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Can cash credit account be provisionally attached in exercise of powers under Section 83 of the Central Goods and Services Tax Act, 2017? HIGH COURT OF GUJARAT passed the order on this issue on Jan 5, 2022.
MANISH SCRAP TRADERS vs. PRINCIPAL COMMISSIONER
HIGH COURT OF GUJARAT
- B. PARDIWALA AND NISHA M. THAKORE, JJ.
R/Special Civil Application No. 76 of 2022 Jan 5, 2022
Section 83 of the Central Goods and Services Tax Act, 2017
Decision in favour of: Assessee
Kaneria Granito Ltd. vs. Assistant Commissioner of Income Tax, Special Civil Application No.14497 of 2014 decided on27.06.2016
Counsel appeared: Avinash Poddar for the Petitioner
(PER : J. B. PARDIWALA, J.)
- We have heard Dr. Avinash Poddar, the learned counsel appearing for the writ applicant.
- We started with today’s board on a very sad note. The subject matter of challenge in the present writ application is to the order of provisional attachment of a cash credit account running in the name of the writ applicant, maintained with the Axis Bank at Vapi. The impugned order of provisional attachment of the cash credit account has been passed in the Form GST DRC-22 dated 29.11.2021. The order has been passed by the respondent No.1 in exercise of powers under the provisions of Section 83 of the CGST Act, 2017. The law as regards the provisional attachment of a cash credit account is no longer res integra. Way back in the year 2016, in the case of Kaneria Granito Ltd. vs. Assistant Commissioner of Income Tax, Special Civil Application No.14497 of 2014 decided on27.06.2016, a Co-ordinate Bench of this Court took the view that a cash credit account cannot be provisionally attached.
- The cash credit account in the case on hand, could be said to have been opened to enable the writ applicant to borrow the money from the Bank for the purpose of its business. Any money therefore, that the Bank may make available to the assessee would necessarily be in the nature of a loan or a cash credit facility. In either case, it would be in the nature of borrowing by the writ applicant from the Bank. In such circumstances, the Bank and the writ applicant therefore, do not have the debtor-creditor relationship. The decision of this Court in the case of Kaneria Granito Ltd. has been followed in various other matters of the present type over a period of time. Various orders have been passed over a period of time condemning the action on the part of the department in provisionally attaching the cash credit account in exercise of powers under Section 83 of the Act.
- To our shock and surprise, the settled position of law appears to have been very conveniently over-looked by the Principal Commissioner, CGST, Surat by observing in paragraphs 13, 13.1 and 14 respectively, as under:
“13. The taxpayer has placed reliance on the judgement in the case of M/s, Formative Tex Fab Versus State of Gujarat, wherein the Hon’ble Gujarat High Court held that cash credit account cannot be attached provisionally by virtue of power under Section 83 of the act. I observe that in the said case the FORM DRC 22 was issued by the Assistant Commissioner and not by the Pr. Commissioner/Commissioner as required by Section 83 and the cash credit account was specifically attached.
13.1. In the instant case, however, the provisional attachment is done by the Pr. Commissioner and the cash credit account is not specifically attached but the account used for suspected transactions is provisionally attached. And all accounts based on same PAN are required to be attached as per FORM DRC, 22 mandated by CGST Rules, 2017. I also observe that the Hon’ble High Court has not released any other accounts attached in the relied upon case. Hence, I find that the facts of the case are different and the cases are distinguishable.
- The taxpayer has placed reliance on the judgement in the case of M/s. Vinodkumar Chechani Vs. State of Gujarat wherein Hon’ble Court directed that provisional attachment of cash credit account shall no, longer operate. I observe that in the said case the FORM DRC 22 was issued by the Additional Commissioner and not by the Pr. Commissioner/Commissioner as required by Section 83, and the cash credit account was specifically attached.”
- The Principal Commissioner says that the reliance placed by the writ applicant herein on one of the orders passed by this Court in the case of M/s. Formative Tex Fab vs. State of Gujarat is not binding to him as in the case of M/s. Formative Tex Fab (Supra), the order of provisional attachment was passed by the Assistant Commissioner and not by the Principal Commissioner.
- Prima facie, we are of the view that the Principal Commissioner, CGST, Surat is in contempt. He owes an explaination as to on what basis he has distinguished all the orders passed by this Court over a period of time taking the view that a cash credit account could not be provisionally attached in exercise of powers under Section 83 of the Act, 2017.
- Let Notice be issued to the respondents, returnable on 12.01.2022. Mr. Utkarsh Sharma, the learned Standing Counsel appearing for the department waives service of notice for and on behalf of the respondents Nos.1 and 2.
- Direct service to respondent No.3-Axis Bank is permitted.
- On the returnable date, notify this matter on top of the Board.
- On the next date of hearing, we want the Principal Commissioner, to explain in what circumstances the impugned order has been passed.