M/S Sushant Steel Through Proprietor ... vs State Of Gujarat on 21 February, 2023

1. Outcome

The petition is partly allowed. The High Court affirmed that the initial provisional attachment under Section 83 CGST Act was validly invoked but ceased to operate once the final assessment order under Section 74(9) CGST Act was passed. Consequently, the subsequent notice for final attachment and sale of immovable property (Form GST DRC-16) issued under Section 79 CGST Act, during the pendency of an appeal where the pre-deposit required under Section 107(6) CGST Act has been made, is stayed by virtue of the deeming fiction in Section 107(7) CGST Act. The Court emphasized that while physical attachment ceases or is stayed, the government's interest in the property is protected by other statutory provisions (Sections 81, 82, 84 CGST Act) and the principle of lis pendens.

2. Core Issue

The core issue was whether the provisional attachment of immovable properties under Section 83 of the CGST Act could continue after a final assessment order determining tax liability had been passed, and subsequently, whether a notice for final attachment and sale under Section 79 of the CGST Act could be issued and pursued while an appeal against the assessment order was pending and the mandatory pre-deposit had been made under Section 107(6) of the CGST Act.

3. Key Facts

• The petitioner, M/S Sushant Steel, a proprietary firm, was investigated for alleged fraudulent purchase transactions (without physical goods) from "Nox Enterprise" and wrongful availment of Input Tax Credit (ITC).
• On 16.06.2020, summons were issued, and the petitioner's statement was recorded. Documents submitted by the petitioner were deemed insufficient by the revenue authorities.
• Intimation Form GST DRC-01A (23.09.2020) and Show Cause Notice Form GST DRC-01 (05.10.2020) were issued, alleging wrongful ITC of Rs. 43,28,793, with interest and penalty, totaling Rs. 71,33,619 in the initial stage.
• Provisional attachment orders under Section 83 CGST Act were issued on 06.10.2020 (bank account) and 08.10.2020 (residential and business properties) due to the alleged tax liability exceeding Rs. 1 crore.
• On 16.01.2021, a final assessment order (Form GST DRC-07) was issued, raising a demand of Rs. 1,09,61,104 (tax, interest, and 100% penalty).
• The petitioner filed an appeal on 20.02.2021 under Section 107 CGST Act after depositing the mandatory 10% pre-deposit (Rs. 4,32,880). The appeal is pending.
• Initially, the High Court (interim order dated 16.07.2021) lifted the provisional attachment on bank accounts but continued it on immovable properties.
• On 30.07.2021, while the appeal was pending, the respondent issued a notice (Form GST DRC-16) for attachment and sale of the immovable properties under Section 79 CGST Act. This was challenged by the petitioner through an amendment to the writ petition.
• The value of the provisionally attached immovable properties (Rs. 71,27,109) was less than the total determined tax liability (Rs. 1,09,61,104).

4. Arguments

• Taxpayer (Petitioner):
  • The provisional attachment under Section 83 should cease to operate once a final assessment order is passed, and especially when an appeal is filed with the requisite pre-deposit, as Section 107(7) provides for a deemed stay of recovery proceedings.
  • The provisional attachment order was issued without proper application of mind and without recording the necessary opinion, violating principles laid down in Radha Krishan Industries.
  • The subsequent final attachment notice (DRC-16) under Section 79 is illegal and unwarranted while the appeal is pending and recovery is deemed stayed.
  • The petitioner acted as a bona fide purchaser from a registered dealer and could not verify if the seller paid tax.
• Revenue (Respondent):
  • The provisional attachment was necessary and validly exercised during the pendency of proceedings under Section 74, as there was sufficient material to believe the petitioner was involved in fraudulent transactions (bogus bills, no physical movement of goods).
  • The petitioner failed to produce sufficient documents to prove the genuineness of transactions, leading to the formation of opinion that there was an intention to evade tax.
  • The tax liability was substantial (exceeding Rs. 1 crore), justifying the protective measure.
  • The value of the attached immovable properties was less than the total demand, necessitating continuation of attachment to safeguard revenue.
  • Section 107(7) only stays recovery proceedings; it does not nullify the tax demand or remove measures taken to protect revenue pending the appeal.

5. Court’s Reasoning

• Validity of Provisional Attachment (Section 83): The Court distinguished the present case from Radha Krishan Industries, noting that here, the provisional attachment was initiated during the pendency of proceedings under Section 74 against the petitioner firm, not prior to it. The proper officer had formed an opinion based on tangible material (failure to produce documents, lack of actual business activity by Nox Enterprise), thus the initial exercise of power under Section 83 was valid.
• Cessation of Provisional Attachment: Following Radha Krishan Industries, the Court reiterated that provisional attachment under Section 83 is for protecting revenue during the pendency of specified proceedings. Once a final order of assessment (DRC-07) is passed under Section 74(9), the proceedings are no longer "pending" in the context of Section 83, and therefore, the provisional attachment must come to an end.
• Stay of Recovery Proceedings (Section 107(7)): The Court emphasized that upon filing an appeal under Section 107 and depositing the mandatory 10% pre-deposit as per Section 107(6), Section 107(7) clearly dictates that "the recovery proceedings for the balance amount shall be deemed to be stayed." The subsequent notice for attachment and sale (DRC-16) issued under Section 79 is undeniably a recovery proceeding. Therefore, such recovery proceedings cannot proceed during the pendency of the appeal.
• Protection of Revenue Interests: The Court clarified that while provisional attachment ceases and recovery proceedings are stayed, the government's revenue interest is not entirely unprotected. It highlighted Sections 81 (transfer of property to be void if made to defraud government revenue), 82 (tax to be first charge on property), and 84 (continuation and validation of recovery proceedings despite appeal outcomes) of the CGST Act. The Court also invoked the doctrine of lis pendens (Section 52 of the Transfer of Property Act), stating that any subsequent transfer of the assessee's properties would be subject to the outcome of the pending appeal (which is a continuation of the original proceedings). This ensures that the "Government dues," once crystallized, remain secured.

6. Statutory References

• Central Goods and Services Tax Act, 2017 (CGST Act, 2017):
  • Section 50(3), Section 62, Section 63, Section 64, Section 67, Section 73, Section 74 (including 74(1), 74(5), 74(9)), Section 79, Section 81, Section 82, Section 83 (including 83(1)), Section 84, Section 107 (including 107(1), 107(6), 107(7)).
  • Rule 142 (Form GST DRC-06, DRC-07), Rule 159 (Form GST DRC-22, DRC-23).
• Constitution of India: Article 14, Article 19(1)(g), Article 226.
• Finance Act, 2021 (amendment to Section 83).
• Transfer of Property Act: Section 52.
• Insolvency and Bankruptcy Code, 2016 (referenced in Section 82).

7. Precedents Cited

• M/s. Radha Krishan Industries vs. State of Himachal Pradesh and Others, AIR 2021 SC 2114 (also cited as 2021 SCC online 334).