Supreme Court: Provisional Attachment Powers Under GST Act Are Draconian In Nature
The Supreme Court (SC) in the case titled M/s Radha Krishan Industries (Appellant) v. State of Himachal Pradesh & Ors. (Respondents) ruled that the power to order a provisional attachment of property, including the bank account of a taxable person, under the Goods & Services Tax (GST) law is draconian in nature and must be based on tangible material.
The SC division bench comprising of Justices DY Chandrachud and MR Shah decided an appeal against an order of the Himachal Pradesh High Court (HC). The Court said that the exercise of such power must be preceded by the formation of an opinion by the Commissioner that it's necessary to do so for the purpose of protecting the interest of the government revenue.
The HC in the instant matter held that a writ is ordinarily not maintainable when there exists an alternative remedy. The exceptions to this rule are where the statutory authority has not acted in accordance with the provisions of the legislation; or acted in defiance of the fundamental principles of the judicial procedure or where an order has been passed in violation of the principles of natural justice.
The HC ruled that it would not entertain a petition under Article 226 of the Constitution if an efficacious remedy is available to the aggrieved person or where the statute under which the action complained of has been taken contains a mechanism for redressal of grievances.
The HC held that when a statutory forum of appeal exists, an appeal should "not be entertained ignoring the statutory dispensation."
Issues before the SC
(i) Whether a writ petition challenging the orders of provisional attachment was maintainable under Article 226 of the Constitution before the High Court?
If the answer to (i) is in the affirmative then,
(ii) Whether the orders of provisional attachment constitute a valid exercise of power?
The SC while dealing with the aforesaid issues said that Section 83 provides some indication of Parliamentary intent, it provides for "provisional attachment to protect revenue in certain cases"-
- The attachment is provisional – provisional in the sense that it is in aid of something else.
- The purpose is to protect the revenue.
- The expression "in certain cases" shows that in order to effect a provisional attachment, the conditions that have been spelt out in the statute must be fulfilled.
- Marginal notes, it is well-settled, do not control a statutory provision but provide some guidance in regard to content.
The language of the statute has to be interpreted bearing in mind that it is a taxing statute which comes up for interpretation. The provision must be construed on its plain terms. Equally, in interpreting the statute, we must have regard to the purpose underlying the provision.
The SC held and concluded that-
(i) "The Joint Commissioner while ordering a provisional attachment under Section 83 was acting as a delegate of the Commissioner in pursuance of the delegation effected under Section 5(3) and an appeal against the order of provisional attachment was not available under Section 107 (1);
(ii) The writ petition before the High Court under Article 226 of the Constitution challenging the order of provisional attachment was maintainable;
(iii) The High Court has erred in dismissing the writ petition on the ground that it was not maintainable;
(iv) The power to order a provisional attachment of the property of the taxable person including a bank account is draconian in nature and the conditions which are prescribed by the statute for a valid exercise of the power must be strictly fulfilled;
(v) The exercise of the power for ordering a provisional attachment must be preceded by the formation of an opinion by the Commissioner that it is necessary so to do for the purpose of protecting the interest of the government revenue.
(vi) The formation of an opinion by the Commissioner under Section 83(1) must be based on tangible material bearing on the necessity of ordering a provisional attachment for the purpose of protecting the interest of the government revenue;
(vii) The Commissioner is duty-bound to deal with the objections to the attachment by passing a reasoned order which must be communicated to the taxable person whose property is attached;
(viii) A final order having been passed under Section 74(9), the proceedings under Section 74 are no longer pending as a result of which the provisional attachment must come to an end; and
(ix) The appellant has filed an appeal against the order under Section 74(9), the provisions of sub-Sections 6 and 7 of Section 107 will come into operation in regard to the payment of the tax and stay on the recovery of the balance as stipulated in those provisions, pending the disposal of the appeal."
The Top Court concluded that, "Before ordering a provisional attachment, the Commissioner must form an opinion on the basis of tangible material that the assessee is likely to defeat the demand if any, and that therefore, it is necessary so to do for the purpose of protecting the interest of the government revenue."
The SC bench said that the writ petition filed by the appellant under Article 226 of the Constitution shall stand allowed by setting aside the orders of provisional attachment.