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The approach of revenue that a fraud has been practiced, by itself and without there being any provision in the statute, was not a sufficient ground to order provisional attachment: High Court

It is also well settled that where a person on whom fraud is committed is in a position to discover the truth by due diligence, fraud is not proved. It is not the case of the Commissioner that the alleged fraudulent acts could not have been detected by exercise of due diligence. In the absence thereof, the inference to be drawn is that due diligence had not been exercised at the end of the revenue, and the orders impugned cannot be defended by reference to the principle urged by the respondent that since there has been an alleged fraud, the power to order provisional attachment can be exercised.

Petitioner

The challenge in this writ petition is to an order passed by the Commissioner, CGST & Central Excise under Rule 159(5) of the CGST Rules, 2017. 

By the impugned order, the revenue declined to lift the order of provisional attachment of the petitioner’s bank account, which was earlier ordered in purported exercise of power conferred by Section 83 of the CGST Act read with Rule 159(1) of the CGST Rules.

The ground on which petitioner, mounts a challenge to the impugned order is that no proceedings are pending against the petitioner under Sections 62 or 63 or 64 or 67 or 73 or 74 of the CGST Act and, therefore, the jurisdictional fact for invocation of the power conferred by Section 83 of the CGST Act read with Rule 159(1) of the CGST Rules did not exist; hence, the order of provisional attachment, passed under Section 83 read with Rule 159(1), together with the order declining to lift the provisional attachment, passed under Rule 159(5), are entirely without jurisdiction.

Revenue

However respondent has discussed in detail to what an extent fraud has been practiced on the revenue by generation of fraudulent Input Tax Credit (ITC), based on issuance of fake invoices, which was availed of by the petitioner causing loss to the revenue. He, thus, contends that since fraud vitiates even the most solemn proceedings, the respondent was justified in spurning the request of the petitioner for lifting of the order of provisional attachment.

High Court

A reading of paragraph 20 of the impugned order reveals a specific contention having been raised on behalf of the petitioner that no proceedings under Sections 62 or 63 or 64 or 67 or 73 or 74 of the CGST Act were pending against the petitioner and, therefore, the order of provisional attachment of its bank account is illegal. The respondent did not specifically deal with such contention of the petitioner; however, the impugned order came to be made merely because of a satisfaction recorded by the respondent no.3 that the petitioner had availed benefits of fake ITC from non-existing and fake firms on the strength of invoices issued by such fake firms. It is also noted that the respondent in paragraph 22 of the impugned order has observed that the petitioner has failed to appreciate Section 83 of CGST Act in letter and spirit, which authorized her to provisionally attach any property to protect the interest of the revenue.

In the considered opinion of the Court, the approach of the respondent that a fraud has been practiced, by itself and without there being any provision in the relevant statute conferring power which could be invoked for such purpose, was not sufficient ground to clothe her with the power to order provisional attachment of a bank account under Section 83 read with Rule 159(1).

It is also well settled that where a person on whom fraud is committed is in a position to discover the truth by due diligence, fraud is not proved. It is not the case of the Commissioner that the alleged fraudulent acts could not have been detected by exercise of due diligence. In the absence thereof, the inference to be drawn is that due diligence had not been exercised at the end of the revenue, and the orders impugned cannot be defended by reference to the principle urged by the respondent that since there has been an alleged fraud, the power to order provisional attachment can be exercised.

To empower a Commissioner to order provisional attachment on account of presence of vitiating circumstances as the one under consideration before the respondent the statute itself ought to have provided so and the power to attach property, which is of a drastic nature, ought not to have been exercised on facts and in the circumstances. As a matter of fact, no proceedings under Sections 62 or 63 or 64 or 67 or 73 or 74 of the CGST Act are pending; hence, the respondent committed an error of jurisdictional fact for which the Court is constrained to hold that she had no authority to invoke the power conferred by Section 83 of the CGST Act read with Rule 159(1) of the CGST Rules.

True it is, Section 83 of the CGST Act read with Rule 159(1) of the CGST Rules empowers a Commissioner to protect the interests of the revenue by way of provisional attachment, but such provisional attachment cannot be ordered without fulfillment of the condition(s) precedent, as referred to above. In the absence of fulfillment of such conditions(s) precedent, the respondent could not have protected the interest of the revenue in the manner she proceeded to pass the impugned order.


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TaxReply


Aug 12, 2021


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