The Supreme Court on Tuesday termed the power of commissioners under the GST law to provisionally attach properties and bank accounts of assessees as “draconian” and ordered that they have to follow the rule book and pass reasoned orders while exercising such power.
“The power to order provisional attachment of property of the taxable person, including a bank account, is draconian in nature and the conditions which are prescribed by the statute for a valid exercise of the power must be strictly fulfilled,” a bench of Justices D Y Chandrachud and M R Shah said while quashing the provisional attachment order passed against Radhakrishnan Industries located in Himachal Pradesh.
Writing the judgment for the bench, Justice Chandrachud said legitimate concerns of citizens over arbitrary exercise of power have to be protected while ensuring that the legislative purpose in entrusting the authority to order provisional attachment is fulfilled.
“Exercise of the power for ordering a provisional attachment must be preceded by the formation of an opinion by the commissioner that it is necessary so to do for the purpose of protecting the interest of government revenue. Before ordering a provisional attachment, the commissioner must form an opinion on the basis of tangible material that the assessee is likely to defeat the demand, if any, and that, therefore, it is necessary so to do for the purpose of protecting the interest of government revenue,” the bench said.
“The expression ‘necessary so to do for protecting government revenue’ implicates that the interests of government revenue cannot be protected without ordering a provisional attachment; The formation of an opinion by the commissioner under Section 83(1) must be based on tangible material bearing on the necessity of ordering a provisional attachment for the purpose of protecting the interest of government revenue,” the court added.
It said under GST rules, a person whose property is attached is entitled to dual procedural safeguards (a) an entitlement to submit objections on the ground that the property was or is not liable to attachment, and (b) an opportunity of being heard. “There has been a breach of the mandatory requirement of Rule 159(5) and the commissioner was clearly misconceived in law in coming into conclusion that he had a discretion on whether or not to grant an opportunity of being heard,” the bench said while quashing the attachment order.
The bench said the commissioner was duty bound to deal with objections to the attachment by passing a reasoned order which must be communicated to the taxable person whose property is attached and also ruled that an aggrieved person had the option of approaching the HC against an inappropriate attachment order.
In the case in hand, the SC said, “The joint commissioner, while ordering a provisional attachment under Section 83, was acting as a delegate of the commissioner in pursuance of the delegation effected under Section 5(3) and an appeal against the order of provisional attachment was not available under Section 107(1). Therefore, the writ petition before the high court under Article 226 of the Constitution challenging the order of provisional attachment was maintainable.”