Grabdeal International Through ... vs Union Of India on 24 February, 2023

Here's a summary of the judgment:

1. Outcome

The High Court upheld the provisional attachment of the petitioner's bank accounts, but with a strict condition. While acknowledging the prima facie material for the attachment and the subsequent extension order, the Court directed the respondent authorities to complete their investigation within three months from the date of the judgment. If the investigation is not concluded within this stipulated period, the provisional attachment will automatically cease to have effect. The Court also directed that if a post-provisional attachment hearing opportunity (under Rule 159(5)) was missed after the second attachment order, it should be provided to the petitioner. The petition was disposed of accordingly.

2. Core Issue

The core issue was the legality and continuation of the provisional attachment of the petitioner's bank accounts and lockers under Section 83 of the Central Goods and Service Tax Act, 2017 (CGST Act), particularly concerning:
a. Whether the business model of the petitioner attracted GST liability.
b. Whether the provisional attachment orders, including a subsequent extension, were validly issued and continued in compliance with Section 83 and associated rules, especially considering the expiry of the statutory one-year period.
c. Whether the long pendency of the investigation justified the continued attachment.

3. Key Facts

• Petitioner's Business: Grabdeal International (proprietor Pushpaben Babulal Jain, associated with Mr. Dilip Babulal Jain) engaged in financial services, finding angel investors, and investing in business assets, claiming exemption under GST for interest-based consideration (Notification No. 12/2017-CT(rate)).
• Search and Investigation: On February 25, 2020, a search and seizure operation was conducted at the petitioner's premises under Section 67(2) of the CGST Act, initiating an investigation into alleged GST evasion. Documents and cash (Rs. 58,25,650/-) were seized.
• Arrest and Criminal Proceedings: Mr. Dilip Babulal Jain was arrested on June 9, 2020, in connection with the GST evasion case. A charge-sheet (Criminal Case No. 9753 of 2020) was filed on August 7, 2020. He was also implicated in another FIR under the Indian Penal Code, Gujarat Protection of Interest of Depositors Act, and Prize Chits and Money Circulation Schemes (Prohibition) Act, 1978. He was later released on regular bail.
• Alleged GST Evasion: The Revenue alleged Mr. Jain admitted to a GST liability of approximately Rs. 51 crores (later claimed Rs. 74 crores), arising from transactions worth Rs. 430.10 crores, generated from 5,06,000 subscriber IDs, and operating without GST registration.
• Provisional Attachment Orders:
  • Initial orders dated February 27, 2020, and March 2, 2020, were issued by the respondent (Joint Commissioner) directing various banks (AU Small Finance Bank, Kotak Mahindra Bank, State Bank of India, IndusInd Bank, Yes Bank) to provisionally attach/freeze the debit operations of the petitioner's bank accounts and lockers under Section 83(1) of the CGST Act.
  • A subsequent order dated February 9, 2021, was issued, directing banks to freeze debit facilities for one more year, after the expiry of the initial one-year period, citing the need to protect government revenue and ongoing investigation.
• Petitioner's Claim: Admissions of tax liability were made under force/coercion; the business activities were exempt from GST; and the attachment orders were illegal and caused significant hardship.

4. Arguments (Taxpayer vs Revenue)

• Taxpayer (Petitioner):
  • The business activities (financial assistance with interest) are exempt from GST under Notification No. 12/2017-CT(rate) and do not constitute "service" under Section 2(102) of the CGST Act or Section 65B(44) of the Finance Act, 1994.
  • The alleged admission of Rs. 51 crores GST liability was extracted under force and coercion.
  • The provisional attachment orders were arbitrary, illegal, and without jurisdiction, as the department was unclear on the applicability of GST.
  • The initial attachment orders, having completed one year, lost their effect as per Section 83(2), and any continuation without proper procedure or grounds is illegal.
  • The attachment gravely affects the petitioner's ability to operate its business, pay statutory dues, and violates Article 19 of the Constitution.
  • No effective investigation is being carried out, especially since the charge-sheet has been filed.
• Revenue (Respondent):
  • Information indicated Mr. Dilip Jain's firms were evading huge Service Tax/GST by running financial businesses illegally under the guise of web solutions or multi-level marketing.
  • The petitioner's activities constitute financial services/business support services for consideration, attracting GST liability under Section 2(102) of the CGST Act.
  • Mr. Jain admitted a tax liability of Rs. 51 crores in his statements under Section 70, and investigations estimate the evasion to be Rs. 74 crores on transactions of Rs. 430.10 crores.
  • The provisional attachment under Section 83(1) was necessary to protect government revenue, as Mr. Jain showed no intention to pay the dues.
  • The subsequent order dated February 9, 2021, extended the provisional attachment for another year, validly exercising powers under Section 83(2) with competent authority approval, due to ongoing, extensive, and time-consuming investigation involving thousands of investors and multiple agencies (CID Crime, Income Tax, ED).

5. Court’s Reasoning

• Maintainability of Writ Petition: The Court affirmed the maintainability of the writ petition under Article 226, citing Supreme Court precedents (e.g., Radha Krishan Industries, Whirlpool Corporation) that allow High Courts to intervene despite alternative remedies if there's a violation of natural justice, wholly jurisdictional error, or the authority acts contrary to law.
• Nature of Provisional Attachment (Section 83): The Court emphasized that Section 83 confers a "draconian power" that must be exercised with extreme caution. It requires:
  • Formation of an "opinion" by the Commissioner based on "tangible material" and a "live nexus" to the purpose of protecting government revenue.
  • "Necessity" (not mere expediency) for attachment, meaning the revenue's interest can only be protected by such a measure.
  • Proportionality between the nature and extent of attachment and its intended purpose.
  • Strict compliance with statutory preconditions and procedural safeguards.
• Procedural Safeguards (Rule 159): The Court highlighted Rule 159(5), which grants the person whose property is attached the right to file an objection within seven days and a mandatory "opportunity of being heard." The Commissioner must pass a reasoned order on such objections. These are vital safeguards against arbitrary power.
• Application to Facts:
  • The Court found prima facie material to justify the initial provisional attachment.
  • It acknowledged the issuance of a fresh provisional attachment order on February 9, 2021, after the initial one-year period, indicating the authorities intended to continue the attachment.
  • While not interfering with the current attachment given the ongoing investigation and the fresh order, the Court expressed concern about the long duration of the investigation.
  • To balance the protection of revenue with the petitioner's right to carry on business, the Court imposed a time limit of three months for the completion of the investigation.
  • It explicitly stated that if the investigation is not completed within this period, the attachment must cease.
  • The Court also directed that if the petitioner was not afforded the "opportunity of being heard" (Rule 159(5)) after the issuance of the February 9, 2021 order, this opportunity must be provided.

6. Statutory References

• Central Goods and Services Tax Act, 2017 (CGST Act):
  • Sections 2(102) (definition of 'service'), 5(3), 62, 63, 64, 67, 67(2), 69, 70, 73, 74, 74(1), 74(5), 74(9), 74(10), 74(11), 83, 83(1), 83(2), 122, 125, 129, 130, 132, 132(1)(i), 132(1)(iv), 132(5), 159(2).
• Central Goods and Services Tax Rules, 2017:
  • Rules 139(2), 142(2)(a), 159(1), 159(3), 159(5), 159(6), Form GST DRC-22, Form GST DRC-23.
• Other Acts:
  • Constitution of India (Articles 19, 226)
  • Finance Act, 1994 (Sections 65B(44), 67(2))
  • Indian Penal Code, 1860 (Sections 193, 228, 406, 409, 420, 120B)
  • Code of Civil Procedure, 1908 (Order 38 Rule 5)
  • Income Tax Act, 1961 (Sections 147, 281B)
  • Gujarat Value Added Tax Act, 2003 (Section 45)
  • Gujarat Protection of Interest of Depositors Act
  • Prize Chits and Money Circulation Schemes (Prohibition) Act, 1978 (Sections 4, 5, 6, 7)
• Notifications/Circulars:
  • Notification No. 12/2017-CT(rate) (Sl. No. 27)
  • CBEC Circular No. 96/7/2007-ST dated 23.08.2007

7. Precedents Cited

• Supreme Court:
  • Commissioner vs. Advantage Media Consultant [2009 (14) S.T.R. J49 (S.C.)]
  • Radha Krishan Industries vs. State of Himachal Pradesh [2021 (48) G.S.T.L. 113 (S.C.)]
  • Assistant Commissioner (CT) LTU, Kakinada and others v Glaxo Smith Kline Consumer Health Care Limited [AIR 2020 SC 2819]
  • Whirlpool Corporation v Registrar of Trademarks, Mumbai [(1998) 8 SCC 1]
  • Harbanslal Sahnia v Indian Oil Corpn. Ltd. [(2003) 2 SCC 107]
  • Seth Chand Ratan v Pandit Durga Prasad
  • Babubhai Muljibhai Patel v Nandlal Khodidas Barot
  • Rajasthan SEB v. Union of India
  • Raman Tech Process Engg Co and Anr v Solanki Traders [2008(1) R.C.R.(Civil) 195]
  • Commissioner of Income Tax v Kelvinator of India Limited [(2010) 2 SCC 723]
  • Income Tax Officer, Ward No. 162 (2) v Techspan India Private Limited [(2018) 6 SCC 685]
• High Courts (cited in Radha Krishan Industries and directly):
  • JSK and Sons vs. State of Gujarat [2020 (43) G.S.T.L. 154 (Guj.)]
  • Vinod Kumar Muralidhar Chechani Proprietor of M/s Chechani Trading Co. vs. State of Gujarat [Special Civil Application No. 12498/2020, decided on 04.01.2021]
  • Kushal Ltd. vs. Union of India [Special Civil Application No. 19533/2019 decided on 17.12.2019]
  • Valerius Industries v Union of India [2019 (30) GSTL 15 (Gujarat)]
  • Jai Ambey Filament Pvt Ltd v Union of India [2021 (44) GSTL 41 (Gujarat)]
  • Patran Steel Rolling Mill v Assistant Commissioner of State Tax Unit 2 [2019 (20) GSTL 732 (Gujarat)]
  • Proex Fashion Private Limited v Government of India [WP(C) 11245 of 2020 dated 6 January 2021 (Delhi HC)]
  • UFV India Global Education v Union of India [2020 (43) GSTL 472 (P&H HC)]
  • Kaish Impex Private Limited v Union of India [(2020) 6 AIR Bom R 122 (Bombay HC)]
  • Nathanlal Maganlal Chauhan v State of Gujarat [2020 SCC Online Guj 1811]
  • Vishwanath Realtor v State of Gujarat (Gujarat HC, on Section 45 of GVAT Act)
  • Amazonite Steel Private Limited vs. Union of India [2020 (36) G.S.T.L. 184 (Cal.)]