Facts of the Case

The present writ petition was filed by the petitioner, Watermelon Management Services Private Limited, challenging the impugned order dated 03.06.2020, whereby provisional attachment orders dated 05.03.2020 along with corrigendum dated 01.06.2020 were kept alive by the department.

The attachment was made on the ground that proceedings under Section 67 of the CGST Act, 2017 were pending. The respondent authority also acknowledged that investigation had already been handed over to the Directorate General of GST Intelligence (DGGI), which had been investigating the matter since 05.12.2018.

During investigation, it was alleged that the petitioner had availed fraudulent Input Tax Credit (ITC) through eight non-existent suppliers issuing fake invoices. Statements of employees indicated that no services were actually received. It was further found that another group company had also availed fake ITC.

Additionally, no financial records for the relevant period were maintained, and the petitioner allegedly failed to cooperate with the investigation.

Issues Involved

  1. Whether provisional attachment under Section 83 of the CGST Act, 2017 is valid when investigation is ongoing under Section 67.
  2. Whether continuation of attachment is justified when investigation is being conducted by another authority (DGGI).
  3. Whether absence of proceedings under Section 74 invalidates the provisional attachment.
  4. Whether the attachment order was without jurisdiction. 

Petitioner’s Arguments

  • The petitioner contended that no proceedings under Section 74 had been initiated, and therefore, provisional attachment was without jurisdiction.
  • It was argued that search and seizure proceedings had already concluded on 04th and 05th March 2020.
  • The petitioner submitted that DGGI had been investigating the matter since 2018, yet no attachment order had been passed by them.
  • Hence, continuation of attachment by the respondent authority was arbitrary and illegal.

Respondent’s Arguments

  • The respondents submitted that the petitioner had:
    • Not maintained financial records for FY 2017-18 and 2018-19.
    • Failed to produce evidence proving genuineness of ITC.
    • Not cooperated with the investigation despite multiple opportunities.
  • It was argued that:
    • The petitioner fraudulently availed ITC through fake invoices.
    • Provisional attachment under Section 83 CGST Act was necessary to safeguard government revenue.
  • The department also clarified that proceedings were under Section 67 (inspection/search) and not Section 74, and investigation was still ongoing.
  • Officers from DGGI confirmed prima facie wrongful availment of ITC and non-compliance by the petitioner. 

Court’s Findings / Order

The Hon’ble Delhi High Court observed:

  • Serious allegations of fraudulent ITC availment were made against the petitioner.
  • Both the Commissioner and DGGI officers confirmed prima facie wrongdoing.
  • The petitioner had not fully cooperated with the investigation.

Order:

  • The Court directed the DGGI to complete the investigation within three months.
  • The writ petition was disposed of with directions:
    • Petitioner and its Directors must cooperate with the investigation.
    • Upon completion:
      • If allegations are not substantiated → proceedings to be closed.
      • If substantiated → appropriate show cause notice to be issued.

Important Clarification

  • Section 83 CGST Act allows provisional attachment during pendency of proceedings under Sections 62, 63, 64, 67, 73, or 74.
  • The Court implicitly upheld that:
    • Attachment can continue even when investigation is ongoing under Section 67.
    • Parallel jurisdiction issues do not invalidate attachment when revenue protection is involved.
  • The judgment emphasizes cooperation with investigation as a key factor.

Sections Involved

  • Section 67 – Inspection, Search and Seizure
  • Section 70 – Power to summon persons
  • Section 74 – Determination of tax involving fraud
  • Section 83 – Provisional attachment of property

Link to download the order -  https://delhihighcourt.nic.in/app/case_number_pdf/2020:DHC:2177-DB/MMH29062020CW36182020_195035.pdf

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