Facts of the Case

The petitioner, Conceptial Trade, was engaged in the business of trading products such as garments, footwear and leather accessories. It operated from Mumbai, Maharashtra, and asserted that it had no commercial presence in the State of Gujarat and was not registered under the Gujarat State tax laws.

According to the petitioner, it intended to purchase certain goods from M/s Raja Traders, Ahmedabad, and had paid an advance amount of approximately Rs. 20 lakh for that purpose. The petitioner contended that the goods were never supplied and the advance amount was also not returned.

The Assistant Commissioner of State Tax, Unit-16, Ahmedabad, issued a provisional attachment order dated 06.01.2022 in Form GST DRC-22 under Section 83 of the CGST Act and GGST Act read with Rule 159(1) of the GST Rules, attaching the petitioner’s bank account maintained with IDFC First Bank, Kandivali (West), Mumbai.

The department’s case was that M/s Raja Traders and its syndicate had fraudulently availed GST refunds, and that there was no genuine sale or purchase transaction with the petitioner. The authorities alleged that funds were transferred into the petitioner’s bank account with an intention to defraud Government revenue and that the petitioner was part of a syndicate allegedly involved in bogus billing and fraudulent GST refund activities without actual business transactions or movement of goods.

The judgment records that proceedings had been initiated under Section 67(2) in relation to M/s Raja Traders. The department had allegedly received information concerning use of GST registration for bogus billing activity without actual movement of goods and generation or transfer of amounts in violation of GST law.

Thereafter, a summons dated 21.01.2022 under Section 70(1) of the CGST and GGST Acts was issued to the petitioner requiring personal appearance before the authority.

The petitioner approached the Gujarat High Court under Article 226 of the Constitution of India, seeking, inter alia, setting aside of the provisional attachment notice dated 06.01.2022, de-freezing of its bank account, and challenge to the summons.

Issues Involved

The principal issues before the Court were:

  1. Whether provisional attachment of the petitioner’s bank account under Section 83 could legally be ordered when no qualifying proceedings had been initiated or were pending against the petitioner on the date of attachment.
  2. Whether the subsequent issuance of summons under Section 70(1) on 21.01.2022 could validate or sustain an earlier provisional attachment order dated 06.01.2022.
  3. Whether pendency of proceedings against another taxable entity, namely M/s Raja Traders, was sufficient to invoke the drastic power of provisional attachment against the petitioner.
  4. Whether the requirement of initiation or pendency of proceedings continued to remain essential even after amendment of Section 83 with effect from 01.01.2022.
  5. Whether the department could continue investigation pursuant to the summons and subsequently consider fresh provisional attachment in accordance with law.

Petitioner’s Arguments

The petitioner argued that since it operated from Mumbai, Maharashtra, and had no commercial presence in Gujarat, the impugned action suffered from lack of jurisdiction.

It was further argued that the statutory power under Section 83 could be exercised only when the necessary statutory preconditions were fulfilled. Under the earlier provision, proceedings under Sections 62, 63, 64, 67, 73 or 74 were required to be pending before provisional attachment could be ordered.

The petitioner relied upon the following case laws:

Pranit Desai vs Additional Director General, DGGI [2019 (30) GSTL 396 (Guj.)] — relied upon to contend that provisional attachment must rest upon material on record demonstrating proper formation of opinion by the competent authority.

Valerius Industries vs Union of India [2019 (30) GSTL 15 (Guj.)] — relied upon for the principle that the extraordinary power of provisional attachment requires proper statutory satisfaction and cannot be exercised mechanically.

Patran Steel Rolling Mill vs Assistant Commissioner of State Tax, Unit-2 [2019 (20) GSTL 732 (Guj.)] — cited to argue that powers under Section 83 should not be exercised in a manner causing irreversible detrimental consequences to the assessee’s business.

Jai Ambey Filament Pvt. Ltd. vs Union of India [2021 (44) GSTL 41 (Guj.)] — relied upon to submit that subjective satisfaction under Section 83 cannot rest upon imaginary grounds and must be supported by credible material showing that attachment is necessary.

The petitioner therefore contended that the freezing of its bank account was illegal and liable to be set aside.

Respondents’ Arguments

The respondents relied upon the affidavit-in-reply and contended that certain persons had allegedly created bogus companies and firms in the names of relatives, appointed themselves as directors and perpetrated fraud concerning a refund amount of approximately Rs. 29 crore.

According to the department, various companies were allegedly involved in fraudulent availment of credit and were not carrying on genuine business activities.

The respondents further stated that a search operation concerning M/s Raja Traders was conducted from 28.12.2021 to 31.12.2021. Alleged irregularities and illegal activities were found, including absence of books of account at its registered office and circumstances suggesting that its proprietor was not known there. Its registration was stated to have been cancelled.

The department also relied upon banking transactions. The judgment records the respondents’ contention that the bank account of M/s Raja Traders showed receipt of Rs. 19,95,000 from Profusion Traders Pvt. Ltd., followed by transfer of Rs. 20,00,000 on the same day into the petitioner’s IDFC Bank account. On this basis, the respondents sought to justify invocation of Section 83 and freezing of the petitioner’s bank account.

Court’s Findings and Order

The Gujarat High Court examined the statutory scope of Section 83 and held that the power of provisional attachment is intended to protect the interest of Government revenue, but can be exercised only when the statutory conditions governing its invocation are fulfilled.

The Court observed that, under the earlier version of Section 83, provisional attachment could operate during pendency of proceedings under Sections 62, 63, 64, 67, 73 or 74.

The Court placed significant reliance upon Radha Krishan Industries vs State of Himachal Pradesh [(2021) 6 SCC 771], where the Supreme Court held that Section 83 requires pendency of proceedings under the relevant statutory provisions and that proceedings against another taxable entity cannot, by themselves, justify attachment of the property of a different person. The Supreme Court had emphasised that Section 83 confers a draconian power and must therefore be interpreted restrictively.

The Gujarat High Court specifically considered the amendment to Section 83 effective from 01.01.2022. Under the amended provision, after initiation of proceedings under Chapter XII, Chapter XIV or Chapter XV, the Commissioner may, subject to statutory satisfaction regarding protection of Government revenue, provisionally attach property, including a bank account, belonging to the taxable person or a person specified in Section 122(1A).

The Court held that the amendment did not eliminate the foundational requirement of initiation or pendency of proceedings. The essential statutory condition continued to remain that there must first be relevant proceedings before the provisional attachment power could be invoked.

On the facts, the Court found:

  • The impugned provisional attachment notice was issued on 06.01.2022.
  • At that time, no proceedings were pending or initiated in the manner required for invocation of Section 83.
  • The summons under Section 70(1) was issued only later, on 21.01.2022.
  • Therefore, the very invocation of Section 83 on 06.01.2022 was made in the absence of prior initiation of proceedings.
  • Consequently, the provisional attachment of the petitioner’s bank account was illegal.

Accordingly, the Court set aside the attachment order dated 06.01.2022. However, the respondents were permitted to continue proceedings pursuant to the summons dated 21.01.2022 and were granted liberty to consider provisional attachment under Section 83 afresh, strictly in accordance with law.

The petition was therefore partly allowed, and Rule was made absolute to that extent.

Important Clarification

This judgment does not hold that the GST authorities can never provisionally attach the petitioner’s bank account. The Court’s ruling is narrower and procedurally significant: Section 83 cannot be invoked before satisfaction of the statutory prerequisite concerning initiation or pendency of relevant proceedings.

The Court expressly clarified that the department could:

  • continue further proceedings pursuant to the summons dated 21.01.2022; and
  • consider imposing provisional attachment under Section 83 thereafter, provided such action is taken in accordance with law.

A particularly important legal clarification is that the 2022 amendment to Section 83 did not remove the basic prerequisite of prior initiation of proceedings. The Court held that although the statutory language changed from attachment “during the pendency” of specified proceedings to attachment “after the initiation” of proceedings under specified Chapters, the fundamental requirement remains that proceedings must first exist before attachment power is exercised.

Thus, a later summons or subsequent investigative step cannot retrospectively cure an attachment order that was legally unsupported on the date on which it was issued.

Sections Involved

Section 83 of the CGST Act / GGST Act — Provisional attachment to protect Government revenue; central provision involved in the dispute.

Section 70(1) of the CGST Act / GGST Act — Power to summon persons to give evidence and produce documents; summons was issued after the attachment order.

Section 67(2) — Search and seizure proceedings referred to in connection with M/s Raja Traders.

Sections 62, 63, 64, 67, 73 and 74 — Proceedings specifically referred to under the pre-amendment framework of Section 83.

Amended Section 83 effective from 01.01.2022 — Permits provisional attachment after initiation of proceedings under Chapters XII, XIV or XV, subject to statutory conditions.

Section 122(1A) — Referred to in amended Section 83 concerning specified persons whose property may be provisionally attached.

Rule 159(1) of the GST Rules — Procedure concerning provisional attachment; the impugned action was issued in Form GST DRC-22.

Article 226 of the Constitution of India — Constitutional writ jurisdiction invoked before the Gujarat High Court.

Link to download the order -https://www.mytaxexpert.co.in/uploads/1783493119_1399compressed.pdf

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