Delhi HC Grants Ebix Interim Relief, Calls Attachment of 11 Bank Accounts “Grossly Disproportionate.”
Issue
Whether the provisional attachment of 11 bank accounts of a company (Ebix Technologies) was a legally valid and proportionate measure, especially when the alleged fraudulent Input Tax Credit (ITC) was only ₹3.1 crore and the company itself was not the primary target of the investigation.
Facts
- The Directorate General of GST Intelligence (DGGI), Meerut, attached 11 bank accounts belonging to Ebix Technologies.
- The attachment was in relation to an investigation where the alleged fraudulent ITC amount was ₹3.1 crore.
- Ebix, a company employing over 3,500 people, argued that the attachment was grossly disproportionate and had crippled its business operations.
- Ebix was not the target of the DGGI’s investigation; it was only summoned under Section 70 in a case concerning its service providers.
- The Provisional Attachment Letter was dated September 25 but was only communicated to Ebix on November 4, a delay the court found to be a procedural irregularity.
- The department rejected Ebix’s objections to the attachment through an unreasoned and delayed communication, indicating a non-application of mind.
Decision
- The Delhi High Court held that the attachment of 11 bank accounts for an alleged ₹3.1 crore fraud was “grossly disproportionate” and contrary to the principles of GST law.
- The court found that the department’s conduct (delayed communication, unreasoned rejection of objections, and freezing accounts before considering replies) was contrary to fair administrative practice and a violation of the principles of natural justice.
- An interim relief was granted, lifting the attachment and allowing the assessee to operate all 11 bank accounts.
- This relief was made subject to the condition that Ebix maintains a balance of ₹1 crore (to secure the revenue’s interest) in any one of the previously attached accounts.
- The High Court also directed the specific officers who signed the attachment order to appear personally on the next hearing date (Nov. 11).
Key Takeaways
- Doctrine of Proportionality: The power of provisional attachment is not absolute. The action taken by the department must be reasonable and proportionate to the alleged revenue at risk. Attaching assets worth many multiples of the disputed amount is a “grossly disproportionate” act that can be struck down.
- Procedural Fairness is Mandatory: Tax authorities must adhere to the principles of natural justice. This includes communicating orders in a timely manner (to allow for remedies) and passing reasoned orders when rejecting a taxpayer’s objections.
- Attachment of Third Parties: The court will apply a high degree of scrutiny when the department attaches the assets of a third party (one who is not the primary target of the investigation). Such a drastic step cannot be taken lightly or without a strong, direct link to the alleged fraud.
- Judicial Accountability: The court’s unusual step of summoning the officers to appear personally signals a growing intolerance for administrative overreach and the mechanical use of drastic powers that cripple legitimate businesses.