Enprocon Enterprise Ltd. vs The Assistant Commissioner Of State Tax on 8 January, 2020

Here's a summary of the judgment:

1. Outcome
   The Writ Application was allowed. The High Court:

   • Quashed and set aside the provisional attachment order passed by the Assistant Commissioner under Section 83 of the GGST Act, 2017, concerning both immovable property and bank accounts.
   • Quashed and set aside the order of prohibition dated 30th July, 2019, passed under Rule 139(4) of the CGST Rules, 2017.
   • Held that the assessment order under Section 74 of the Act, if issued without a show cause notice, was not tenable.
   • Clarified that the writ applicant must not destroy or secrete any books of account or documents related to pending Section 73 proceedings. The Authority may initiate provisional attachment again in future if credible material warrants it, in accordance with law.

2. Core Issue
   The core issue was the legal sustainability of an order for provisional attachment of property and bank accounts under Section 83 of the Gujarat Goods and Services Tax Act, 2017, when issued by an Assistant Commissioner, and the validity of a related prohibition order under Rule 139(4) of the Rules. This involved examining the Commissioner's power to delegate the drastic powers under Section 83 and the necessity of subjective satisfaction based on credible material for such attachments.

3. Key Facts

   • Enprocon Enterprise Ltd. (writ applicant) is a company registered under the GGST Act, 2017, engaged in various businesses including works contracts.
   • The respondent-Authorities conducted search and seizure operations at the applicant's premises in Ahmedabad and Baroda under Section 67 of the CGST Act, 2017.
   • Proceedings under Section 73 of the GGST Act, 2017, were initiated against the applicant.
   • Subsequently, the Assistant Commissioner of State Tax issued an order of provisional attachment of the applicant's immovable property and three bank accounts under Section 83 of the Act.
   • An order of prohibition dated 30th July, 2019, under Rule 139(4) of the Rules, was also issued.
   • The applicant challenged these orders, arguing the attachment was beyond the scope of legal powers and not justified.
   • The Revenue contended that there were findings of fake billing transactions and non-cooperation from directors, warranting the provisional attachment to protect revenue. They also argued that the Commissioner could delegate powers under Section 83.

4. Arguments (Taxpayer vs Revenue)

   • Taxpayer (Enprocon Enterprise Ltd.):

     • The provisional attachment orders under Section 83 and the prohibition order under Rule 139(4) were invalid and beyond the scope of the statutory provisions.
     • The properties subject to the prohibition order were not found at the searched premises.
     • The attachment of bank accounts was excessive, given that immovable property worth more than the estimated liability was already attached.
     • The power under Section 83, vested in the "Commissioner," could not be delegated to an Assistant Commissioner.
     • There was a lack of credible material and subjective satisfaction for the provisional attachment.
     • An assessment order under Section 74, if made, was issued without a show cause notice or opportunity of hearing, which is procedurally illegal.

   • Revenue (Assistant Commissioner of State Tax):

     • The Commissioner had the power to delegate provisional attachment powers under Section 83 to subordinate officers, including the Assistant Commissioner, by virtue of Section 5(3) read with Section 167 of the GGST Act, 2017.
     • The provisional attachment was necessary due to pending proceedings under Section 67 (search and seizure) and findings of fraudulent activities, including fake billing transactions to avail Input Tax Credit without actual movement of goods, and non-cooperation from the applicant's directors.
     • Specific details of fake billing involving "Shivay Enterprise" and large-scale tax evasion were cited from the investigation records and statements of individuals.

5. Court’s Reasoning
   The High Court heavily relied on its earlier decision in Valerius Industries Versus Union of India (2019) and reasoned as follows:

   • Delegation of Powers under Section 83:

     • Section 83 explicitly confers the power of provisional attachment upon the "Commissioner," requiring the Commissioner's subjective satisfaction that it is "necessary so to do" to protect government revenue.
     • While Section 5(3) of the GGST Act allows the Commissioner to delegate powers to subordinate officers, the court in Valerius Industries held that the drastic and far-reaching nature of the power under Section 83 necessitates the personal opinion and application of mind by the Commissioner and cannot be delegated to subordinate officers like the Assistant Commissioner.
     • Therefore, the provisional attachment orders passed by the Assistant Commissioner were held to be without jurisdiction, as the power could not be delegated.

   • Subjective Satisfaction and Credible Material:

     • Even if delegation were permissible, the formation of an opinion for provisional attachment, though subjective, must be based on credible and relevant material, not on imaginary grounds or wishful thinking.
     • The court reiterated that while it cannot assess the sufficiency of reasons, it can examine whether the "reasons to believe" or "opinion" were formed on relevant facts and within statutory limits.
     • In this case, the impugned order of provisional attachment was "bereft of any reason," and the original file lacked materials to ascertain the genuineness of the belief formed by the authority.
     • The reasons provided by the Revenue in its affidavit-in-reply primarily related to the merits of the tax evasion case (proceedings under Section 73), rather than demonstrating a specific necessity for provisional attachment to protect revenue (e.g., evidence that the assessee was about to dispose of property to thwart tax collection).
     • The court emphasized that the mere pendency of proceedings under Section 67 (inspection, search, seizure) is not automatically sufficient to justify a provisional attachment under Section 83, which requires distinct and higher considerations.

   • Prohibition Order under Rule 139(4):

     • The court noted that the properties subjected to the prohibition order were not found at the premises searched under Section 67(2), making the order beyond the scope of the officer's powers.

   • Assessment under Section 74:

     • The court observed that if any tax liability was determined under Section 74 of the Act without issuing a show cause notice and providing an opportunity of hearing, such an assessment would be contrary to law and unsustainable.

   • Principles of Provisional Attachment: The court reiterated guidelines from Valerius Industries, stating that Section 83 is a drastic power to be used sparingly, based on reasonable apprehension of the assessee defaulting on tax collection, supported by sufficient material that the assessee is attempting to dispose of property. It should not be used for harassment, and attachment of bank accounts should be a last resort.

6. Statutory References

   • Constitution of India, Article 226
   • Central Goods and Services Tax Act, 2017 (CGST Act, 2017): Sections 2(24), 2(25), 5, 5(1), 5(3), 67, 67(2), 73, 74, 83, 167, 168
   • Gujarat Goods and Services Tax Act, 2017 (GGST Act, 2017): Sections 2(24), 2(25), 5, 5(1), 5(3), 67, 73, 74, 83, 167, 168
   • CGST Rules, 2017: Rules 139(4), 142(5), 159(1)
   • Income Tax Act, 1961: Section 281B
   • Companies Act, 1956
   • Prevention of Corruption Act, 1988: Section 3(1)

7. Precedents Cited

   • Valerius Industries Versus Union of India (Special Civil Application No.13132 of 2019), decided on 28th August, 2019 (Gujarat High Court)
   • Gwalior Rayon Silk Manufacturing (Wvg.) Co. Ltd. v. The Assistant Commissioner of Sales Tax and Others [1974 (4) SCC 98]
   • Bhikhubhai Vithlabhai Patel and others vs. State of Gujarat (AIR 2008 SCC 1771)
   • J. Jayalalitha vs. U.O.I. [AIR 1999 SC 1912]
   • Barium Chemicals Ltd. vs. Company Law Board [AIR 1967 SC 295]
   • Sheonath Singh's case [AIR 1971 SC 2451]
   • Income tax Officer, Calcutta and Ors. vs. Lakhmani Mewal Das [AIR 1976 SC 1753] (also referred to as ITO Calcutta vs. Lakhmani Mewal Das [(1976) 103 ITR 437 (SC)])
   • Smt. S.R. Venkatraman vs. Union of India [(1979) ILLJ 25 (SC)]