Defining the Extents of Precautionary Power Vested in the Hands of the Revenue : An Overview of Section 83 of the CGST Act, 2017

Section 83¹ of the Central Goods and Services Tax Act, 2017 (CGST Act) is a rather powerful and dangerous mechanism at the hands of the Revenue to safeguard their interest. The provision is powerful as it vests with the Revenue the option to provisionally attach properties of such taxpayers who are under the radar and is likely to evade tax. However, the provision is also vague and undefined inasmuch as it apparently vests upon the taxing authorities an unfettered power to curtail free exercise of rights in property of business. The vagueness present in the provision is detrimental to the taxpayers to the extent that the authority is in fact able to invoke their powers and order for attachment of properties of such taxpayers, whose dues towards the Revenue has not yet even been finalised. That is to say, the Act provides for invocation of the powers to attach immovable properties, even before a show-cause notice raising demand for the tax payable is even adjudicated and prior to such a demand becoming crystallised.

The wordings of Section 83 are produced as follows:

83. Provisional attachment to protect revenue in certain cases.—(1) Where after the initiation of any proceedings under Chapter XII, Chapter XIV or Chapter XV 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 or any person specified in sub-section (1-A) of Section 122², in such manner as may be prescribed.

(2) Every such provisional attachment shall cease to have effect after the expiry of a period of one year from the date of the order made under sub-section (1).

The CGST Rules, 2017³ also complement the implementation of Section 83 with Rule 159 and sub-rules therein, which affords to the taxpayer an opportunity to be heard by filing an objection within 7 days of receipt of attachment order.

While a bare reading of the provision along with Rule 159 only bring about the sense of vagueness in the implementation of provisional attachment, as the Act remains silent as to what determinant factors ought to be considered by the Commissioner while passing an order contemplated therein. It is hence pertinent to also look into the Guidelines dated 23-2-2021⁴ issued by the Ministry of Finance in furtherance of governing provisional attachment of property under Section 83. Certain key takeaways from the Guidelines are as follows:

The Commissioner must exercise due diligence and duly consider the facts of the case, amount of revenue involves and several other parameters to determine the grounds for attachment, and such reasons found by the Commissioner should be duly recorded on file.

1. The power vested on the Commissioner is not be exercised in a routine/mechanical manner.

2. The remedy of attachment is extraordinary and to be resorted to with utmost circumspection.

3. Due adherence is to be afforded to the procedure of attachment as prescribed under Rule 159.

4. The Guidelines provide in detail as to what cases are fit for provisional attachment, and most of these cases involve the ingredient of fraud in the transactions.

5. Prescribed the type of property that can be attached, and the property so intended to be attached shall only be to the extent required to protect the interest of revenue/closest to estimated amount payable.

6. Attachment shall cease after a period of one year from the date of passing order of attachment.

7. Encourages speedy investigation and adjudication.

Thus, it is only reasonable to comprehend from the above that the powers so vested in the hands of the Commissioner as per Section 83 is not completely unfettered as the same is reasonably regulated as per the Guidelines. Howsoever, the constitutional validity of Section 83 has been the moot question in several cases and looked into by various courts across the country. The Supreme Court in Radha Krishan Industries v. State of H.P.⁵, while categorically held that the power to provisional attachment of property of taxpayer including a bank account as draconian in nature, nonetheless did not hold the section to ultra vires the Constitution or violative of any fundamental right. The Supreme Court however further emphasised that the conditions stipulated in the statute are to be strictly fulfilled, and that such provisional attachment must be preceded by formation of a reasoned opinion by the Commissioner based on tangible material which shall reflect the necessity of ordering a provisional attachment for the purpose of protecting the interest of the revenue.

Despite the Supreme Court having clarified the above proposition, taxpayers across the country have still resorted to challenging the provision for being ultra vires the Constitution, for grounds such as being violative of Article 14⁶, inasmuch as the power to order attachment without even crystallising a demand to be arbitrary and unreasonable, as also violative of Article 19⁷ for possible restrains of trade and Article 300-A⁸ for unreasonable restriction on property.

Yet another issue that taxpayers also face in conjunction is the attempt of the Revenue to seek extension of the provisional attachment even after the expiry of one-year period. An interesting question that pop-ups is then would not the attachment no longer be “provisional”, if the same is to be extended after the expiry of the one-year period. The Division Bench of the Bombay High Court in Bharat Parihar v. State of Maharashtra⁹ had taken the situation of extension of provisional attachment on moot and held that an attachment under Section 83 can only be extended by means of a fresh order to be passed by the Commissioner. A fresh order is suggestive of a finding that is based on the changed circumstances or new facts that requires to be analysed so as to instil the notion that such provisional attachment is necessary to protect the interest of the revenue, in the opinion of the Commissioner. In yet another case Parthavi Metals and Alloys v. Union of India¹⁰ , the High Court of Delhi in similar facts and circumstances, while setting aside the communication issued to banks by the Revenue to continue freezing of the accounts of the taxpayers due to lack of fresh orders passed, has left open the larger question as to whether repeated issuance of orders seeking extension of attachment can in fact be permissible under the law.

The High Court of Kerala has however, for once and all determined the issue in Ali K. v. Directorate General of GST Intelligence¹¹ wherein the moot question was specifically with respect to the powers of the Revenue to extend the provisional attachment order thereby keeping alive the attachment, beyond the period of one year. The Court was of the categorical view that the wordings of Section 83 read with Rule 159 of the CGST Rules, 2017 strictly provide that the term of provisional attachment shall mandatorily cease to exist after the period of one year. It was further held that an event where the Revenue is permitted to keep on issuing repeated orders of provisional attachment shall imply that such attachment can continue for as long as the Revenue decides, and this can in no way be the intention of the legislation. The Court further emphasised on the necessity to interpret taxing statutes in their plain wordings and that court are not bound to stem in to supply words or provisions of a stature a different meaning. The judgment has, being considerate of the “draconian” nature of Section 83, held in full and final that the provisions do not contemplate or authorise the issuance of a fresh order of attachment after the period specified in sub-section (2) ceases thereof.

The above instances reflect that despite the Guidelines prescribing several checks and balances on powers vested in the hands of the Commissioner, the difficulties faced by taxpayers in reality cannot be disregarded as irrelevant concerns and that the various courts in the country have been taking a litigant friendly approach so as to ensure that there is no misuse of the “draconian” power with the revenue. The challenge on constitutional validity of Section 83 is still the moot question pending consideration before various High Courts for the outcome of which there is much anticipation from various stakeholders. Nevertheless, the Single Judge’s views and the outright declaration in Ali K. case¹² that provisional attachment order ceases to exist after the period of one year is a ray of good hope for taxpayers and a potential persuasive precedent that forums across the country dealing with the same issue can indubitably rely upon.