Provisional attachment of property is a legal term which essentially means seizing or blocking property including bank accounts of an assessee, who is being subject to a department inquiry/ investigation/ assessment. Provisional attachment is a measure which is resorted to safeguard the interest of Government revenue to ensure a tax defaulter does not go absconding in the midst of an inquiry. The term provisional is used to indicate the fact that such attachment is of temporary nature and as soon as the dues are cleared by the taxpayer, the properties attached are released.
In a scenario where the Government is of the view that the taxpayer would not be able to pay off the dues for any reason, the officers may dispose off the properties attached in the manner prescribed and settle the tax dues with such disposal proceeds.
LIST OF TOPICS COVERED:
- Legal Provisions & Procedures
- Amendments Proposed In Budget 2021
- Key Rulings
Legal Provisions And Procedures
- Section 83 states that: Where during the pendency of any proceedings under Section 62/63/64/67/73/74, the Commissioner is of the opinion that for the purpose of protecting the interest of the Government revenue, it is necessary so to do, he may, by order in writing attach provisionally any property, including bank account belonging to the taxable person in such manner as may be prescribed.
- Further, Section 83(2) of the CGST Act, 2017 states that provisional attachment of property would cease to have effect after the expiry of one year from the date of such attachment order.
- It is worthwhile to note that GST law does not define ‘property in the Act. However, in terms of Section 83 of the CGST Act, 2017, the Commissioner can attach any property including bank accounts.
- The proceedings wherein provisional attachment has been prescribed under Section 83 are:
|XIV||Inspection, Search, Seizure, and Arrest|
|XV||Demands and Recovery|
- Thus, provisional attachment can be done by the Commissioner during the pendency of any proceedings under these chapters, if he is of the opinion that such action is necessary for the interest of the Government revenue.
- Recently, it has been observed that the department is frequently issuing provisional attachment orders for properties and bank accounts. This is being done in the wake of recent fake invoicing scams being uncovered by the department. To ensure that such fraudsters do not escape the tax and penalty implications, provisional attachment is being resorted to frequently.
Procedure to follow: As per Rule 159 of the CGST Rules, 2017, a procedure has been prescribed in case of provisional attachment of property including bank accounts. The following is a summary of such a procedure:
- Where the Commissioner decides to attach any property, including bank accounts, he shall pass an order in FORM GST DRC-22 to that effect mentioning therein, the details of property which are attached.
- The Commissioner shall send a copy of the order of attachment to the concerned Revenue Authority or Transport Authority or any such Authority to place an encumbrance on the said movable or immovable property, which shall be removed only on the written instructions from the Commissioner to that effect.
- Where the property attached is of perishable or hazardous nature, and if the taxable person pays an amount equivalent to the market price of such property or the amount that is or may become payable by the taxable person, whichever is lower, then such property shall be released forthwith, by an order in FORM GST DRC-23, on proof of payment.
- Where the taxable person fails to pay the amount in respect of the said property of perishable or hazardous nature, the Commissioner may dispose of such property and the amount realized thereby shall be adjusted against the tax, interest, penalty, fee, or any other amount payable by the taxable person.
- Any person whose property is attached may, within seven days of the attachment file an objection to the effect that the property attached was or is not liable to attachment, and the Commissioner may, after granting an opportunity of being heard to the person filing the objection, release the said property by an order in FORM GST DRC- 23.
- If the Commissioner is satisfied that the property is no longer liable for attachment, he may release the property by issuing an order in FORM GST DRC – 23.
Some key rulings:
|1||Valerius Industries v. Union of India  109 taxmann.com 218 (Gujarat)||The HC held that:|
. To attach a property is very drastic and far-reaching power, it should be used cautiously only on weighty grounds
. Power should not be used as a tool to harass. Should neither have an irreversible detrimental effect on the business of the assessee
. Should be resorted to only as last resort. Authorities should take into consideration the following two points before passing an order –
1. Whether it is a revenue-neutral situation
2. Statement of “output liability or input credit“
|2||Vinodkumar Murlidhar Chechani v. State of Gujarat  123 taxmann.com 329 (Gujarat)]||The Court did not appreciate the mechanical exercise of the powers. It requested the Govt. as well as the CBIC to issue guidelines for provisional assessment at the earliest|
|3||Patran Steel Rolling Mill –  105 taxmann.com 304 (Gujarat)]||The HC held that:|
. Interest of the Revenue is at harm when there is uncertainty in relation to the collection of tax
. Commissioner is required to establish the above fact
. Commissioner should first form the opinion that the petitioner would not be in a position to pay the tax dues after assessment proceedings are over
|4||Bindal Smelting Private Limited [2020 (1) TMI 569 – Punjab and Haryana HC]||The HC held that the power of attachment cannot be exercised as per whims and caprices of the Authority. Where property is mortgaged with bank and value of the property is less than outstanding bank dues, provisional attachment of such property is meaningless. In the absence of a record showing that the interest of revenue is protected by attaching a bank account or property, action deserves to be declared as taken without application of mind and formation of opinion on the basis of cogent material|
In the last couple of months, there has been an extensive rise in property attachment cases. The quantity and quantum of fake scams unearthed in the past one year have reached sky-high. It is of essence that the Government safeguards its revenue not only from the perspective of earning tax income but also to send out a strong message to the defaulters and those acting as an accomplice. Therefore, measures like provisional attachment are being used extensively. The idea to bestow such powers to officers and commissioner, as the case may be, is that the Government intends to put a hard stop to fraudulent activities right at the scrutiny phase and does not want to wait till the litigation gets over. This is due to the fact that numerous times, the assessee goes absconding, companies are liquidated, and assets are sold just as the inquiry is initiated.