M/S Jay Ambey Filament Pvt. Ltd. vs Union Of India on 12 October, 2020

Outcome**
The writ application was allowed. The High Court quashed and set aside the provisional attachment order of the petitioner's five bank accounts under Section 83 of the Central Goods and Services Tax Act, 2017 (GST Act), and ordered their immediate removal from attachment. The Court clarified that the Department is not precluded from taking appropriate action afresh, strictly in accordance with the law as explained in the judgment.

2. Core Issue
The core issue was the legality and sustainability of the provisional attachment order of the petitioner's bank accounts, exercised by the revenue authorities under Section 83 of the GST Act, 2017, during the pendency of proceedings under Section 74(1) of the Act. The central question revolved around whether the power under Section 83 was exercised with due application of mind, based on credible material, and for the genuine necessity of protecting government revenue.

3. Key Facts
* Petitioner: M/S Jay Ambey Filament Pvt. Ltd.
* Action Challenged: An order of provisional attachment of five bank accounts of the petitioner maintained with Kotak Mahindra Bank Ltd., Ring Road, Surat.
* Issuing Authority: Assistant Commissioner of State Tax (Respondent No. 4).
* Statutory Provision Invoked: Section 83 of the GST Act, 2017.
* Context of Attachment: The attachment was made during the pendency of proceedings launched against the petitioner under Section 74(1) of the GST Act, aimed at determining tax or other amounts due.
* Date of Order: The provisional attachment order in Form GST DRC-22 was dated 24.08.2020.
* Nature of Order: The petitioner contended the order was a mechanical exercise of power, lacking supporting reasons or material.

4. Arguments (Taxpayer vs Revenue)
* Taxpayer (Implicit): The petitioner implicitly argued that the provisional attachment order was unsustainable in law as it was a mechanical exercise of power, lacked reasons, and was not based on any credible material to form a genuine opinion about the necessity to protect government revenue. Such an arbitrary exercise of a drastic power was illegal and detrimental to their business.
* Revenue (Concession): The learned A.G.P. appearing for the respondents "very fairly submitted that not only the impugned order of provisional attachment is bereft of any reason, but there is nothing on the original file on the basis of which this Court may be in a position to ascertain the genuineness of the belief formed by the authority." This effectively conceded the lack of proper reasoning and supporting material for the attachment.

5. Court’s Reasoning
The Court found the provisional attachment order to be a "result of mechanical exercise of power" under Section 83 of the GST Act, 2017. Its reasoning was based on the following principles:

• Necessity of Opinion Formation: Section 83 requires the Commissioner to form an "opinion" that it is "necessary" to protect government revenue. While this opinion is subjective, it must be grounded in "credible material" and reflect an "intense application of mind". The existence of relevant material is a precondition for forming such an opinion.
• Judicial Scrutiny of Belief: Although the authority is not required to state reasons for its belief, if challenged, it must disclose the materials upon which the belief was formed. Courts can examine these materials to determine if an honest and reasonable person could have formed such a belief, even if the sufficiency of reasons is not investigated.
• Meaning of "Necessary": The term "necessary" implies indispensability, requisite, or essentiality, and must be construed in the context of protecting revenue, not on imaginary grounds or wishful thinking.
• Lack of Justification: The Court noted the A.G.P.'s fair concession that the impugned order was "bereft of any reason" and that the original file lacked material to ascertain the genuineness of the authority's belief. This demonstrated a complete failure to meet the statutory requirements.
• Precedents on Discretionary Power: The Court extensively relied on previous judgments interpreting similar expressions like "reason to believe" and "is of the opinion" in other statutes (e.g., Income Tax Act, Companies Act). These cases uniformly held that while discretion is involved, it is not unfettered and must be based on relevant facts, having a rational connection to the purpose of the statute, and not be arbitrary, capricious, or whimsical.
• Malice in Law: The Court held that an action taken without cogent or credible material, leading to subjective satisfaction for provisional attachment, amounts to "malice in law," irrespective of good or bad faith, because it is an exercise of discretionary power for an unauthorized purpose.
• Principles from Valerius Industries: The Court reiterated the principles laid down in its own Coordinate Bench decision in Valerius Industries v. Union of India, emphasizing that Section 83 is a "drastic and far-reaching power" to be used:
  • Sparsely and only on substantive weighty grounds and reasons.
  • Only if there is a reasonable apprehension that the assessee may default the ultimate collection of demand.
  • Only if there is sufficient material showing the assessee is about to dispose of property to thwart demand collection.
  • Not as a tool to harass or cause irreversible detrimental effect on business.
  • Attachment of bank accounts and trading assets only as a "last resort or measure."
  • By considering revenue neutrality and whether the interest of revenue is already sufficiently secured.
    The Court concluded that none of these essential conditions were fulfilled in the present case.

6. Statutory References
* Article 226 of the Constitution of India
* Section 83 of the Central Goods and Services Tax Act, 2017
* Rule 159(1) of the CGST Rules, 2017 (for Form GST DRC-22)
* Section 74(1) of the Central Goods and Services Tax Act, 2017
* Section 3(1) of the Prevention of Corruption Act, 1988
* Section 237 of the Companies Act, 1956
* Section 637(i)(a) of the Companies Act, 1956
* Section 165(b) of the English Act (referred to in context of Companies Act)
* Section 147 of the Income-Tax Act, 1961
* Section 147(a) of the Income-Tax Act, 1961
* Section 17(1)(a)(ii) of (an unspecified) Act (referred to in Bhikhubhai Vithlabhai Patel)

7. Precedents Cited
1. Sheonath Singh's case [AIR 1971 SC 2451]
2. Bhikhubhai Vithlabhai Patel and others vs. State of Gujarat AIR 2008 SCC 1771
3. J. Jayalalitha vs. U.O.I. [AIR 1999 SC 1912]
4. Barium Chemicals Ltd. vs. Company Law Board [AIR 1967 SC 295]
5. Income-tax Officer, Calcutta and Ors. vs. Lakhmani Mewal Das [AIR 1976 SC 1753]
6. Smt. S.R. Venkatraman vs. Union of India (1979) ILLJ 25(SC)
7. Valerius Industries vs. Union of India, Special Civil Application No.13132 of 2019, decided on 28th August, 2019