This ruling reaffirms
that authorities must not use Section 83 arbitrarily and must ensure compliance
with due process.
Background of the Case
1. Business Operations of Kesar
Jewellers
Kesar Jewellers, a proprietorship firm based in Chennai,
Tamil Nadu, has been engaged in the trade of gold bullion and jewellery
since 2008. The firm procured bullion primarily from:
- M/s.
LABH, Ahmedabad
- M/s.
SS Bullion, Chennai
- M/s.
Shiv Sahay Bullion, Chennai
The sales were made to various buyers, including:
- M/s.
Silver CZ Jewellers, Chennai
- M/s.
Vijay Bullion
- M/s.
Suresh Jewellery
Kesar Jewellers is a registered taxpayer under GST
and has been regularly filing returns and paying taxes as required under
the GST Act.
2. Investigation and Provisional
Attachment
a) DGGI Investigation
- On
June 26, 2023, the Directorate General of GST Intelligence
(DGGI), Chennai Zonal Unit, issued a summons under Section 70 of
the CGST Act, requiring Kesar Jewellers to appear for questioning.
- Subsequently,
on June 30, 2023, DGGI searched the premises of Kesar Jewellers,
seizing documents, invoices, mobile phones, and a pen drive.
- A
second search was conducted on January 18, 2024, during which gold
bars, a computer, mobile phones, cash, and additional documents were
seized.
- On
January 19, 2024, DGGI issued an arrest memo, citing grounds
for arrest related to alleged tax evasion. The petitioner was remanded
to judicial custody until February 2, 2024, before being
granted bail on February 13, 2024.
b) Provisional Attachment of Bank
Accounts
- On
the same day (February 13, 2024) that bail was granted, the DGGI
issued an order in Form GST DRC-22, provisionally attaching the bank
accounts of Kesar Jewellers under Section 83 of the CGST Act, 2017.
- The
attachment covered multiple accounts held at Axis Bank, effectively
freezing all financial transactions of the business.
3. Grounds for the Writ Petition
Kesar Jewellers challenged the provisional attachment
through a writ petition, arguing that the attachment order was illegal and
arbitrary due to the following reasons:
1.
Lack of
Tangible Material:
o There was no concrete evidence demonstrating that the
attachment was necessary to protect government revenue.
o The Supreme Court, in Radha Krishan Industries v. State
of H.P. (2021) 6 SCC 771, ruled that provisional attachment must be
supported by tangible material and a live link to potential revenue loss.
2.
Jurisdictional
Overreach:
o Section 83
is an emergency provision, meant to be used only when no other
measure can safeguard revenue.
o The mere pendency of an investigation is not
sufficient ground to invoke Section 83.
3.
Violation
of Natural Justice:
o The attachment order failed to provide any reasons,
denying the petitioner an opportunity to challenge the action effectively.
o Despite multiple requests to de-freeze the accounts
(submitted on May 24, May 31, June 3, and June 7, 2024), the DGGI
failed to consider them.
4.
Failure to
Follow Rule 159(5) of CGST Rules:
o The petitioner was required to file objections in Form
DRC-23.
o However, the DGGI refused to consider objections filed
via letters, without even informing the petitioner to refile in the
prescribed format.
Respondents’ (DGGI’s) Defense
The DGGI and Axis Bank justified the attachment based
on the following grounds:
1.
Tax
Evasion Allegations:
o Kesar Jewellers was accused of clandestine removal of
gold bullion without proper invoices.
o The firm allegedly availed ITC fraudulently without
actual receipt of goods.
o The petitioner admitted to these violations in a
statement recorded on January 19, 2024.
2.
Fake
Suppliers & Buyers:
o Investigations revealed that several suppliers and buyers
were non-existent.
o One such entity, M/s. Diva Trading, admitted to being
a fake name-lender without real transactions.
3.
Technical
Limitation in GST Portal:
o The DGGI argued that Form DRC-22 and the GST portal lack
the space to provide detailed reasons for the attachment.
Court’s Analysis & Findings
1. No Tangible Material Justifying
Attachment
- The
attachment order merely copied the language of Section 83, without
presenting any specific evidence to justify the action.
- The
pendency of an investigation does not automatically justify attachment,
as ruled by the Supreme Court in Radha Krishan Industries.
2. Violation of Natural Justice
- Failure
to disclose reasons
deprived the petitioner of a meaningful opportunity to respond.
- Even
though the petitioner did not use Form DRC-23, the DGGI should
have allowed rectification instead of outright rejection.
3. Rejection of Technical
Justification
- The
court rejected the argument that technical limitations in the
GST portal prevented the inclusion of reasons in Form DRC-22.
- The
DGGI could have issued a separate notice explaining the reasons.
Judgment & Key Takeaways
Final Judgment:
- The
Madras High Court set aside the attachment order and directed the de-freezing
of Kesar Jewellers’ bank accounts.
- The
writ petition was allowed, and the miscellaneous petitions were closed.
Key Legal Takeaways:
1.
Provisional
Attachment Requires Clear Justification:
o Authorities must provide tangible material and
establish a live link between the alleged fraud and the necessity of
attachment.
2.
Reasons
Must Be Clearly Stated:
o An attachment order must specifically explain why it is
necessary to protect government revenue.
3.
Opportunity
to Object Must Be Real & Effective:
o Mere procedural non-compliance (such as not using
Form DRC-23) should not be used to reject legitimate objections.
4.
Technical
Limitations Do Not Justify Legal Violations:
o The DGGI’s failure to provide reasons due to space
constraints in Form DRC-22 was not a valid excuse.
Conclusion
The Madras High Court’s ruling in Kesar Jewellers vs.
DGGI is a significant victory for businesses facing arbitrary GST
enforcement actions. It reinforces that provisional attachment under
Section 83 must be exercised with extreme caution and only in cases where no
other measure is sufficient to protect government revenue.
This judgment sets a strong precedent against misuse
of provisional attachment powers and ensures that natural justice and
fair play remain integral to GST proceedings.
Disclaimer: All the Information is based on the notification, circular and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.
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