Provisional attachment not to hamper normal business activities: Gujarat HC quashes attachment order

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The Gujarat High Court bench of Justice J.B. Pardiwala and Justice Nisha M. Thakore has held that the provisional attachment should not hamper normal business activities of the taxable person.

The writ petitioner/assessee is in the business of manufacturing and selling ingots, having a factory situated near Rajkot, Gujarat State. The assessee is duly registered under the GST Act.

The assessee claimed to have regularly paid output tax for three financial years. The assessee entered into business transactions only with genuine dealers who were registered taxable persons under the GST Act. In support, the assessee has placed on record, regularly maintained records of the purchase transactions, which include invoices, e-way bills, weighment slips, photographs of material being unloaded, material received inspection report etc.

The office of the Deputy Commissioner of State Tax, Vadodara, suspected that the assessee had shown purchases from fictitious firms, which were otherwise non-existent. The respondent/department launched proceedings against the assessee in which a search was carried out at the business premises of the writ applicants as per the procedure prescribed under Section 67 of the GST Act.

The dispute arose with regard to the claim for input tax credit availed by the assessee on the ground that the firm from whom the assessee had made a purchase was not found to be genuine.

The assessee submitted that apart from the properties, the department has also seized the mobile phone, laptop, and other documents from the business premises of the writ applicants by passing the seizure order. The assessee had made representation, followed by subsequent reminders, but there was no response. In such circumstances, the writ applicants have approached the Court with the writ petition, seeking relief.

The assessee submitted that the interest of revenue can be protected by presuming, for the sake of arguments, that the future demand that may arise if at all the same may be secured by imposing suitable conditions or at least permitting the assessee to operate the demat account as well as the current account and provisional attachment qua the stock of the goods be lifted.

The assessee requested the Court to consider the prayer for the return of electronic devices, including mobile phones, laptops, and documents seized during the search proceedings and assured not to dispose of the electronic items and documents so seized and has offered to retain the same in its original form.

The department contended that the assessee seems to be engaged in bogus billing by entering into purchase transactions with 15 fictitious firms which, upon investigation, are either found non-existent at the business place or the owners are not traceable, and the firms are in the name of persons of no means, and the owners are not aware of such alleged business activities. The assessee wrongly availed the input tax credit worth Rs. 4.73 crores, which has ultimately resulted in tax evasion. As on date, the total evasion of tax, including penalty and interest, comes to Rs. 10.76 crores.

The court relied on the decision of the Gujarat High Court in the case of Valerius Industries Vs. Union of India , in which it was held that the power of provisional attachment under section 83 of the Gujarat Goods and Services Tax Act, 2017 should be exercised by the authority only if there is reasonable apprehension that the assessee may default on the ultimate collection of the demand that is likely to be raised on completion of the assessment. It should therefore be exercised with extreme care and caution.

The Court ruled that the power granted under Section 83 of the Gujarat Goods and Services Tax Act, 2017 should not be used to harass the assessee, nor should it be used in a way that could have an irreversible negative impact on the assessee’s business.

The court quashed the order of the provisional attachment qua the stock of goods, two demat accounts as well as the current account of the writ applicants.

“So far the prayer of the writ applicants with regard to release of electronic items including Mobile Phone, laptop and other documents seized during the search proceedings are concerned, same is also directed to be released forthwith on condition that the writ applicants shall file an undertaking before the respondent thereby declaring that the aforesaid goods electronic items including mobile phone, laptop and other seized documents shall be retained in its original form and shall not be disposed of pending the investigation, if any. At the same time, we permit the respondent authorities to secure the original data by availing necessary certificates under Section 65B of the Information and Technology Act,” the court said.

Case Title: Arya Metacast Pvt. Ltd. Versus State of Gujarat

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