Power of provisional attachment under GST law draconian, to be exercised in compliant of procedure: SC

The Supreme Court on Tuesday said the power to order a provisional attachment of the property, including a bank account, of a taxable person, under the GST law is "draconian in nature", which can't be used as an "unguided discretion" by the authorities.

A bench of Justices D Y Chandrachud and M R Shah said a provisional attachment is contemplated during the pendency of certain proceedings, meaning thereby that a final demand or liability is yet to be crystallised. So, an anticipatory attachment of this nature must strictly conform to the requirements, both substantive and procedural, embodied in the statute and the rules.

"The commissioner must be alive to the fact that such provisions are not intended to make preemptive strikes on the property of the assessee, merely because property is available. There must be a valid formation of the opinion that a provisional attachment is necessary for the purpose of protecting the interest of the government revenue," the bench said.

The top court allowed an appeal by M/s Radha Krishna Industries against the Himachal Pradesh High Court's order of January 1, 2021 dismissing its writ petition against the order for provisional attachment of properties under the Himachal Pradesh Goods and Service Tax Act, 2017 for tax liability of Rs 5.03 crore.

While reserving the verdict, the court had earlier said Parliament had aimed to give the GST as a citizen-friendly tax structure, so the taxman cannot see all “businesses as being fraudulent”.

In the 61-page judgement, Justice Chandrachud wrote on behalf of the bench the conditions which are prescribed by the statute for a valid exercise of the power, based on tangible material, must be strictly fulfilled.

"The exercise of unguided discretion cannot be permissible because it will leave citizens and their legitimate business activities to the peril of arbitrary power. Each of these ingredients must be strictly applied before a provisional attachment on the property of an assesses can be levied," the bench said.

The court found that there was a clear non-application of the mind by the Commissioner and he misconceived it to be his discretion whether he allowed the appellant opportunity of hearing or not.