Pranit Hem Desai vs Additional Director General on 28 August, 2019

1. Outcome
The Gujarat High Court allowed all six writ applications, quashing and setting aside the provisional attachment orders of the bank accounts belonging to the writ applicants.

2. Core Issue
The core issue was whether the respondent authority was justified in invoking Section 83 of the Central Goods and Services Tax Act, 2017 (CGST Act) to provisionally attach the bank accounts of the petitioner companies, particularly concerning:
a. The necessity of protecting government revenue given the financial position of the taxpayer.
b. The validity of the provisional attachment order issued by an authority other than the Commissioner and the subsequent corrigendum rectifying the statutory reference.

3. Key Facts
* Parties: Pranit Hem Desai (Petitioner No. 1, Director) and Desai Impex Pvt. Ltd. (Petitioner No. 2, company) along with other Desai Group companies. The respondent was the Additional Director General, Directorate General of Goods & Service Tax Intelligence (DGGI), Ahmedabad Zonal Unit.
* Allegations: The petitioners were accused of fraudulently availing and passing on Input Tax Credit (ITC) without actual supply of goods, involving an alleged ITC fraud of over Rs. 43.00 Crore. Petitioner No. 1 was arrested on 18/03/2019.
* Initial Attachment Order: Form GST DRC-22 dated 03/04/2019, issued by the Additional Director General, provisionally attached multiple bank accounts of the Desai Group companies under Section 83 of the CGST Act, citing pendency of proceedings under Section 74.
* First Round of Litigation: Petitioners challenged the attachment, arguing no Section 74 proceedings were initiated. The High Court, on 12/04/2019, directed them to file objections under Rule 159(5) of the CGST Rules, with specific consideration of the "without authority of law" argument.
* Corrigendum: On 26/04/2019, after petitioners filed objections, the respondent issued a corrigendum amending the provisional attachment order. It changed the reference from "proceedings have been launched against the aforesaid taxable persons under section 74" to "proceedings have been launched against the aforesaid taxable persons under section 67 which shall culminate into action under section 74."
* Order on Objections: On 30/04/2019, the respondent rejected the petitioners' objections, upholding the provisional attachment. The respondent reasoned that investigations under Section 67 were ongoing, quoting a wrong provision does not vitiate proceedings, and the corrigendum merely rectified an inadvertent error.
* Financial Data Presented by Taxpayer: For July 2017 to May 2019, total input credit availed was Rs. 59,49,18,103/-, while total tax paid was Rs. 63,62,41,525/-. This indicated an excess payment of Rs. 4,13,23,422/- by the petitioners compared to the credit availed.
* Revenue's Claims: Stated admitted liability of Rs. 26.02 crores (including Rs. 6.60 crores for Desai Impex Pvt. Ltd.) due to fraudulent ITC based on Pranit Hem Desai's statement, and a stock shortage of Rs. 18.32 crores involving ITC of Rs. 3.29 crores for Desai Impex Pvt. Ltd.

4. Arguments

• Taxpayer's Arguments:

  • Provisional attachment under Section 83 requires specific pending proceedings (Sections 62, 63, 64, 67, 73, or 74). Initially, Section 74 was incorrectly cited, as no such proceedings were pending.
  • The corrigendum, issued after the petitioners filed objections challenging the original order, was not permissible in law as it tried to retrospectively cure a fundamental defect.
  • Only the "Commissioner" is empowered to pass provisional attachment orders under Section 83; the Additional Director General lacked such authority.
  • Even if Section 67 proceedings were considered, they typically relate to seizure of goods, and no goods were seized from the petitioners, indicating non-pendency.
  • The subjective satisfaction required for protecting government revenue under Section 83 was absent. The financial data showed the petitioners had paid Rs. 4.13 Crores in excess of the ITC availed, indicating no threat to revenue.
  • Even assuming wrongly availed credits without physical goods, the payment of tax (though not strictly payable) resulted in a "revenue neutral" situation or was equivalent to reversal of unavailable credits, thus revenue interest was secure.

• Revenue's Arguments:

  • The initial reference to Section 74 instead of Section 67 in the provisional attachment order was an inadvertent error.
  • The corrigendum was lawfully issued to rectify a clerical error and did not alter the scope of the order. Quoting a wrong provision does not invalidate proceedings if the power to act exists.
  • The Additional Director General is an officer of equivalent rank to the Commissioner and thus authorized to exercise powers under Section 83.
  • Investigations under Section 67 were ongoing, and Section 83 serves as a provisional measure to protect revenue given substantial tax evasion and admitted liabilities (Rs. 26.02 Crores per director's statement, and stock shortage).
  • The petitioners had not paid interest and penalty on wrongful availment and utilization of excess ITC.
  • The purpose of Section 83 is to protect revenue during investigations.

5. Court’s Reasoning
The High Court allowed the petitions primarily on the "short ground" that the interest of government revenue was adequately protected.
* Revenue Neutrality/Excess Payment: The court noted that the total tax paid by the petitioners (Rs. 63,62,41,525/-) significantly exceeded the total input tax credit availed (Rs. 59,49,18,103/-) during the relevant period (July 2017 to May 2019), resulting in an excess payment of Rs. 4,13,23,422/-. Given this, the court concluded that the interest of the government revenue was not at stake.
* Justification of Credits/Tax Paid: The court agreed that even if the allegations of wrongly availed credits were true (i.e., without actual goods supply), the fact that tax was paid (even if not strictly payable) could be construed as either a "revenue neutral satisfaction" or a deemed reversal of unavailable credits.
* Drastic Nature of Section 83: The court reiterated that the power under Section 83 is drastic and far-reaching, to be used sparingly, on substantive weighty grounds, and with extreme care and caution. It should only be invoked if there's a reasonable apprehension that the assessee might default on ultimate demand or dispose of property to thwart recovery.
* Balance of Interests: The court emphasized balancing the revenue's interest with the dealer's ability to continue business, stating that stopping a business does not serve revenue interest. Provisional attachment should not be equated with recovery proceedings attachment and attachment of bank accounts should be a last resort.
* No Determination on Other Arguments: The court explicitly chose not to enter into other controversies, such as the legality of the corrigendum, the authority of the Additional Director General, or the scope of Section 67 proceedings, as the "short ground" regarding revenue protection was sufficient to decide the matter.

6. Statutory References
* Constitution of India, 1950: Article 226
* Central Goods and Services Tax Act, 2017:
* Section 9 (Charging Section)
* Section 16 (Eligibility and conditions for taking input tax credit)
* Section 16(2)(b) (Conditions for taking input tax credit)
* 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 input tax credit wrongly availed or utilized for any reason other than fraud or willful misstatement or suppression of facts)
* Section 74 (Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized by reason of fraud or willful misstatement or suppression of facts)
* Section 79 (Recovery of tax)
* Section 83 (Provisional attachment to protect revenue in certain cases)
* Central Goods and Services Tax Rules, 2017:
* Rule 159(1) (Provisional attachment of property)
* Rule 159(5) (Filing objections against attachment)
* Form GST DRC-22
* Code of Civil Procedure (Attachment before judgment)

7. Precedents Cited

• Cited by Revenue (in its order rejecting objections):

  • Afzal Ullah v. State of U.P. 1964 AIR 264
  • B. Balakotaiah V. Union of India 1958, AIR 232
  • J.K. Steel Ltd V. Union of India 1970 AIR 1173
  • CCE Vs Konark Industries [2011 (270)ELT 673, Tri-Kol]
  • Uma Laminate Products (P) Ltd. [1997 (94)ELT A.153(SC)]
  • M/s Nandeshwari Steel Limited (Special Civil Application No. 1041 of 2019, Gujarat High Court, dated 06.02.2019) – [Not explicitly relied upon by the court in its reasoning, but mentioned as cited by revenue]

• Cited by Taxpayer (in argument):

  • Commissioner of Customs, Bangalore vs. Kesar Marble and Granites reported in 2012 (278) ELT 42 (Kar)
  • Century Laminating Co Ltd vs. Commissioner of Central Excise, Meerut - II, reported in 2009 (236) ELT 182 (Tri. Del).
  • Chawla Trading Co. vs. Commissioner of Customs (export), Nhava Sheva reported in 2015 (330) ELT 470 (Tri. Mumbai)
  • Mahindra & Mahindra Ltd vs. Commissioner of Central Excise Mumbai -V reported in 2006 (196) ELT 62 (Tri. Mumbai).

• Relied upon by the Court (in its reasoning):

  • H M Industrial Pvt Ltd vs. Commissioner, CGST and Central Excise [Special Civil Application No.1160 of 2019, Gujarat High Court, decided on 21st February 2019]
  • M/s Patran Steel Rolling Mill vs Assistant Commissioner of State Tax, Unit 2 [Special Civil Application No.16931 of 2018, Gujarat High Court, decided on 20th December 2018]
  • Valerius Industries vs Union of India [Special Civil Application No.13132 of 2019, Gujarat High Court, decided on 28th August 2019]
  • Gandhi Trading v. Asst. CIT 3 reported in (1999) 239 ITR 337 (Bombay High Court)