Andhra Pradesh High Court - Amravati

M/S Arhaan Ferrous And Non Ferrous ... vs The Senior Intelligence Officer 3 on 27 December, 2023

Author: U. Durga Prasad Rao

Bench: U.Durga Prasad Rao

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                                                           [ 3417 ]

IN THE HIGH COURT OF ANDHRA PRADESH :: AMARAVATI
              (Special Original Jurisdiction)

WEDNESDAY, THE TWENTY SEVENTH DAY OF DECEMBER
       TWO THOUSAND AND TWENTY THREE

                   PRESENT
 THE HONOURABLE SRI JUSTICE U.DURGA PRASAD RAO
      THE HONOURABLE SMT JUSTICE VENKATA
              JYOTHIRMAI PRATAPA
             WRIT PETITION NO: 12360 OF 2022
Between:
1. M/S ARHAAN FERROUS AND NON FERROUS SOLUTIONS
   PVT LTD, No.3, High Road, Santhapeta, Chittoor - 517001 Rep.
   by its Director Mr. Shaik Rizwan.
                                               ...PETITIONER(S)
                              AND
1. THE SENIOR INTELLIGENCE OFFICER 3, A.P.State
   Directorate of Revenue Intelligence, Vijayawada, Andhra Pradesh.
2. The Senior Intelligence Officer,, A.P. State Directorate of
   Revenue Intelligence, Chittoor, Andhra Pradesh.
3. The Deputy Director,, A.P. State Directorate of Revenue
   Intelligence, Vijayawada, Andhra Pradesh.
4. The Special Commissioner,, A.P. State Directorate of Revenue
   Intelligence, Vijayawada, Andhra Pradesh.
5. State of Andhra Pradesh,, Rep. by its Principal Secretary
   (Revenue)(GST) Department, Secretariat Building, Velagapudi,
   Amaravathi, Guntur District.
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6. The Branch Manager, ICICI Bank, Vikas Complex,
   Kongareddypalli, Puttur, Chittoor District, Andhra Pradesh.
7. The Branch Manager, AXIS Bank, No. 10/199 TMR Towers,
   Gandhi Road, Thotapalyamm, Chittoor District, Andhra Pradesh.

                                                 ...RESPONDENTS

This Court made the following:

ORDER:

(Per Hon'ble Sri Justice U. Durga Prasad Rao)

In this Writ Petition the petitioner challenges the provisional

attachment order dated 01.04.2022 and 06.04.2022 issued under Form

GST DRC - 22 by the 4th respondent as illegal, arbitrary and to set

aside the same and pass such other orders deemed fit.

2. Petitioner's case succinctly is thus:

(a)Petitioner is a company engaged in the business of iron

scrap and during the course of search operations conducted by the

respondent authorities U/s 67 of A.P. Goods & Service Tax Act, (for

short 'AP GST Act, 2017') on 31.03.2022, the respondent authorities

seized the books of accounts and issued summons directing the

Director and employees of the petitioner company U/s 70 of the AP

GST Act, 2017 and accordingly the deponent of the writ affidavit and

the employees of the petitioner company attended the enquiry and ::3::

their statements were recorded. Thereafter by way of impugned

provisional orders of attachment the accounts of the petitioner

maintained with the respondents 6 and 7 banks have been

provisionally attached. Challenging such attachment, the writ petition

is filed.

(b) It should be noted that in I.A.No.1 of 2022 the petitioner

sought for interim suspension of the provisional attachment orders

dated 01.04.2022 and 06.04.2022. This Court heard learned counsel

for the petitioner Sri Bhaskar Reddy Vemi Reddy and Sri Y.N.

Vivekananda, learned Government Pleader for respondents. Learned

counsel for the petitioner mainly raised the following two contentions

before this Court:

(1)The 4th respondent herein in the impugned orders of provisional attachment did not record anything with regard to the formation of opinion or subjective satisfaction and the same is contrary to the provisions of Section 83 of the Act.

(2) As on the date of the orders of provisional attachment, there were no proceedings pending under Section 67 of the Act nor any proceedings have been initiated either under Section 73 or 74 of the Act.

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And to buttress the above contentions, the petitioner relied

upon the judgment of Hon'ble Supreme Court in M/s Radha

Krishan Industries v. State of Himachal Pradesh1 and judgment of

the Gujarat High Court in M/s Anjani Impex v. State of Gujarat2.

Learned Government Pleader resisted the writ petition and also

interim application contending that there was absolutely no illegality

nor any procedural infirmity in the impugned action. He further

contended that only after recording valid reasons in the note file and

with an intention to protect the interest of Government revenue, the

4th respondent issued impugned provisional order of attachment of the

bank accounts of the petitioner. He thus opposed the writ petition as

well as the interim application. This Court passed an elaborate order

with the following observations:

"Admittedly, except saying that the orders of provisional attachment are passed in order to protect the interest of the Government revenue, no other reasons are assigned by the fourth respondent in the impugned orders of the provisional attachment. When sub-Rule (5) of Rule 159 of the Rules specifically provides for filing objections against the orders of provisional attachment, the contention that the reasons for ordering provisional attachment were recorded in the Note File and that there is no need to extract the same or state the same in the provisional order of attachment, in the considered opinion of this Court, cannot stand for judicial

AIR 2021 SC 2114 = MANU/SC/0293/2021

2020 [43] G.S.T.L. 23 = MANU/GJ/1423/2020 ::5::

scrutiny. The Hon'ble Supreme Court, in the above referred judgment, also categorically ruled that the formation of opinion on the basis of tangible material which indicates the necessity to order provisional attachment to protect the interest of the Government revenue is mandatory.

Unless reasons are recorded broadly, the assessee cannot be expected to file any objections under the provisions of sub-Rule (5) of Rule 159 of the Rules. The Ho'ble Supreme Court, in the above referred judgment, held that exercise of unguided discretion under Section 83 of the Act would not be permissible as it will leave citizens and their legitimate business activities to the peril of arbitrary power. Having regard to the language employed by the legislature in Section 83 of the Act and Rule 159(5) of the Rules and the judgments referred to supra, this Court is of the opinion that the fourth respondent failed to adhere to the mandatory requirement of formation of opinion. It is also the submission of the learned counsel for the petitioner that, by pressing into service the provisions of Section 67 of the Act, the respondent authorities conducted inspection, search and seizure. It is also submitted by the learned counsel that, pursuant to the summons issued under Section 70 of the Act, the Director and the employees appeared before the competent authority and their statements were also recorded and the documents were also seized. It is further submitted that, in view of the same, it cannot be said that the proceedings under Section 67 of the Act are pending. In order to show that the respondents have concluded proceedings under Section 67 of the Act, a copy of the order of seizure vide Form GST INS-02 under Rule 139(2) of the Rules is filed as a material paper.

On the other hand, it is submitted by the learned Government Pleader that the provisional orders of attachment were communicated to the petitioner and the proceedings under Section 67 of the Act are still incomplete and are pending.

In view of the above reasons, having regard to the submission of the learned counsel for the petitioner and the judgments referred to above, this Court is of the opinion that the petitioner has made out prima facie case for grant of interim relief.

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For the aforesaid reasons, there shall be interim suspension of the provisional attachment orders, dated 01.04.2022 and 06.04.2022, till 15.07.2022.

Post the matter for hearing on 05.07.2022."

3. It should be noted that subsequently the 4th respondent filed

counter affidavit alleging that on specific intelligence information

that M/s RP Enterprises, M/s AR Traders, and M/s AN Traders have

been passing on fake Input Tax Credit without actually purchasing

goods in favour of the petitioner Company, investigation was taken

up under the provisions of AP GST Act, 2017 and during the course

of study of records available with the Department, it came to light

that 90% of the input supplies of the petitioner company, were

received from the aforesaid three firms but there were no

corresponding purchases of scrap by the said three input suppliers

and therefore the Special Commissioner, APSDRI has ordered for

conducting searches at different locations under the provisions of

Section 67 of the APGST Act, 2017. During such search of the

aforesaid three traders it was identified that no such firms in

existence at the given address. Accordingly, searches at the principal

place of business of the petitioner along with the residential premises

of the Managing Director of the petitioner company were also ::7::

conducted in the presence of independent witnesses. Since the

investigation revealed that the location of the business premises of

the input suppliers of the petitioner Company are fake and since the

input tax credit passed on by them is irregular, considering the

quantum of irregularly availed ITC, it was considered essential to

provisionally debit freeze the bank account of the petitioner company

till completion of the investigation of the subject case and

accordingly orders vide DRC-22, dated 01.04.02022 and 06.04.2022

were issued U/s 83 of the APGST Act, 2017 to respondents 6 and 7

banks.

4. In the counter, it is further submitted that ultimately

investigation was completed and revised assessment order was

passed U/s 74 of the APGST Act, 2017 on 06.06.2023 confirming the

demand of Rs.21,58,53,496/- against the petitioner company along

with the penalties.

5. It is contended that Section 83 authorizes the provisional

attachment not only during the pendency of any proceedings U/s 62

or 63 or 64 or 67 or 73 or Section 74 but "after initiation of any

proceeding under Chapter XII, Chapter XIV or Chapter XV".

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Presently the case is under Chapter XV of APGST Act, 2017 and

hence the action of the respondents is legally tenable. It is further

contended that the proceedings under order DRC-22 was issued with

the following reasons:

(a) None of the input suppliers were operating at the declared addresses;

(b) Addresses provided by the input suppliers was fake address;

(c) The whereabouts of the proprietors input supplier firms are unknown to the Department.

(d) The Managing Director of the petitioner company is able to contact the proprietors of these fake firms;

(e) The petitioner company is able to contact the proprietors of these fake firms and make bank transfers to the bank accounts of these fake firms;

(f) That no record pertaining to the petitioner company were not available in their business/residential premises;

(g) That even on the day of the search i.e., 31.03.2022, the petitioner company has issued E-Waybills for a total value of Rs.1,44,43,260/-, thereby passing on suspected irregular ITC of Rs.25,99,787/- to their clients;

(h) That the amounts transferred from the petitioner company to the fake input supplier firms were subsequently diverted to individuals/ firms/ companies which have no declared business dealings them

6. It is further contended, reasons for action U/s 83 of the APGST

Act r/w DRC-22 were sent to the petitioner by post. It is further ::9::

submitted that the petitioner did not approach the Court with clean

hands and as per the bank statements, in ICICI bank the petitioner has

Rs.1,42,24,933/- and in Axis Bank the petitioner has Rs.1,81,025/-

whereas the tax liability of the petitioner as per the Assessment Order

is Rs.21,58,53,496/-. Thus the funds available in the bank account do

not even meet the requirement of the 10% of the appeal amount. The

respondent thus prayed to dismiss the writ petition.

7. Heard Sri Bhaskar Reddy Vemi Reddy, learned counsel for the

petitioner and Sri Y.N. Vivekananda, learned Government Pleader for

respondents. Both the learned counsel reiterated their pleadings in

their respective arguments.

8. The point for consideration is whether there are merits in the

writ petition to allow?

9. POINT: As can be seen, in the interim order passed in I.A No.1

of 2022 this Court in the light of the principles laid down by Hon'ble

Supreme Court in M/s Radha Krishan Industries v. State of

Himachal Pradesh (supra 1) and judgment of the Gujarat High Court

in M/s Anjani Impex v. State of Gujarat (supra 2), observed that in

the orders of the 4th respondent, except saying that provisional ::10::

attachment orders were issued in order to protect the interest of the

Government revenue, no reasons were assigned in the provisional

attachment order. This Court observed, when sub-Rule (5) of Rule

159 of the Rules specifically provides for filing objections against the

orders of provisional attachment, the contention that the reasons for

ordering provisional attachment were recorded in the Note File and

that there is no need to extract the same or state the same in the

provisional order of attachment, cannot stand for judicial scrutiny. It

is further observed, the Hon'ble Supreme Court in the above referred

judgment also categorically ruled that the formation of opinion on the

basis of tangible material which indicates the necessity to order

provisional attachment to protect the interest of the Government

revenue is mandatory. It is further observed that unless reasons are

recorded broadly, the assessee cannot be expected to file any

objections under the provisions of Rule 159(5) of the Rules. This

Court further observed that as per the aforesaid judgment of Hon'ble

Supreme Court the exercise of unguided discretion under Section 83

of the Act would not be permissible as it will leave citizens and their

legitimate business activities to the peril of arbitrary power. In the ::11::

interim order this Court opined that the 4th respondent failed to adhere

to the mandatory requirement of formation of opinion. On such

observations this Court passed the interim order.

10. In our considered view, even after filing of the counter by the

respondents, there is no scope to reverse the opinion expressed by this

Court in the interim order. No doubt in the counter it is claimed by

the respondents that order DRC-22 under Section 83 was issued with

the above extracted (a) to (h) reasons. However, on perusal of the

provisional attachment order dated 01.04.2022 issued by the 4th

respondent under Form GST DRC 22 r/w Rule 159(1), it does not

contain any reasons except mentioning that in order to protect the

interest of the revenue and in exercise of the powers conferred U/s 83

of the Act the said order was issued. Needles to emphasize that

reasons are live-nerve of any order of the public authority, without

which the effected party cannot effectively oppose and submit his