M/S. Sterne India Pvt Ltd vs Union Of India
2021 Latest Caselaw 3314 Kant

                                  1


 IN THE HIGH COURT OF KARNATAKA AT BENGALURU

     DATED THIS THE 8TH DAY OF SEPTEMBER 2021

                             BEFORE

THE HON'BLE MR.JUSTICE S. SUNIL DUTT YADAV

      WRIT PETITION No.12875 OF 2020 (T-RES)

Between:

M/s. Sterne India Pvt. Ltd.
Having its office at:
249, 19th Main Road,
Sector-4, HSR Layout,
Bengaluru - 560 102
Represented by Authorized Signatory
Mr.Rishi Raj Singh Rathore.                     ... Petitioner

(By Sri Dharmendra Kumar Rana, Advocate for
    Sri K.J.Kamath, Advocate)

And:

1.     Union of India
       Through Secretary
       Ministry of Finance
       Department of Revenue
       Room No.137, North Block
       New Delhi - 100 001.

2.     Additional Director General of
       GST Intelligence
       Gurugram Zonal Unit
       5th Floor, Mudit Square
       Plot No.24, Sector-32
       Gurugram
       Haryana - 122 001.                     ... Respondents

(By Sri Aravind V. Chavan, Advocate)
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       This Writ Petition is filed under Article 226 of the
Constitution of India, praying to set aside the impugned
provisional attachment of bank accounts of the petitioner
maintained with the HDFC Bank vide impugned letter dated
21.09.2020 passed by the R-2 under Section 83 of CGST Act as
per Annexure-A and etc.

     This Writ Petition coming on for preliminary hearing 'B'
group this day, the Court made the following:

                          ORDER

The petitioner has sought for setting aside the

provisional attachment of bank accounts maintained with

HDFC bank as per the communication dated 21.09.2020 at

Annexure-A and has sought for appropriate direction to the

respondent No.2 to defreeze the petitioner's bank accounts.

2. The petitioner is stated to be a Company

registered under the Karnataka Goods and Service Tax Act,

2017 and engaged in the Business to Business ('B2B')

e-commerce trading in 'white goods' including mobile

handsets. It is made out in the petition that the respondent

No.2 was conducting certain investigation in respect of

M/s.Pal Overseas, a registered entity under the Goods and

Service Tax Act ('GST Act') and also as regards other

entities relating to the alleged issuance of bogus/fake

invoices without supply of goods and were seeking to claim

Input Tax Credit of Goods and Service Tax. It is stated that

the petitioner was purchasing the mobile hand sets from

these suppliers and was selling to its customers. The

respondent No.2 on 02.09.2020 conducted a search at the

Head Office of the petitioner. It is submitted that during

the search, the respondent No.2 issued summons to

Mr.Rishi Raj Singh Rathore, Director and Mr.Nishant Gupta,

Associate Director of the petitioner Company and had

recorded their statements.

3. It is further made out in the petition that the said

representatives of petitioner Company responded to the

notice, appeared before the Authorities and also made their

statements, which has been duly recorded.

4. It is made out in the petition that on 21.09.2020,

the respondent No.2 had sought details of the bank

accounts of the petitioner which was provided on the same

day. It is stated that the respondent No.2 has attached the

bank accounts of the petitioner purportedly in exercise of

power under Section 83 of the Central Goods and Services

Tax Act, 2017 ('CGST Act' for brevity).

5. Learned counsel for the petitioner submits that

the said factum of provisional attachment of the bank

account was learnt by the petitioner only from their banker.

It is further submitted that the necessary representation

came to be made by the petitioner in terms of Rule 159(5)

of the Central Goods and Services Tax Rules, 2017 ('CGST

Rules' for brevity) seeking release of attachment and

defreezing of bank accounts, but such request was neither

considered nor any order was passed as required under the

applicable Rules.

6. The respondents have filed their statement of

objections and have contended that in the course of

investigation relating to massive GST evasion on the basis

of fake invoices as the petitioner was conducting business

with several fake Firms and had availed fraudulent Input

Tax credit, the petitioner's premises was searched on

02.09.2020 and the statement of Directors of the

petitioner's Company were recorded.

7. It is further asserted that Mr.Rishi Raj Singh

Rathore had represented that he would abide by the

proceedings and had agreed to reverse the credit as

applicable and that he had begun the process of paying

Rs.35.00 lakhs from their cash balance.

8. It is further submitted that however neither the

amount of Rs.35.00 lakhs had been paid nor any Input Tax

Credit had been reversed by the petitioner even after 15

days of the recording of the statement referred to above.

Accordingly, it is stated that the provisional attachment of

bank account of the petitioner was effected on 21.09.2020.

9. It is further asserted that the letter received of

the petitioner was received by the respondent on

13.10.2020 and was not within the time period prescribed

under Rule 159(5) of the CGST Rules and no condonation of

delay regarding the same was sought and that therefore,

the question of consideration of representation of the

petitioner as contemplated under Rule 159(5) of CGST

Rules is not permissible.

10. Various other contentions on the merits of the

matter have been raised. A specific assertion is also made

by the respondents at para-10 of their statement of

objections that the proceedings under Section 67 of the

CGST Act were initiated. It is further submitted that the

proceedings under Section 74 of CGST Act are contemplated

and the matter is still at the stage of investigation.

11. At the time of hearing of the matter, learned

counsel for the petitioner has advanced detailed arguments

and has relied on the judgment of Apex Court in the case of

Radha Krishan Industries v. State of Himachal

Pradesh and Others reported in (2021) SCC OnLine SC

334 and contends that a detailed consideration has been

made regarding the procedure to be adhered to while

effecting the provisional attachment of property, including

the bank account belonging to a taxable person and that the

pre-conditions for exercise of proceedings under Section 83

of CGST Act is that the pendency of proceedings under

Sections 62, 63, 64, 67, 73 and 74 of CGST Act, that the

Commissioner must form an opinion and that for the

purpose of protecting the interest of government revenue, it

must be necessary the that provisional attachment has to

be resorted to.

12. It is contended that the mode of attachment is

as prescribed in Form GST DRC-22 and the manner of such

provisional attachment is prescribed under Rule 159 of

CGST Rules. It is further pointed out that Rule 159(5) of

CGST Rules also provides for an opportunity that a person

whose property is attached is permitted to file objections to

make out a case that the property attached was not liable

for attachment and after affording an opportunity of being

heard to the affected person, there could be an order of

release of the said property by an order in Form GST DRC-

23.

13. It is contended that such procedure as provided

under Rule 159 of CGST Rules ought to have been strictly

adhered to, as the order of provisional attachment has

serious economic consequence on the petitioner and there

has been a total non-compliance of the procedure

prescribed under Section 159 of CGST Rules insofar as there

was no notice of attachment as contemplated under Rule

159(2) of CGST Rules.

14. It is submitted that an essential requirement for

exercise of power under Section 83 of CGST Act would be

the formation of an opinion by the Commissioner that such

provisional attachment is required to protect the interests of

Government Revenue only and the material supporting such

formation of opinion is not forthcoming in the present case

and accordingly, the order of attachment is liable to be set

aside. It is further contended that the representation made

by the petitioner has not been disposed of under Rule

159(5) of the CGST Rules.

15. Though the other contention regarding the

merits of the proceedings initiated as against the petitioner

has been raised, it is sufficient if the consideration of the

present petition is limited to the legality of the action of

respondent Authority in provisionally attaching the

petitioner's bank accounts.

16. Learned counsel appearing for the respondents at

the time of arguments has relied on the notice dated

21.09.2020 which is produced alongwith the memo dated

08.09.2021 and would assert countering the submission of

learned counsel for the petitioner that there has been a

communication of the order of attachment as per the

document produced alongwith the said memo.

17. After hearing both sides, the following point

arises for consideration:-

"Whether the action of respondents in the present case of provisionally attaching the bank accounts of the petitioner by exercise of power under Section 83 of CGST Act is liable to be interfered with?"

18. At the very outset, it must be noted that the

order of provisional attachment is required to be

communicated to the party affected and this requirement is

necessary for a meaningful exercise of the right conferred

under Rule 159(2) of CGST Rules.

19. It must be noted that while learned counsel for

the petitioner has drawn attention to Annexure-A dated

21.09.2020 addressed to the Bank Manager, HDFC Bank,

Bengaluru regarding the provisional attachment of bank

account of the petitioner in exercise of power under Section

83 of the CGST Act, it is pointed out that such

communication does not have any copy addressed to the

petitioner.

20. The petitioner has also specifically asserted that

no such communication was sent to him and that he came

to know about the same only from his bankers. As regards

such assertion, the only response of learned counsel

appearing for the respondent Authority is that there has

been a communication to the petitioner and has placed

reliance on the letter dated 21.09.2020 which contains a

handwritten endorsement indicating that a copy has been

sent to the petitioner's address, viz., M.s.Sterne India Pvt.

Ltd., 249, 19th Main Road, HSR Layout, Sector-4,

Bengaluru. However, there is no material forthcoming to

establish that such communication has been sent to the

petitioner, nor any material has been produced to indicate

that such notice has been served on the petitioner.

21. What is of significance is the opportunity to be

afforded to the affected person under Rule 159(5) of CGST

Rules which provides that a person whose property is

attached may, within seven days of the attachment under

Sub-Rule (1), file objections to the effect that the property

attached was or is not liable for attachment, and the

Commissioner may, after affording an opportunity of being

heard to the person permitting him to file objections, may

pass an order releasing the property in Form GST DRC-23.

22. As pointed out by the Apex Court at para-57 of

its judgment in the case of Radha Krishan Industries

(supra) Sub-Rule (5) of Rule 159 of CGST Rules provides a

right of post-provisional attachment consisting of right of

(1) submitting an objection to the attachment (2) an

opportunity of being heard.

23. Obviously, the right contemplated under Rule

159(5) of CGST Rules would require that the order of

provisional attachment has to be communicated to the

petitioner, without which, the question of exercising right

seeking for lifting of the provisional attachment as

contemplated under Sub-Rule (5) would be negated.

24. In the present case, undisputedly, there is no

evidence to indicate the receipt of notice by the petitioner,

despite assertion by the respondent Authority that the

communication has been sent and in the absence of any

material to indicate receipt of the same by the petitioner by

furnishing any acknowledgement, the question of presuming

receipt of communication relating to the order of provisional

attachment does not arise. There are certain doubts that

have also arisen as regards to the version of respondent

Authority as regards the document at Annexure-A produced

by the petitioner with the petition, which does not have any

endorsement relating to sending of copy to the petitioner,

while identical copy produced by the respondent Authority

contains a handwritten endorsement.

25. In light of the dispute that has arisen and in light

of absence of any material to indicate conclusively that the

communication was sent to the petitioner to his address by

producing any cogent material enclosing the postal receipt,

there is no reason to accept the assertion of Revenue.

26. Insofar as the specific assertion of the petitioner

that he has made out a representation to the respondent

Authority seeking for lifting of provisional attachment under

Rule 159(5) of CGST Rules by representation dated

13.10.2020, it must be noted that the receipt of such

representation is not in dispute. The only point raised by

the Revenue is that the representation ought to have been

made within seven days as contemplated under Rule 159(5)

of CGST Rules and in light of absence of condonation of

delay, the said representation was not considered.

27. It must be noted that the exercise of right under

Rule 159(5) of CGST Rules presupposes the communication

of provisional order of attachment. The fact that the

petitioner came to know of the said provisional attachment

order from his bankers would be of no relevance vis-à-vis in

the absence of demonstration by the respondent Authority

with legally acceptable material to communicate such order,

the contention taken that the representation to seek the

relief as provided under Rule 159(5) of CGST Rules is

belated, cannot be accepted.

28. In the facts of the present case, as noticed

above, there was an obligation for the respondent Authority

to have considered the representation of the petitioner

under Rule 159(5) of the CGST Rules. Though learned

counsel for the respondent Authority would submit that

even if the procedural lapse as pointed out by the petitioner

were to be accepted, the matter requires to be remanded

for fresh consideration of the representation of petitioner

dated 13.10.2020 as per law. What requires to be noticed

is that the order of attachment is dated 21.09.2020.

Section 83(2) of the CGST Act provides that every

provisional attachment shall cease to have the effect after

expiry of one year from the date of the order made under

Sub-Section (1) of Section 83 of CGST Act. As the period

of one year would come to an end on 21.09.2021, it would

be travesty of justice, if the matter is remanded back

keeping the option open for the respondent Authority to

pass orders on the representation of the petitioner, which

theoretically would entitle the respondent, if circumstances

are so made out to reject lifting of such attachment. Much

water has flown in terms of lapse of time from the date of

passing of the order of provisional attachment till this day,

i.e. the date of this order. Even otherwise, merits of the

matter being dealt with, does not warrant any such remand

to the respondent Authority in light of the discussion infra.

29. Another important contention taken by the

petitioner is that the requirement of provisional attachment

as contained under Rule 159 of CGST Rules has to be

strictly adhered to, which would require the passing of order

in Form GST DRC-22 to the affected person to enable him

the filing of objections, and passing an order in Form GST

DRC-23 after affording an opportunity of being heard. It

must be noticed that the order of attachment requires to be

done in a particular manner as per the prevailing Rules and

such requirement has to be strictly complied with, as if an

act is required to be performed in a particular manner by

the statute, it must be done in that manner only or not at

all.

30. A perusal of the provisional order of attachment

would prima facie reveal that the same is not in the

requisite Form. The Form GST DRC-22 has been adverted

to by the Apex Court in the decision in the case of Radha

Krishan Industries (supra) and the said Form would also

indicate that necessary averments relating to the

proceedings launched against a taxable person is required

to be contained in such notice.

31. In the present case, it must be noticed that the

taxable entity to which the proceedings were taken out is an

entity other than the petitioner and in the context of which

search has been conducted with respect to the petitioner.

Admittedly, no proceedings have been initiated under

Section 74 of CGST Act as against the petitioner till date.

What must also be noticed is that though the statement of

objections of the respondent Authority seeks to make out a

case that the proceedings under Section 74 of CGST Act are

sought to be instituted and in the context of which the

provisional attachment under Section 83 of CGST Act is

resorted to, the impending proceedings under Section 74 of

the CGST Act cannot be a ground to exercise power under

Section 83 for the provisional attachment. If the only

ground made out in the statement objections and the very

order of attachment at Annexure-A is the proceedings under

Section 74 of the CGST Act, even if there are other

proceedings that may be considered to be pending against

the petitioner as long as the proceedings under Section 74

are not initiated by issuing a show-cause notice, the order

of attachment purportedly relating to the proceedings under

Section 74 cannot be upheld. The respondent Authority

cannot be permitted to contend that any other proceedings

contemplated under Section 83 of CGST Act have been

initiated, as it is made out in the provisional order of

attachment enclosed at Annexure-A that proceedings have

been initiated under Section 74 of the CGST Act. Any

exercise of power as may be permitted statutorily which has

an adverse consequence on the petitioner, would have to be

strictly construed.

32. Insofar as the contention of learned counsel for

the Revenue that reasonable belief under Section 83 of

CGST Act can be stated to have been fulfilled in light of the

non-adherence to the statement stated to have been made

before the Authorities committing to reverse the Input Tax

Credit and pay the amount cannot be accepted, as opinion

of the Commissioner as contemplated under Section 83 of

CGST Act is that the provisional attachment of property,

including the bank account is necessary for protecting the

interests of Government Revenue. Such opinion must be

reflected in some proceedings, which proceedings are also

not placed before this Court.

33. In light of wide discretion granted to the

Commissioner for formation of an opinion, greater the

power and wider the discretion, the same is to be exercised

with greater circumspection. If power is sought to be

exercised, it has to be on the basis of substantive material,

which is absent in the present case. The contention of

learned counsel for the Revenue regarding the statements

made by the representative of petitioner Company forming

necessary basis for formation of an opinion of the

Commissioner cannot be accepted, as the formation of the

Commissioner's opinion must be reflected in some

proceedings and no such proceedings are placed before this

Court.

34. Also taking note of the law laid down in the case

of Radha Krishan Industries (supra), no case is made

out for upholding the provisional order of attachment.

35. The statement of learned counsel for the

petitioner to the effect that, if any order is passed under

Section 74 of CGST Act, in light of the requirement while

considering grant of stay under Section 107 of CGST Act,

the petitioner is obligated to pay 10% of the disputed tax

amount and would be made good when the order under

Section 74 of CGST Act is passed, is placed on record.

Learned counsel for the petitioner further submits that the

petitioner would co-operate with the respondent Authorities

in the investigation.

36. In light of the discussion as above, the point for

consideration is answered in the affirmative. Accordingly

the petition is allowed and the order at Annexure-A dated

21.09.2020 is set aside. It is open to the respondent No.2

in light of the order passed, to issue necessary

communication to the respondent Bank forthwith to lift the

attachment, more so, in light of the period of one year as

contemplated under Section 83(2) of the CGST Act coming

to an end on 21.09.2021.

Sd/-

JUDGE

VGR