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

Here's a summary of the judgment:

1. Outcome
The Special Civil Applications were allowed. The orders of provisional attachment of the bank accounts of the writ applicants were quashed and set aside.

2. Core Issue
The core issue was the legality and justification of the provisional attachment of the bank accounts of the petitioners and other Desai Group companies under Section 83 of the Central Goods & Services Tax Act, 2017 (CGST Act), particularly in light of alleged discrepancies in the statutory basis for attachment and the petitioners' claim of secured government revenue.

3. Key Facts
* Pranit Hem Desai (Petitioner No. 1) was arrested on March 18, 2019, by the Directorate General of Goods & Service Tax Intelligence (DGGI) on allegations that Desai Group companies (including Petitioner No. 2, Desai Impex Pvt. Ltd.) had fraudulently availed and passed on Input Tax Credit (ITC) worth over Rs. 43.00 Crore without actual supply of goods.
* On April 3, 2019, the Additional Director General, DGGI, provisionally attached several bank accounts of the Desai Group companies using Form GST DRC-22. The initial attachment orders stated that "proceedings have been launched... under Section 74 of the said Act."
* The petitioners challenged these attachments. The Gujarat High Court, in a previous round of litigation (SCA No. 7321/2019, etc.), directed the petitioners to file objections under Rule 159(5) of the CGST Rules, 2017, specifically addressing the claim that no Section 74 proceedings were pending.
* On April 26, 2019, after the petitioners filed objections, the respondent issued a corrigendum to the attachment orders, stating that "proceedings have been launched... under Section 67 which shall culminate into action under Section 74 of the said Act."
* On April 30, 2019, the Additional Director General rejected the petitioners' objections, asserting that provisional attachment was valid when Section 67 proceedings were ongoing and that quoting Section 74 instead of Section 67 was an inadvertent error that could be corrected by a corrigendum.
* The petitioners contended that for the period July 2017 to May 2019, the total ITC availed by their companies was Rs. 59,49,18,103/-, while the total tax paid was Rs. 63,62,41,525/-, indicating an excess payment of Rs. 4,13,23,422/-, thereby securing the government's revenue interest.

4. Arguments

• Taxpayer (Writ Applicants):

  • Provisional attachment under Section 83 requires pending proceedings under specific sections (62, 63, 64, 67, 73, or 74). Initially, Section 74 was wrongly cited, and no such proceedings were pending.
  • The corrigendum issued by the respondent to change the basis from Section 74 to Section 67, after objections were filed, was impermissible in law.
  • The power under Section 83 could only be exercised by the "Commissioner," and not by the "Additional Director General, DGGI."
  • Even if Section 67 proceedings were considered, they were not truly "pending" as no goods were seized from the premises, which is a prerequisite for Section 67 proceedings.
  • The subjective satisfaction required under Section 83 that it is "necessary to protect the interest of the government revenue" was lacking.
  • The total tax paid by the companies exceeded the total ITC availed by over Rs. 4.13 Crore, indicating that the revenue's interest was already secured. Even if credits were wrongly availed, the payment of tax (though not strictly due to lack of actual supply) makes it a revenue-neutral situation or a deemed reversal of credits.

• Revenue (Respondents):

  • The mistake in quoting the section (Section 74 instead of Section 67) was inadvertent and promptly rectified by a valid corrigendum, which did not alter the scope of the order.
  • Proceedings under Section 67 were indeed ongoing, which lawfully permits provisional attachment under Section 83. These proceedings would culminate in Section 74 action.
  • The Additional Director General is equivalent in rank to the Commissioner and thus competent to issue orders under Section 83.
  • Petitioner No. 1 had admitted to fraudulent ITC availment of Rs. 26.02 Crore and stock shortage involving ITC of Rs. 3.29 Crore, demonstrating substantial evasion.
  • Section 83 is a provisional measure to protect revenue when substantial tax evasion is indicated, and the assessee, despite admitting liability, refrains from payment.
  • Stock verification was conducted in the presence and to the satisfaction of Petitioner No. 1.
  • Excess ITC was availed and utilized by group companies without sufficient balance, and despite reversals, interest and penalties remain unpaid.

5. Court’s Reasoning
The High Court allowed the petitions primarily on the "short ground" that the interest of the government revenue was not at stake.
* Revenue Protection: The court noted that the total tax paid by the petitioners (Rs. 63.62 Crore) significantly exceeded the total ITC availed (Rs. 59.49 Crore) by Rs. 4.13 Crore during the relevant period. This indicated that even if the allegations of fraudulent ITC availment were true, the revenue's interest was "sufficiently secured."
* Revenue Neutrality: The court accepted the argument that if credits were wrongly availed but tax had been paid (even if not strictly payable due to the alleged non-supply of goods), this could be considered a "revenue neutral satisfaction" or a reversal of wrongly availed credits, thereby protecting the revenue.
* Drastic Power of Section 83: The court reiterated that the power of provisional attachment under Section 83 is "very drastic and far-reaching" and must be used "sparingly and only on substantive weighty grounds and reasons." It should only be exercised if there is a "reasonable apprehension that the assessee may default the ultimate collection of the demand" and should not be used to harass or detrimentally affect business. Attachment of bank accounts should be a "last resort."
* Application of Mind: The court emphasized that the authority must form an opinion, based on credible materials, that it is necessary to attach property to protect revenue, considering the assessee's financial position and whether they are a "fly-by-night operator."
* Precedents: The court extensively relied on its own prior judgments in H M Industrial Pvt Ltd vs. Commissioner, CGST and Central Excise and M/s Patran Steel Rolling Mill vs Assistant Commissioner of State Tax, Unit 2, which elucidated the restrictive conditions for exercising Section 83 powers, particularly when revenue interests are already secured. It also cited Valerius Industries vs Union of India, which comprehensively summarized these principles, including the consideration of a "revenue neutral situation."

The court did not explicitly rule on the validity of the corrigendum or the competence of the Additional Director General, finding the revenue protection argument sufficient to decide the case.

6. Statutory References
* Constitution of India, Article 226
* Central Goods & Service Tax Act, 2017:
* Section 16 (Input Tax Credit)
* Section 16(2)(b)
* Section 62 (Assessment of non-filers)
* Section 63 (Assessment of unregistered persons)
* Section 64 (Summary assessment)
* Section 67 (Power of inspection, search and seizure)
* Section 70 (Power to summon)
* Section 73 (Determination of tax without fraud)
* Section 74 (Determination of tax with fraud)
* Section 79 (Recovery of tax)
* Section 83 (Provisional attachment to protect revenue)
* Section 83(1)
* Section 9 (Charging section)
* Central Goods & Service Tax Rules, 2017:
* Rule 159(1) (Form GST DRC-22)
* Rule 159(5) (Objections to attachment)
* Code of Civil Procedure (Attachment before judgment)

7. Precedents Cited
* By the Court:
* H M Industrial Pvt Ltd vs. Commissioner, CGST and Central Excise (Gujarat High Court, SCA No. 1160 of 2019, decided on February 21, 2019)
* M/s Patran Steel Rolling Mill vs Assistant Commissioner of State Tax, Unit 2 (Gujarat High Court, SCA No. 16931 of 2018, decided on December 20, 2018)
* Valerius Industries vs Union of India (Gujarat High Court, SCA No. 13132 of 2019, decided on August 28, 2019)
* Gandhi Trading v. Asst. CIT 3 (1999) 239 ITR 337 (Bom)
* Cited by Taxpayer (in argument):
* Commissioner of Customs, Bangalore vs. Kesar Marble and Granites (2012) 278 ELT 42 (Kar)
* Century Laminating Co Ltd vs. Commissioner of Central Excise, Meerut - II (2009) 236 ELT 182 (Tri. Del)
* Chawla Trading Co. vs. Commissioner of Customs (export), Nhava Sheva (2015) 330 ELT 470 (Tri. Mumbai)
* Mahindra & Mahindra Ltd vs. Commissioner of Central Excise Mumbai ­V (2006) 196 ELT 62 (Tri. Mumbai)
* Cited by Revenue (in their order/affidavit):
* 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 (Gujarat High Court, SCA No. 1041 of 2019, decided on February 6, 2019)