Meenakshi Trendz v. State of Gujarat
[Citation -2020-LL-1001-39]

Citation 2020-LL-1001-39
Appellant Name Meenakshi Trendz
Respondent Name State of Gujarat
Court HIGH COURT OF GUJARAT AT AHMEDABAD
Relevant Act CGST
Date of Order 01/10/2020
Judgment View Judgment
Keyword Tags principal place of business • attachment of bank account • non-application of mind • attachment of property • provisional attachment • application for stay • discretionary power • immovable property • attachment order • input tax credit • satisfaction


C/SCA/9545/2020 ORDER IN HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 9545 of 2020 With CIVIL APPLICATION (FOR STAY) NO. 1 of 2020 In R/SPECIAL CIVIL APPLICATION NO. 9545 of 2020 M/S. MEENAKSHI TRENDZ THROUGH ITS PARTNER RATAN KUMAR SARAF Versus STATE OF GUJARAT Appearance: MR.AVINASH PODDAR(9761) for Petitioner(s) No. 1 for Respondent(s) No. 1,2,3,4 CORAM: HONOURABLE CHIEF JUSTICE MR. VIKRAM NATH and HONOURABLE MR. JUSTICE J.B.PARDIWALA Date : 01/10/2020 ORAL ORDER (PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA) 1. By this writ application under Article 226 of Constitution of India, writ applicant, partnership firm through one of its partners, has prayed for following reliefs; (A) to quash and set aside Form DRC IA dated 24.07.2020 issued by respondent no.4. (B) to quash and set aside impugned provisional attachment order, i.e, Form GST DRC-22 for factory premises issued in Form GST DRC 22 dated 27.07.2020 by respondent no.4 (C ) to direct respondents to transfer proceedings to CGST department as they had already initiated same. (D) pending admission, hearing and till final disposal of this petition, Your Lordship may be pleased to direct Page 1 of 14 Downloaded on : Mon Feb 22 21:18:28 IST 2021 C/SCA/9545/2020 ORDER Respondents (I) To lift attachment of factory premises; (II) To stay operation of Form GST DRC 01A; (III) Not to take any coercive action against petitioner. (E) To issue order(s), direction(s), writ(s) or any other relief(s) as this Hon'ble Court deems fit and proper in facts and circumstances of case and in interest of justice; (F) To award Costs of and incidental to this application be paid by Respondents; (G) And for this act of kindness, Petitioner shall, as in duty bound, ever pray. 2. facts, in brief, leading to filing of this writ application, may be summarized as under: 2.1 writ applicant is partnership firm registered with GST having GSTIN 24ABCFM4102E1ZZ. firm is engaged in business of manufacturing of different types of textile fabrics. It appears that inquiry has been initiated against firm by CGST Department, Surat by issuing summons under Section 70(1) of Act, 2017 dated 20 th September, 2019. It appears that pending inquiry, Department has taken two fold action. First order in Form GST DRC-01A dated 24 th July, 2020 has been issued, Annexure-J, Page-39 of this paper-book and secondly, order of provisional attachment of property under Section 83 of Act in Form GST DRC-22 has been passed. 2.2 Being dissatisfied with aforesaid action on part of GST Authorities, writ applicant has come up before this Page 2 of 14 Downloaded on : Mon Feb 22 21:18:28 IST 2021 C/SCA/9545/2020 ORDER Court with present writ application. 3. We have heard Mr. Avinash Podar, learned counsel appearing for writ applicant and Mr. Chintan Dave, learned AGP appearing for State-respondents. 4. We are not inclined to interfere with order passed in Form GST DRC-01A dated 24th July, 2020, referred to above. However, we are of view that order of provisional attachment of immovable property in form of industrial unit under Section 83 of Act is not sustainable in law. We quote order passed in Form GST DRC-22 as under; FORM GST DRC -22 Reference No. Date 27.07.2020 To Name:-M/s. Meenakshi Trendz Addresss:- 272 BF, Near Maruti Dyeing, Pandesara GIDC, 394221 (Bank/Post Office/Financial Institution/Immovable Property registering authority) Provisional attachment of property under section 83 It is to inform that M/s. (name) having principal place of business at (address) bearing registration number as (GSTIN/ID), PAN is 24ABCFM4102E1ZZ registered taxable person under <> Act. Proceedings have been launched against aforesaid taxable person under section 74(5) of said Act to determine tax or any other amount due from said person. As per information available with department, it has come to my notice that said person has <> account in your << bank/post office/financial institution>> having account no:- Page 3 of 14 Downloaded on : Mon Feb 22 21:18:28 IST 2021 C/SCA/9545/2020 ORDER Or Property located at property ID & location- 272 BF, Near Maruti Dyeing, Pandesara GIDC, Surat. In order to protect interests of revenue and in exercise of powers conferred under section 83 of Act, I D.J. Bamaniya, (name), A-C (4) D 8, Surat (designation). Hereby provisionally attach aforesaid account/property. No debit shall be allowed to be made from said account or any other account operated by aforesaid person on same PAN without prior permission of this department. Or property mentioned above shall not be allowed to be disposed of without prior permission of this department. 5. bare perusal of order of provisional attachment, referred to above, would indicate that same is nothing but result of mechanical exercise of power under Section 83 of Act, 2017. Section 83 of Act, 2017 reads as under: SECTION 83. Provisional attachment to protect revenue in certain cases. (1) Where during pendency of any proceedings under section 62 or section 63 or section 64 or section 67 or section 73 or section 74, Commissioner is of opinion that for purpose of protecting interest of Government revenue, it is necessary so to do, he may, by order in writing attach provisionally any property, including bank account, belonging to taxable person in such manner as may be prescribed. 6. Section 83 talks about opinion which is necessary to be formed for purpose of protecting interest of government revenue. Any opinion of authority to be formed is not subject to objective test. language leaves no room for relevance of official examination as to sufficiency of ground on which authority may act in forming its opinion. Page 4 of 14 Downloaded on : Mon Feb 22 21:18:28 IST 2021 C/SCA/9545/2020 ORDER But, at same time, there must be material based on which alone authority could form its opinion that it has become necessary to order provisional attachment of goods or bank account to protect interest of government revenue. existence of relevant material is precondition to formation of opinion. use of word may indicates not only discretion, but obligation to consider that necessity has arisen to pass order of provisional attachment with view to protect interest of government revenue. Therefore, opinion to be formed by Commissioner or take case by delegated authority cannot be on imaginary ground, wishful thinking, howsoever laudable that may be. Such course is impermissible in law. At cost of repetition, formation of opinion, though subjective, must be based on some credible material disclosing that is necessary to provisionally attach goods or bank account for purpose of protecting interest of government revenue. statutory requirement of reasonable belief is to safeguard citizen from vexatious proceedings. Belief is mental operation of accepting fact as true, so, without any fact, no belief can be formed. It is equally true that it is not necessary for authority under Act to state reasons for its belief. But if it is challenged that he had no reasons to believe, in that case, he must disclose materials upon which his belief was formed, as it has been held by Supreme Court in Sheonath Singh's case [AIR 1971 SC 2451], that Court can examine materials to find out whether honest and reasonable person can base his reasonable belief upon such materials although sufficiency of reasons for belief cannot be investigated by Court. In case at hand, Ms. Mehta, learned A.G.P. appearing for Page 5 of 14 Downloaded on : Mon Feb 22 21:18:28 IST 2021 C/SCA/9545/2020 ORDER respondents very fairly submitted that not only impugned order of provisional attachment is bereft of any reason, but there is nothing on original file on basis of which this Court may be in position to ascertain genuineness of belief formed by authority. word "necessary" means indispensable, requisite; indispensably requisite, useful, incidental or conducive; essential; unavoidable; impossible to be otherwise; not to be avoided; inevitable. word "necessary" must be construed in connection in which it is used. formation of opinion by authority should reflect intense application of mind with reference to material available on record that it had become necessary to order provisional attachment of goods or bank account or other articles which may be useful or relevant to any proceedings under Act. [see: Bhikhubhai Vithlabhai Patel and others vs. State of Gujarat AIR 2008 SCC 1771]. 7. In J. Jayalalitha vs. U.O.I. [AIR 1999 SC 1912], Supreme Court while construing expression "as may be necessary" employed in Section 3 (1) of Prevention of Corruption Act, 1988 which conferred discretion upon State Government to appoint as many Special Judges as may be necessary for such area or areas or for such case or group of cases to try offences punishable under Act, observed : "The legislature had to leave it to discretion of Government as it would be in better position to know requirement. Further, discretion conferred upon Government is not absolute. It is in "The nature of statutory obligation or duty. It is requirement which would necessitate exercise of power by Government. When necessity would arise and of what type being uncertain legislature could not have laid down any other guideline except guidance of "necessity". It is really for Page 6 of 14 Downloaded on : Mon Feb 22 21:18:28 IST 2021 C/SCA/9545/2020 ORDER that reason that legislature while conferring discretion upon Government has provided that Government shall appoint as many Special Judges as may be necessary. words "as may be necessary" in our opinion is guideline according to which Government has to exercise its discretion to achieve object of speedy trial. term "necessary" means what is indispensable, needful or essential." 8. In Barium Chemicals Ltd. vs. Company Law Board [AIR 1967 SC 295], Supreme Court pointed out, on consideration of several English and Indian authorities that expressions "is satisfied", "is of opinion" and "has reason to believe" are indicative of subjective satisfaction, though it is true that nature of power has to be determined on totality of consideration of all relevant provisions. Supreme Court while construing Section 237 of Companies Act, 1956 held : "64. object of S. 237 is to safeguard interests of those dealing with company by providing for investigation where management is so conducted as to jeopardize those interests or where company is floated for fraudulent or unlawful object. Clause (a) does not create any difficulty as investigation is instituted either at wishes of company itself expressed through special resolution or through order of court where judicial process intervenes. Clause (b), on other hand, leaves directing investigation to subjective opinion of government or Board. Since legislature enacted S. 637 (i) (a) it knew that government would entrust to Board its power under S. 237 (b). Could legislature have left without any restraints or limitations entire power of ordering investigation to subjective decision of Government or Board? There is no doubt that formation of opinion by Central Government is purely subjective process. There can also be no doubt that since legislature has provided for opinion of government and not of court such opinion is not subject to challenge on ground of propriety, reasonableness or sufficiency. But Authority is required to arrive at such opinion from circumstances suggesting what is set out in Page 7 of 14 Downloaded on : Mon Feb 22 21:18:28 IST 2021 C/SCA/9545/2020 ORDER subclauses (i), (ii) or (iii). If these circumstances were not to exist, can government still say that in its opinion they exist or can Government say same thing where circumstances relevant to clause do not exist? legislature no doubt has used expression "circumstances suggesting". But that expression means that circumstances need not be such as would conclusively establish intent to defraud or fraudulent or illegal purpose. proof of such intent or purpose is still to be adduced through investigation. But expression "circumstances suggesting" cannot support construction that even existence of circumstances is matter of subjective opinion. That expression points out that there must exist circumstances from which Authority forms opinion that they are suggestive of crucial matters set out in three subclauses. It is hard to contemplate that legislature could have left to subjective process both formation of opinion and also existence of circumstances on which it is to be founded. It is also not reasonable to say that clause permitted Authority to say that it has formed opinion on circumstances which in its opinion exist and which in its opinion suggest intent to defraud or fraudulent or unlawful purpose. It is equally unreasonable to think that legislature could have abandoned even small safeguard of requiring opinion to be founded on existent circumstances which suggest things for which investigation can be ordered and left opinion and even existence of circumstances from which it is to be formed to subjective process. These analysis finds support in Gower's Modern Company Law (2nd Ed.) p. 547 where learned author, while dealing with S. 165(b) of English Act observes that "the Board of Trade will always exercise its discretionary power in light of specified grounds for appointment on their own motion" and that "they may be trusted not to appoint unless circumstances warrant it but they will test need on basis of public and commercial morality." There must therefore exist circumstances which in opinion of Authority suggest what has been set out in subclauses (i), (ii) or (iii). If it is shown that circumstances do not exist or that they are such that it is impossible for any one to form opinion therefrom suggestive of aforesaid things, opinion is challengeable on ground of non-application of mind or perversity or on ground that it was formed on collateral grounds and was beyond scope of Page 8 of 14 Downloaded on : Mon Feb 22 21:18:28 IST 2021 C/SCA/9545/2020 ORDER statute. 9. Supreme Court while expressly referring to expressions such as "reason to believe", "in opinion of observed : "Therefore, words, "reason to believe" or "in opinion of do not always lead to construction that process of entertaining "reason to believe" or "the opinion" is altogether subjective to process not lending itself even to limited scrutiny by court that such "a reason to believe" or "opinion" was not formed on relevant facts or within limits or as Lord Radcliffe and Lord Reid called restraints of statute as alternative safeguard to rules of natural justice where function is administrative." 10. In Income-tax Officer, Calcutta and Ors. vs. Lakhmani Mewal Das [AIR 1976 SC 1753], Supreme Court construed expression "reason to believe" employed in Section 147 of Income-Tax Act, 1961 and observed: reasons for formation of belief must have rational connection with or relevant bearing on formation of belief. Rational connection postulates that there must be direct nexus or live link between material coming to notice of Income-tax Officer and formation of his belief that there has been escapement of income of assessee from assessment in particular year because of his failure to disclose fully or truly all material facts. It is not any or every material, howsoever vague and indefinite or distant which would warrant formation of belief relating to escapement of income of assessee from assessment. reason for formation of belief must be held in good faith and should not be mere pretence. Page 9 of 14 Downloaded on : Mon Feb 22 21:18:28 IST 2021 C/SCA/9545/2020 ORDER 11. In Bhikhubhai Vithalabhai Patel (supra), Supreme Court observed in paras 32 and 33 as under: 32. We are of view that construction placed on expression "reason to believe" will equally be applicable to expression "is of opinion" employed in proviso to Section 17 (1) (a) (ii) of Act. expression "is of opinion", that substantial modifications in draft development plan and regulations, "are necessary", in our considered opinion, does not confer any unlimited discretion on Government. discretion, if any, conferred upon State Government to make substantial modifications in draft development plan is not unfettered. There is nothing like absolute or unfettered discretion and at any rate in case of statutory powers. basic principles in this regard are clearly expressed and explained by Prof. Sir William Wade in Administrative Law (Ninth Edn.) in chapter entitled 'abuse of discretion' and under general heading principle of reasonableness' which read as under : "The common theme of all authorities so far mentioned is that notion of absolute or unfettered discretion is rejected. Statutory power conferred for public purposes is conferred as it were upon trust, not absolutely that is to say, it can validly be used only in right and proper way which Parliament when conferring it is presumed to have intended. Although Crown's lawyers have argued in numerous cases that unrestricted permissive language confers unfettered discretion, truth is that, in system based on rule of law, unfettered governmental discretion is contradiction in terms. real question is whether discretion is wide or narrow, and where legal line is to be drawn. For this purpose everything depends upon true intent and meaning of empowering Act. powers of public authorities are therefore essentially different from those of private persons. man making his will may, subject to any rights of his dependents, dispose of his property just as he may wish. He may act out of malice or spirit of revenge, but in law this does not affect his exercise of his power. In same way private person has absolute power to allow whom he likes to use his land, to release debtor, or, where law permits, to evict tenant, regardless of his motives. This is unfettered discretion. But public authority may do none of these Page 10 of 14 Downloaded on : Mon Feb 22 21:18:28 IST 2021 C/SCA/9545/2020 ORDER things it acts reasonably and in good faith and upon lawful and relevant grounds of public interest. whole conception of unfettered discretion is inappropriate to public authority, which possesses powers solely in order that it may use them for public good. There is nothing paradoxical in imposition of such legal limits. It would indeed be paradoxical if they were not imposed." 33. Court is entitled to examine whether there has been any material available with State Government and reasons recorded, if any, in formation of opinion and whether they have any rational connection with or relevant bearing on formation of opinion. Court is entitled particularly, in event, when formation of opinion is challenged to determine whether formation of opinion is arbitrary, capricious or whimsical. It is always open to court to examine question whether reasons for formation of opinion have rational connection or relevant bearing to formation of such opinion and are not extraneous to purposes of statute. 12. In absence of any cogent or credible material, if subjective satisfaction is arrived at by authority concerned for purpose of passing order of provisional attachment under Section 83 of Act, then such action amounts to malice in law. Malice in its legal sense means such malice as may be assumed from doing of wrongful act intentionally but also without just cause or excuse or for want of reasonable or probably cause. Any use of discretionary power exercised for unauthorized purpose amounts to malice in law. It is immaterial whether authority acted in good faith or bad faith. In aforesaid context, we may refer to and rely upon decision of Supreme Court in case of Smt. S.R. Venkatraman vs. Union of India, reported in (1979) ILLJ 25(SC) where it had been held: There will be error of fact when public body is Page 11 of 14 Downloaded on : Mon Feb 22 21:18:28 IST 2021 C/SCA/9545/2020 ORDER prompted by mistaken belief in existence of non-existing fact or circumstances. This is so clearly unreasonable that what is done under such mistaken belief might almost be said to have been done in bad faith; and in actual experience and as things go, they may well be said to run into one another. influence of extraneous matters will be undoubtedly there where authority making order has admitted their influence. administrative order which is based on reasons of fact which do not exist must be held to be infected with abuse of power." 13. We may also refer to and rely upon decision of Supreme Court in case of ITO Calcutta vs. Lakhmani Mewal Das reported in [(1976) 103 ITR 437 (SC)] wherein it had been held as under: "The reasons for formation of belief contemplated by Section 147(a) of Income-tax Act, 1961, for reopening of assessment must have rational connection or relevant bearing on formation of belief. Rational connection postulates that there must be direct nexus or live link between material coming to notice of I.T.O. and formation of his belief that there has been escapement of income of assessee from assessment in particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that Court cannot go into sufficiency or adequacy of material and substitute its own opinion for that of I.T.O. on point as to whether action should be initiated for reopening assessment. At same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and farfetched, which would warrant formation of belief relating to escapement of income of assessee from assessment. reason for formation of belief must be held in good faith and should not be mere pretence." 14. Coordinate Bench of this Court, to which one of us J.B. Pardiwala, J. was party, had occasion to discuss Section 83 of Act in case of Valerius Industries vs. Union of Page 12 of 14 Downloaded on : Mon Feb 22 21:18:28 IST 2021 C/SCA/9545/2020 ORDER India, Special Civil Application No.13132 of 2019, decided on 28th August, 2019, wherein this Court drew following conclusion: [1] order of provisional attachment before assessment order is made, may be justified if assessing authority or any other authority empowered in law is of opinion that it is necessary to protect interest of revenue. However, subjective satisfaction should be based on some credible materials or information and also should be supported by supervening factor. It is not any and every material, howsoever vague and indefinite or distant remote or far-fetching, which would warrant formation of belief. [2] power conferred upon authority under Section 83 of Act for provisional attachment could be termed as very drastic and far reaching power. Such power should be used sparingly and only on substantive weighty grounds and reasons. [3] power of provisional attachment under Section 83 of Act should be exercised by authority only if there is reasonable apprehension that assessee may default ultimate collection of demand that is likely to be raised on completion of assessment. It should, therefore, be exercised with extreme care and caution. [4] power under Section 83 of Act for provisional attachment should be exercised only if there is sufficient material on record to justify satisfaction that assessee is about to dispose of wholly or any part of his / her property with view to thwarting ultimate collection of demand and in order to achieve said objective, attachment should be of properties and to that extent, it is required to achieve this objective. [5] power under Section 83 of Act should neither be used as tool to harass assessee nor should it be used in manner which may have irreversible detrimental effect on business of assessee. [6] attachment of bank account and trading assets should be resorted to only as last resort or measure. Page 13 of 14 Downloaded on : Mon Feb 22 21:18:28 IST 2021 C/SCA/9545/2020 ORDER provisional attachment under Section 83 of Act should not be equated with attachment in course of recovery proceedings. [7] authority before exercising power under Section 83 of Act for provisional attachment should take into consideration two things: (i) whether it is revenue neutral situation (ii) statement of output liability or input credit . Having regard to amount paid by reversing input tax credit if interest of revenue is sufficiently secured, then authority may not be justified in invoking its power under Section 83 of Act for purpose of provisional attachment. 15. We are of view that none of above referred conditions are fulfilled in present case. 16. In result, this writ application stands partly allowed. relief with regard to order in Form GST DRC-01A is not granted, whereas order of provisional attachment of immovable property under Section 83 of Act is quashed and set aside. 17. We clarify that this order shall not come in way of Department in taking appropriate action afresh strictly in accordance with law as explained by this Court, referred to above. 18. In view of order passed in main matter, connected civil application for stay also does not survive and is disposed of accordingly. (VIKRAM NATH, CJ) (J. B. PARDIWALA, J) Vahid Page 14 of 14 Downloaded on : Mon Feb 22 21:18:28 IST 2021 Meenakshi Trendz v. State of Gujarat
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