Provisional Attachment Power
In Goods and Services Tax (GST), there is a provision which allows the revenue department to attach assets, including bank accounts, of a taxpayer.
However, before this is initiated, there are conditions which must be fulfilled.
This power is given to the commissioner by the State and Central GST, who may do so when he deems such action necessary to protect the interest of government revenue. The same must be done in writing.
Eligibility to activate this power includes not payment of some tax, paying less tax, or receiving erroneous refund, or fraud in input tax credit, etc.
M/s Radha Krishan Industries (Petitioner) vs State of Himachal Pradesh and others (Respondents)
In this case regarding the use of Provisional Attachment Power of GST, the Joint Commissioner of State Taxes and Excise, Parwanoo, Himachal Pradesh had provisionally attached company M/s Radha Krishan’s receivables claiming the latter was involved in tax credit fraud.
This attachment was of Rs 5 crore.
The company challenged the order in the state’s High Court. The High Court concluded that the writ is not maintainable, “...we are of the considered view that the writ petitioners have alternative efficacious remedy available and these writ petitions are not maintainable.” (Read the judgement online)
Supreme Court’s observation
The Supreme Court of India was hearing an appeal on Himachal Pradesh High Court’s order denying relief to the taxpayer Radha Krishan Industries.
The Supreme Court observed that the Provisional Attachment Power is “draconian” in nature. Further, the necessity of strict fulfilment of the conditions required to implement this power was called upon by the Court.
The Court overturned the High Court’s order claiming that the High Court had erred in concluding that the petition is not maintainable.
During the course, the Supreme Court examined the Provisional Attachment Provisions and observed their draconian nature.
Further, the following specific steps have been clarified which must be met before this power is called into action:
1. Formation of opinion by the commissioner.
2. Formation of opinion before ordering a provisional attachment.
3. Existence of opinion that provisional attachment is necessary to protect the interests of government revenue. Further, it must be postulated that provisional attachment is the only way to protect the revenue.
4. The order has to be issued in writing.
5. Observance of rules and manner of attachment by the commissioner.
Balancing department’s interests with public protection
All in all, the Supreme Court observes and lays down process such that there is no unguided discretion in exercise of power. Why? So that the individuals and their bona fide businesses are not subject to whims of arbitrary power.
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