Attachment of bank accounts of person other than the taxable person, which is otherwise a draconian step, is unsustainable: Delhi High Court

In the zeal to protect the interest of the revenue, department cannot attach any and every property, including bank accounts of persons, other than the taxable person.

Facts

The petitioner was a director of a company named Milkfood Ltd. between 2006 and 2008. The petitioner is also a shareholder in the said company, and owns approximately 14.33% equity shares. The petitioner currently provides strategic guidance to Milkfood Ltd. and drew a salary of Rs.1.50 crores p.a. for the financial year 2019-2020.

The revenue had an information, that Milkfood Ltd. was availing Input Tax Credit against fake/ineligible invoices, commenced investigation, under Section 67 of the CGST Act 2017, against Milkfood Ltd.  Therefore bank accounts of the petitioner have been provisionally attached in the ongoing proceedings against Milkfood Ltd.

Revenue

Mr. Harpreet Singh, who appears on behalf of the respondent, has made the following submissions:.

(i) The petitioner has availed of the alternate remedy available to it under Rule 159(5) of the Central Goods and Services Tax Rules, 2017, by filing objections under the said Rule, albeit during the pendency of the writ petition. Mr. Singh says that since objections, were filed during the pendency of the writ petition and after the counter–affidavit was filed on behalf respondent, there is no reference to this aspect of the matter, in the counter-affidavit. Mr. Singh states that the objections were disposed of vide order dated 19.04.2021.

(ii) Investigations, commenced under Section 67 of the Act, against the Milkfood Ltd., were still on.

(iii) Milkfood Limited has availed ITC credit. to the extent of approximately ₹ 85 crores, based on fake invoices. The respondent had arrested persons, who controlled the entities which furnished fake invoices to Milkfood Ltd. Coercive proceedings were also intended to be triggered against the directors/employees of Milkfood Ltd.

Petitioner

Mr. Harsh Sethi, who appears on behalf of the petitioner, submitted that. the proceeding initiated against the petitioner. under Section 83 of the Act. is without jurisdiction, as the petitioner does not fall within the ambit of the definition of a ‘taxable person’; the taxable person being Milkfood Ltd and not the petitioner. Therefore, the impugned orders cannot be sustained, as this crucial jurisdictional ingredient is missing.

Mr. Sethi says that the other ingredients, provided in Section 83 of the Act, are also missing. The respondent, before triggering the provisions of Section 83 of the Act, had to satisfy itself that there was a “pending” proceeding under the provisions of Section 62 or Section 63 or Section 64 or Section 67 or Section 73 or Section 74 of the Act. Furthermore, Mr. Sethi says that, the respondent was also required to form an opinion, before taking recourse to Section 83 of the Act, that attachment of the petitioner’s bank account was necessary for the purpose of protecting the interest of the revenue.

High Court

According to us, the submission advanced by revenue that the instant petition. under Article 226 of the Constitution, should not be entertained as recourse to an alternate remedy was taken by the petitioner, does not impress us, since the exercise of power under Section 83 of the Act, to begin with, was without jurisdiction. The fact that an alternate remedy is available to a litigant is a self-imposed limitation on the Court; something which did not deter the Court, when notice was issued in the matter, in the first instance, perhaps, given the assertions made in the petition. The Court can, and should exercise its powers, under Article 226 of the Constitution, amongst others, in cases where the impugned action or order concerned is without jurisdiction. In this case, one of the jurisdictional ingredients’, which is missing, is that the petitioner is not a taxable person.

As indicated above, we are told that the order rejecting the petitioner’s objections under Rule 159(5) was passed on 19.04.2021. This order has not been placed on record. We are also not told of the date on which the objections were filed. On being queried, Mr. Singh concedes that the order, passed under the aforestated Rule, on 19.04.2021, is not appealable.

Subsection 1 of Section 83 of the Act in no uncertain terms states that provisional attachment can be ordered only qua property, including bank account, belonging to the taxable person. Furthermore, the definition of the ‘taxable person’, as set out in Section 2(107) of the Act, provides that only that person can be a taxable person, who is registered or liable to be registered as per the Act. It is not even the case of the respondent that. the petitioner is either registered or was liable to be registered. in terms of the provisions of Section 2(107) of the Act. Therefore, according to us, the proceedings must fail on this score alone.

As far as the other submissions are concerned, as to whether or not it could be said that the proceedings under Section 67 of the Act are pending, the same, in our view, need not detain us, for the reasons stated above.

We must, however, indicate that this aspect apart, the respondent has not been able to place before us, any material, which would show that. the concerned officer, before triggering the provisions of Section 83 of the Act, had applied his mind to the other important aspect, which is, that the provision had to be taken recourse to, to protect the interest of the revenue.

The petitioner claimed, in her voluntary statement, that she was paid ₹ 1.50 crores in the FY 2019-2020 for rendering services in her capacity as a mentor/advisor to Milkfood Ltd. Therefore, even if we assume, for the moment, that, since investigations are on against the taxable person, and therefore, proceedings are pending under Section 67 of the Act, there is nothing placed on record to show that there was material available with the respondent, linking the petitioner to purported fake invoices. In other words, in the absence of such material, the impugned action concerning provisional attachment of the petitioner’s bank accounts, which is otherwise a “draconian” step, was unsustainable. In the zeal to protect the interest of the revenue, the respondent cannot attach any and every property, including bank accounts of persons, other than the taxable person.

Accordingly, for the forgoing reasons, we are inclined to allow the writ petition. It is ordered accordingly. The impugned provisional attachment orders dated 07.12.2020 are quashed. 

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