Facts of the Case

The petitioner, M/s Mitansh Impex, is engaged in the business of trading ferrous and non-ferrous metals and is registered under the Central Goods and Services Tax Act, 2017 as well as the Gujarat Goods and Services Tax Act, 2017.

The State Tax Department initiated proceedings by issuing summons under Section 70(1) of the CGST Act, 2017. During the investigation, the Department alleged that M/s Sabarmati Resources Limited was involved in issuing bogus invoices without actual movement of goods and that the petitioner had availed wrongful Input Tax Credit (ITC) on purchases made from the said entity.

The Department provisionally attached the petitioner's current bank account under Section 83 of the CGST Act through a communication dated 07.05.2022 and a satisfactory note dated 06.05.2022. Aggrieved by the attachment of its bank account, the petitioner approached the Gujarat High Court under Article 226 of the Constitution of India challenging the provisional attachment.

Issues Involved

  1. Whether the provisional attachment of the petitioner's bank account under Section 83 of the CGST Act, 2017 was justified during the pendency of investigation.
  2. Whether the Department could insist upon furnishing a bank guarantee covering tax, interest, and penalty before lifting the attachment.
  3. Whether the interests of the revenue could be adequately protected by furnishing security equivalent only to the disputed tax amount.

Petitioner's Arguments

  • The petitioner submitted that the power of provisional attachment under Section 83 of the CGST Act is an extraordinary and drastic power which should be exercised with utmost care and caution.
  • It was argued that no adjudication had yet been completed and no final tax demand had been determined.
  • The petitioner had already furnished replies and documentary evidence during the investigation and was willing to cooperate with the authorities.
  • The freezing of the current account completely disrupted the petitioner's business operations and adversely affected its livelihood.
  • The petitioner further submitted that it was willing to furnish a bank guarantee equivalent to the disputed tax amount for securing the interests of the revenue.

Respondent's Arguments

  • The State Tax Department contended that sufficient opportunities had been granted to the petitioner to establish the genuineness of its purchase transactions.
  • According to the Department, the petitioner failed to produce satisfactory evidence proving genuine purchases from M/s Sabarmati Resources Limited.
  • Since wrongful ITC amounting to ₹6,10,511 had allegedly been availed, provisional attachment of the bank account was necessary to safeguard government revenue.
  • The Department further argued that any bank guarantee should cover not only the tax amount but also the applicable interest and penalty.

Court Order / Findings

The Gujarat High Court observed that although the Department is empowered to provisionally attach property under Section 83 of the CGST Act, such power must be exercised reasonably and proportionately.

The Court held that:

  • The adjudication proceedings against the petitioner were still pending.
  • At this stage, there was no justification for insisting upon security towards interest and penalty, as those liabilities had not attained finality.
  • Protection of the revenue could adequately be achieved by obtaining a bank guarantee equivalent only to the disputed tax amount of ₹6,10,511.

Accordingly, the Court:

  • Set aside the communication dated 07.05.2022 and the satisfactory note/order dated 06.05.2022 attaching the petitioner's current bank account.
  • Directed that the bank attachment be lifted upon the petitioner furnishing a bank guarantee of ₹6,10,511, being the disputed tax amount alone.
  • Clarified that no opinion was being expressed on the merits of the tax dispute, which would be decided independently during adjudication.

Important Clarification

  • Section 83 of the CGST Act is a protective provision intended to safeguard government revenue and cannot be exercised arbitrarily.
  • During the pendency of adjudication, authorities cannot ordinarily insist that security should also cover interest and penalty, unless circumstances justify such action.
  • Courts may balance the interests of the revenue and the taxpayer by directing furnishing of security limited to the disputed tax amount.
  • Lifting of provisional attachment does not amount to deciding the tax liability on merits.

Sections Involved

  • Article 226 of the Constitution of India
  • Section 70(1) of the Central Goods and Services Tax Act, 2017
  • Section 83 of the Central Goods and Services Tax Act, 2017

Link to Download the Order

https://www.mytaxexpert.co.in/uploads/1785569724_2535compressed.pdf  

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