No pre-attachment hearing is required, but a summons isn’t enough to trigger attachment.
Issue
This case dealt with two critical legal questions regarding provisional attachment under Section 83 of the CGST Act:
- Is a “pre-decisional hearing” a mandatory requirement before a tax officer can provisionally attach a taxpayer’s property?
- Does the mere issuance of a summons under Section 70 of the Act constitute the initiation of “proceedings” that is sufficient to justify an attachment under Section 83?
Facts
- The GST department, after issuing a summons under Section 70 to a taxpayer, proceeded to provisionally attach the taxpayer’s bank account under Section 83 of the CGST Act.
- The taxpayer challenged this action in a writ petition. A Single Judge of the High Court quashed the attachment, holding that a hearing should have been given before the attachment was ordered (a pre-decisional hearing).
- The revenue department, disagreeing with the Single Judge’s reasoning, appealed this decision to a Division Bench of the High Court.
Decision
The Division Bench passed a mixed judgment, clarifying the law on one point in favour of the revenue, but ultimately providing relief to the taxpayer on the facts of the case.
- On the Pre-Decisional Hearing (In favour of Revenue): The court partly allowed the revenue’s appeal on this point of law. It held that a plain reading of Section 83 does not mandate a pre-decisional hearing. The legal safeguard for the taxpayer is the right to file an objection and get a post-attachment hearing as provided under Rule 159(5), which satisfies the principles of natural justice.
- On the Trigger for Attachment (In favour of Taxpayer): However, the court went on to quash the actual attachment of the taxpayer’s bank account. It held that a provisional attachment can only be made when specific proceedings (like assessment, audit, etc., under Chapters XII, XIV, or XV) are pending. Following binding Supreme Court precedents, it ruled that the mere issuance of a summons under Section 70 does not qualify as such a proceeding.
Key Takeways
- No Hearing is Needed Before an Attachment: This judgment clarifies that the power of provisional attachment is a drastic, protective, and pre-emptive measure. The officer does not need to give the taxpayer a warning or a hearing before freezing their account. The taxpayer’s right to be heard is protected at the post-attachment stage when they file their objections.
- A Summons is Not a “Proceeding” for Attachment: This is a crucial safeguard for taxpayers. The mere issuance of a summons to give evidence or to produce documents is an inquiry or investigation step. It is not the initiation of a formal “proceeding” like scrutiny, audit, or tax determination.
- The Trigger for Attachment is Very Specific: The power to attach property under Section 83 is not a general power that can be used at any time. It can only be invoked when specific, formal proceedings, as listed in the section itself, have already been initiated against the taxpayer.
- A Win on Law vs. a Win on Facts: This case is a great example of how the law can be clarified in a way that seems to favour the department (no pre-hearing needed), while the final relief in the specific case is still granted to the taxpayer because the facts did not meet the legal threshold for the department’s action.