Vinodkumar Murlidhar Chechani ... vs State Of Gujarat on 4 January, 2021

1. Outcome
The writ-application was allowed. The impugned provisional attachment orders for the petitioner's two bank accounts (Current and Savings with HDFC Bank Limited) were quashed and set aside. The Court had previously, through an interim order, already lifted the provisional attachment of the petitioner's Cash Credit/Current Bank Account with AMCO Bank. The Court also issued a strong advisory against the mechanical exercise of powers under Section 83 of the CGST Act.

2. Core Issue
The central issue was the legality and validity of the provisional attachment of the petitioner's bank accounts under Section 83 of the CGST Act, 2017, specifically concerning:
* Whether proceedings under Section 67 were "pending" to justify the attachment. (However, the Court refrained from ruling on this point due to a Supreme Court stay on a relevant precedent).
* Whether the Commissioner formed the requisite "opinion" and exercised the drastic power under Section 83 with proper application of mind, considering the low balances in the accounts and the principles laid down by previous High Court judgments.

3. Key Facts
* Petitioner: Vinodkumar Murlidhar Chechani, proprietor of M/s Chechani Trading Company, engaged in trading ferrous and non-ferrous metal scrap, registered under CGST and GGST Acts.
* Departmental Action: A spot visit/search was conducted by the flying squad on August 11, 2020, at the petitioner's premises. Registers, documents, and books of accounts were seized.
* Department's Allegation: The department was prima facie of the view that purchases made by the petitioner from JSK Metacast and Uttam Metal and Alloys were not genuine.
* Impugned Orders: On August 28, 2020, the Additional Commissioner, CGST, provisionally attached the petitioner's CC/Current Bank Account with AMCO Bank, Current Bank Account (HDFC Bank), and Savings Bank Account (HDFC Bank) in Form GST DRC-22, citing initiation of proceedings under Section 67.
* Interim Relief: On December 9, 2020, the High Court issued an interim order lifting the provisional attachment of the CC/Current Account with AMCO Bank.
* Account Balances: The remaining two provisionally attached accounts (HDFC Bank) had paltry balances: Current Account (Rs. 17,065) and Savings Bank Account (Rs. 5,000), totaling Rs. 22,065.

4. Arguments (Taxpayer vs Revenue)

Taxpayer (Vinodkumar Murlidhar Chechani):
* No Pending Proceedings: Argued that on the date of attachment, no proceedings under Section 67 were pending, as the inspection, search, and seizure process was already concluded.
* Reliance on Precedent: Cited Kushal Ltd. vs. Union of India (Gujarat High Court) which held that Section 67 proceedings end after search, rendering subsequent Section 83 attachments invalid.
* Lack of Application of Mind: Submitted that the impugned orders were cryptic, lacked proper reasoning, and did not reflect any application of mind.
* Absence of Assessment/Demand: Contended that no assessment had been framed, nor any demand raised; thus, the quantum of demand was undetermined, making the attachment for a potential future demand illegal.
* Drastic Power Misused: Highlighted that Section 83 is a drastic power requiring extreme care and circumspection, and its exercise in this case was arbitrary.
* Hardship: Emphasized the severe hardship caused by the attachment, impacting all official transactions, income tax filings, and inability to open new bank accounts due to PAN linkage.
* Genuine Transactions: Maintained that the purchases from the concerned parties were absolutely genuine.

Revenue (State of Gujarat):
* Valid Action: Asserted that the provisional attachment was just and valid, based on available material, and necessary to protect revenue interests.
* Supreme Court Stay: Pointed out that the Kushal Ltd. judgment, relied upon by the petitioner, had been stayed by the Supreme Court, rendering it inapplicable as a precedent.
* Subjective Satisfaction: Argued that the Additional Commissioner's decision was based on subjective satisfaction derived from material on record, and the Court should not delve into the sufficiency of reasons.
* Prima Facie Case: Maintained that there was more than a prima facie case against the petitioner to warrant the provisional attachment.

5. Court’s Reasoning
* Kushal Ltd. Stay: The Court acknowledged the Supreme Court's interim order staying the Kushal Ltd. judgment, and therefore refrained from deciding on the argument regarding the pendency of Section 67 proceedings.
* Strict Interpretation of Section 83: Reaffirmed its previous ruling in Valerius Industries vs. Union of India, stating that Section 83 is a "drastic and far-reaching power" to be used "sparingly" and only on "substantive weighty grounds and reasons."
* "Necessity" and "Opinion": Emphasized that the Commissioner's "opinion" that provisional attachment is "necessary" to protect revenue must be based on credible material and reflect an "intense application of mind," not mere wishful thinking or imagination. The existence of circumstances suggesting a need for protection is a prerequisite.
* Judicial Review of Discretion: reiterated that while the formation of opinion is subjective, courts can examine if it is arbitrary, capricious, whimsical, based on non-existent facts, or extraneous to the statute's purpose (malice in law).
* Distinction from Section 67: Held that the "reasons to believe" for Section 67 (inspection, search, seizure) are distinct from the "opinion" required for Section 83. The mere initiation of Section 67 proceedings is not automatically sufficient to justify a provisional attachment under Section 83.
* Disproportionate Action: Noted the extremely low balances (totaling Rs. 22,065) in the two HDFC bank accounts that remained attached. The Court found that attaching such a paltry amount would serve no good purpose for revenue protection but would cause undue hardship to the assessee, indicating a lack of proper application of mind by the authority.
* Guidance from Precedents: Referred to Patran Steel Rolling Mill and Bindal Smelting Private Limited to underscore the need for authorities to balance revenue interest with the dealer's ability to continue business, cautioning against halting business and stressing that drastic action should be a last resort and not applied mechanically, especially for "over cash credit" accounts at the investigation stage.
* Comparison to Income Tax Act: Observed that while Section 83 is pari materia with Section 281B of the Income Tax Act, the GST Act lacks specific guidelines for provisional attachment that are present in the IT Act.
* Critique of Departmental Practice: Strongly criticized the prevalent "mechanical or casual" exercise of Section 83 powers following every Section 67 proceeding, leading to excessive and unnecessary litigation, and urged the Union of India and CBDT to issue appropriate instructions or guidelines to prevent such misuse and wastage of judicial time.

6. Statutory References
* Constitution of India: Article 226
* Central Goods and Services Tax Act, 2017 (CGST Act) / Gujarat Goods and Services Tax Act (GGST Act):
* Chapter III (Levy and Collection of Tax)
* Chapter XII (Assessment)
* Chapter XIV (Inspection, Search, Seizure and Arrest)
* Chapter XV (Demand and Recovery)
* Section 62 (Assessment of non-filers of returns)
* Section 63 (Assessment of unregistered persons)
* Section 64 (Summary assessment in certain special cases)
* Section 67 (Power of inspection, search and seizure)
* Section 70 (Power to summon persons to give evidence and produce documents)
* Section 73 (Determination of tax not paid or short paid or erroneously refunded or wrongly availed or utilised for any reason other than fraud or any wilful misstatement or suppression of facts)
* Section 74 (Determination of tax not paid or short paid or erroneously refunded or wrongly availed or utilised by reason of fraud or any wilful misstatement or suppression of facts)
* Section 83 (Provisional attachment to protect revenue in certain cases)
* Central Goods and Services Tax Rules, 2017 (CGST Rules):
* Rule 159(1) (Provisional attachment of property)
* FORM GST DRC-22
* Other Acts:
* Income-Tax Act, 1961: Section 147, Section 281B
* Indian Penal Code
* Prevention of Corruption Act, 1988: Section 3(1)
* Companies Act, 1956: Section 237, Section 637(i)(a)
* Reserve Bank of India Act, 1934: Section 45(1), Second Schedule

7. Precedents Cited
* Kushal Ltd. vs. Union of India (Special Civil Application No. 19533 of 2019, decided on 17th December 2019) – Note: View expressed in this judgment was kept in abeyance by SC.
* Valerius Industries vs. Union of India (Special Civil Application No. 13132 of 2019, decided on 28th August 2019)
* Sheonath Singh [AIR 1971 SC 2451]
* Bhikhubhai Vithlabhai Patel and others vs. State of Gujarat [AIR 2008 SC 1771]
* J. Jayalalitha vs. U.O.I. [AIR 1999 SC 1912]
* Barium Chemicals Ltd. vs. Company Law Board [AIR 1967 SC 295]
* Income-tax Officer, Calcutta and Ors. vs. Lakhmani Mewal Das [AIR 1976 SC 1753; (1976) 103 ITR 437 (SC)]
* Smt. S.R. Venkatraman vs. Union of India [(1979) ILLJ 25 (SC)]
* M/s. Patran Steel Rolling Mill vs. Assistant Commissioner of State Tax, Unit 2 (Special Civil Application No. 16931 of 2018, decided on 20th December 2018)
* Bindal Smelting Private Limited vs. Additional Director General (CWP No. 31382 of 2019, decided on 20th December 2019)