M/S Anjani Impex vs State Of Gujarat on 1 October, 2020

1. Outcome

The writ application was partially allowed. The Court quashed and set aside the provisional attachment orders (Form GST DRC-22) for both the factory and residential premises. However, the Court declined to interfere with the notice in Form GST DRC-01A. The Department was clarified to be at liberty to take fresh appropriate action strictly in accordance with the law as explained by the Court.

2. Core Issue

The core issue was the legality and sustainability of the provisional attachment of the petitioner's properties (factory and residential premises) under Section 83 of the Central Goods and Services Tax Act, 2017 (CGST Act), specifically whether the statutory requirement for the Commissioner to form an "opinion" for protecting government revenue was met.

3. Key Facts

• Petitioner: M/S Anjani Impex, a partnership firm registered under GST, engaged in manufacturing textile fabrics.
• Initiation of Inquiry: An inquiry was initiated against the firm by the CGST Department, Surat, by issuing summons under Section 70(1) of the CGST Act, 2017.
• Departmental Actions Challenged:
  1. Form GST DRC-01A: A communication dated 23.07.2020 (Intimation of Tax Ascertained as Payable) was issued by the State GST Department.
  2. Form GST DRC-22: Provisional attachment orders dated 24.07.2020 were issued by the State GST Department for the petitioner's industrial unit (factory premises) and residential premises under Section 83 of the CGST Act.
• Deficiency in DRC-22 Orders: The impugned provisional attachment orders in Form GST DRC-22 were boilerplate, mechanical, and lacked specific reasons or material indicating the necessity for attachment to protect revenue interests.
• Revenue's Submission: The learned Assistant Government Pleader (AGP) for the State-respondents fairly submitted that the impugned provisional attachment order was "bereft of any reason" and that "nothing on the original file" could ascertain the genuineness of the belief formed by the authority.

4. Arguments

• Taxpayer (M/S Anjani Impex):
  • Sought to quash and set aside Form DRC-01A and the provisional attachment orders (DRC-22) for both factory and residential premises.
  • Argued that the provisional attachment orders were issued mechanically, without proper application of mind, and without fulfilling the preconditions stipulated in Section 83 of the CGST Act.
  • Implicitly argued that the "opinion" formed by the Commissioner was not based on credible material or a genuine necessity to protect government revenue.
  • Also prayed for transfer of proceedings to the CGST department as they had already initiated the same.
• Revenue (State of Gujarat):
  • Defended the actions implicitly, stating that proceedings were launched under Section 74(5) to determine tax due and that attachment was necessary to protect revenue.
  • However, the learned AGP fairly conceded that the provisional attachment order lacked reasons and there was no material on the original file to justify the belief formed by the authority for the attachment.

5. Court’s Reasoning

1. Section 83 Interpretation: The Court extensively analyzed Section 83 of the CGST Act, which allows provisional attachment if the Commissioner forms an "opinion that for the purpose of protecting the interest of the Government revenue, it is necessary so to do."
2. Subjective Opinion with Objective Basis: While the opinion to be formed is subjective, it must be based on credible material. The term "necessary" means indispensable, requisite, or essential, implying an intense application of mind with reference to available material. It cannot be based on imaginary grounds or wishful thinking.
3. No Material, No Belief: The Court emphasized that if there is no material to support the belief or opinion, no belief can be formed. Though authorities aren't required to state reasons for belief in the order, if challenged, they must disclose materials. In this case, the AGP's fair submission that the order was "bereft of any reason" and "nothing on the original file" was critical.
4. Malice in Law: The Court held that in the absence of cogent or credible material, subjective satisfaction arrived at for provisional attachment under Section 83 amounts to "malice in law," meaning the discretionary power was exercised for an unauthorized purpose, regardless of good or bad faith.
5. Precedents on "Reason to Believe" and "Opinion": The Court referred to several Supreme Court judgments (e.g., Sheonath Singh, J. Jayalalitha, Barium Chemicals Ltd., Lakhmani Mewal Das, Bhikhubhai Vithalabhai Patel, S.R. Venkatraman) to illustrate that even subjective satisfaction or opinion must have a rational connection or live link with existing, relevant, and credible material, and cannot be arbitrary, capricious, or whimsical.
6. Drastic Power - Use Sparingly: Reaffirming its own prior judgment in Valerius Industries vs. Union of India, the Court reiterated that the power of provisional attachment under Section 83 is a "very drastic and far-reaching power" that should be used sparingly, only on substantive weighty grounds and reasons, and as a last resort. It requires a reasonable apprehension that the assessee may default the ultimate collection of demand or dispose of property to thwart collection.
7. Conclusion on Facts: The Court concluded that none of the conditions for a valid provisional attachment under Section 83, as interpreted by the Court and established precedents, were fulfilled in the present case due to the lack of reasons and underlying material.
8. DRC-01A Stance: The Court did not provide specific reasoning for not interfering with Form GST DRC-01A, simply stating it was not inclined to do so. This implies that the preliminary intimation of tax payable, unlike the attachment, did not suffer from the same fundamental flaws.

6. Statutory References

• The Constitution of India:
  • Article 226
• Central Goods and Services Tax Act, 2017 (CGST Act):
  • Section 70(1) (Power to summon persons to give evidence and produce documents)
  • Section 74(5) (Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized by reason of fraud or any wilful misstatement or suppression of facts)
  • Section 83 (Provisional attachment to protect revenue in certain cases)
• Income-Tax Act, 1961:
  • Section 147 (Income escaping assessment)

7. Precedents Cited

1. Sheonath Singh's case: AIR 1971 SC 2451 (Examining materials for belief formation)
2. Bhikhubhai Vithlabhai Patel and others vs. State of Gujarat: AIR 2008 SCC 1771 (Construction of "necessary," subjective opinion based on material)
3. J. Jayalalitha vs. U.O.I.: AIR 1999 SC 1912 (Construction of "as may be necessary" under Prevention of Corruption Act, 1988)
4. Barium Chemicals Ltd. vs. Company Law Board: AIR 1967 SC 295 (Interpretation of "is satisfied," "is of the opinion," "has reason to believe" under Companies Act, 1956)
5. Income-tax Officer, Calcutta and Ors. vs. Lakhmani Mewal Das: AIR 1976 SC 1753; [(1976) 103 ITR 437 (SC)] (Construction of "reason to believe" under Income-Tax Act, 1961, requiring rational connection/live link)
6. Smt. S.R. Venkatraman vs. Union of India: (1979) ILLJ 25(SC) (Error of fact leading to abuse of power/malice in law)
7. Valerius Industries vs. Union of India: Special Civil Application No.13132 of 2019, decided on 28th August, 2019 (Gujarat High Court's own decision on principles for applying Section 83 of the CGST Act).