Kushal LTD. vs. Union Of INDIA

Held

The Court held that the provisional attachment orders dated October 18, 2019, passed under Section 83 of the GST Acts were illegal and unsustainable. The primary reason was the absence of pending proceedings under Sections 62, 63, 64, 67, 73, or 74 of the GST Acts, which is a mandatory prerequisite for invoking Section 83. The Court found that while search proceedings under Section 67 were conducted on September 27, 2018, and there was a subsequent visit on April 1, 2019, leading to an arrest, these search proceedings had effectively ended. The Court clarified that any subsequent inquiries or proceedings were not under Section 67 itself, and no proceedings under the other mentioned sections had been initiated. Therefore, the basic requirement for exercising powers under Section 83 was not met on the date the attachment orders were issued. The Court explicitly stated that contentions regarding the disallowance of input tax credit or tax liability were beyond the scope of the present petition, which focused solely on the validity of the provisional attachment orders. The Court quashed and set aside the impugned orders and directed the respondents to release the attachment.

Facts

The petitioners, Kushal Ltd., challenged provisional attachment orders dated October 18, 2019, issued under Section 83 of the CGST and GGST Acts, 2017, attaching their bank accounts. The petitioners are manufacturers and traders of paper and paper waste, registered under GST. They conducted transactions of sale of goods on an 'as is where is' basis in 2017-18, claiming input tax credit on purchases from registered vendors and paying differential tax. Search proceedings were conducted on September 27, 2018, followed by summons and a notice dated December 17, 2018, to which the petitioners responded. A further visit occurred on April 1, 2019, leading to the arrest of the second petitioner under Section 69 of the GST Acts, who was later granted bail. The petitioners contend that no proceedings under Sections 62, 63, 64, 67, 73, or 74 of the GST Acts were pending when the attachment orders were issued.

Key Issues

1. Whether the provisional attachment orders dated October 18, 2019, passed under Section 83 of the GST Acts are valid, considering the requirement of pending proceedings under Sections 62, 63, 64, 67, 73, or 74 of the GST Acts as a sine qua non for invoking Section 83? 2. Whether the authorities formed a necessary opinion, based on tangible material and objective facts, that attachment was required to protect the interest of the revenue, as mandated by Section 83 and interpreted in precedents like Vishwanath Realtor? Petitioner's Arguments: - The attachment orders are illegal as no proceedings under the specified sections of the GST Acts were pending on the date of attachment. Specifically, search proceedings under Section 67 had concluded after the visit on April 1, 2019, and no other proceedings under the listed sections had been initiated. - The authorities failed to record any satisfaction or opinion that attachment was necessary to protect revenue, relying on the principle that such drastic powers require objective justification. - The suppliers were registered vendors who paid tax, reflected in GSTR-2A, and the petitioners discharged their differential tax liability, thus there was no tax evasion or illegal benefit derived from input tax credit. Revenue's Arguments: - The judgment records no specific arguments made by the revenue or State regarding the pendency of proceedings or the formation of opinion for attachment.