This article is also published in Excise Law Times- Vol-374-dated 15-11-2020
“Attachment” is a legal process being exercised by the judicial or non-judicial authorities for recovery of outstanding amount from the opposite party or recovery of tax dues from the defaulter registered person respectively. The attachment is one of the recovery processes under tax laws. The proper officer may initiate action of attachment of property, Valuable assets, Bank account deposits etc., of the tax defaulter for recovery of tax dues when taxpayer attempts to evade payment of tax dues of the Government.
Statutory Provisions for attachment of property under Customs law: Sections 28B and 28AAA of Customs Act, 1962 provide for machinery provisions for collection of amount realized by any person towards duty from his buyers not paid to Government. Section 28BA of the Act ibid prescribes provisional attachment in order to protect revenue in certain cases where during the pendency of any proceeding under Section 28 or Section 28AAA or Section 28B of the Customs Act,1962, the proper is of the opinion that for the purpose of protecting the interests of revenue, it is necessary so to do, he may, with the previous approval of the Principal Commissioner of Customs or Commissioner of Customs, by order in writing, attach provisionally any property belonging to the person on whom notice is served under sub-section (1) or sub-section (4) of Section 28 or sub-section (3) of Section 28AAA or subsection (2) of Section 28B of the Act ibid, as the case may be, in accordance with the rules made in this behalf under Section 142 of the Customs Act,1962.
Every such provisional attachment shall cease to have effect after the expiry of a period of six months from the date of the order made under sub-section (1).
Provided that the Principal Chief Commissioner of Customs or Chief Commissioner of Customs may, for reasons to be recorded in writing, extend the aforesaid period by such further period or periods as he thinks fit. However, the total period of extension shall not, in any case exceed two years.
Recovery of Sums due to Government: As per provisions contained in Section 142(1) (b) of the Customs Act, 1962, Assistant Commissioner of Customs or Deputy Commissioner of Customs may recover or may require any other officer of customs to recover the amount so payable by detaining and selling any goods belonging to such person which are under the control of the Assistant Commissioner of Customs or Deputy Commissioner of Customs or such other officer of customs; or
If the amount cannot be recovered from such person in the manner provided in clause (b) –
(i) the Assistant Commissioner of Customs or Deputy Commissioner of Customs may prepare a certificate signed by him specifying the amount due from such person and send it to the Collector of the district in which such person owns any property or resides or carries on his business and the said Collector on receipt of such certificate shall proceed to recover from such person the amount specified thereunder as if it were an arrear of land revenue; or
(ii) the proper officer may, on an authorisation by Principal Commissioner of Customs or Commissioner of Customs and in accordance with the rules made in this behalf, distrain any movable or immovable property belonging to or under the control of such person, and detain the same until the amount payable is paid; and in case, any part of the said amount payable or of the cost of the distress or keeping of the property, remains unpaid for a period of thirty days next after any such distress, may cause the said property to be sold and with the proceeds of such sale, may satisfy the amount payable and the costs including cost of sale remaining unpaid and shall render the surplus, if any, to such person :
Provided that where the person (hereinafter referred to as predecessor), by whom any sum payable under this Act including the amount required to be paid to the credit of the Central Government under section 28B is not paid, transfers or otherwise disposes of his business or trade in whole or in part, or effects any change in the ownership thereof, in consequence of which he is succeeded in such business or trade by any other person, all goods, materials, preparations, plants, machineries, vessels, utensils, implements and articles in the custody or possession of the person so succeeding may also be attached and sold by the proper officer, after obtaining written approval from the Principal Commissioner of Customs or Commissioner of Customs, for the purposes of recovering the amount so payable by such predecessor at the time of such transfer or otherwise disposal or change.
Procedure for attachment of property:
In exercise of the powers conferred by section 156 read with Section 142 of the Customs Act, 1962 (52 of 1962), the Central Government vide M.F. (D.R.) Notification No. 31/95-Cus. (N.T.), dated 26-5-1995 notified Customs ( Attachment of Property of Defaulters for Recovery of Government Dues) Rules,1995, specifying the procedure for attachment of defaulter’s property as described hereunder.
Where any Government dues are not paid by any defaulter, the Assistant Commissioner of Customs or Deputy Commissioner of Customs may prepare a certificate signed by him specifying the amount due from such person and send the same to the Commissioner having jurisdiction over the place in which the defaulter owns any movable or immovable property or resides or carries on his business or has his bank accounts.
Issue of Notice: – On receipt of the certificate mentioned in Rule 3 of the Customs (Attachment of Property of Defaulters for Recovery of Government Dues) Rules, 1995, mentioned above, the Commissioner may authorise any officer subordinate to him to cause notice to be served upon the defaulter requiring the defaulter to pay the amount specified in the certificate within seven days from the date of the service of the notice and intimate that in default, such subordinate officer is authorised to take steps to realise the amount mentioned in the certificate in terms of these rules.
Attachment of property: – If the amount mentioned in the notice issued in terms of the preceding rule is not paid within seven days from the date of service of notice, the proper officer may proceed to realise the amount by attachment and sale of defaulter’s property. For this purpose, the proper officer may detain the defaulter’s property until the amount mentioned in the certificate together with the cost of detention is paid by the defaulter.
Attachment not to be excessive: – Attachment by arrest or distrain of the property shall not be excessive, that is to say, the property attached shall be as nearer as possible proportionate to the amount specified in the certificate.
Attachment between sunrise and sunset: – The attachment of the property of the defaulter by arrest or distrain shall be made after sunrise and before sunset and not otherwise.
Inventory: – After attachment of the property of the defaulter, the proper officer shall prepare an inventory of the property attached and specify in it the place where it is lodged or kept and shall hand over a copy of the same to the defaulter or the person from whose charge the property is distrained.
Private alienation to be void in certain cases:- (i) Where a notice has been served on a defaulter under rule 4 of the Customs (Attachment of Property of Defaulters for Recovery of Government Dues) Rules, 1995, the defaulter or his representative in interest shall not be competent to mortgage, charge, lease or otherwise deal with any property belonging to him except with the written permission of the proper Officer. (ii) Where an attachment has been made under the said Customs (Attachment of Property of Defaulters for Recovery of Government Dues) Rules, 1995, any private transfer or delivery of the property attached or of any debt, dividend or other moneys contrary to such attachment shall be void as against all claims enforceable under the attachment.
Share in property: – Where the property to be attached consists of the share or interest of the defaulter in property belonging to him and another as co-owners, the attachment shall be made by a notice to the defaulter prohibiting him from transferring the share or interest or charging it in any way.
Attachment of property in custody of Court or public officer: –Where the property to be attached is in the custody of any Court or Public Officer, the attachment shall be made by a notice to such Court or officer, requesting that such property, and any interest or dividend becoming payable thereon, may be held subject to the further orders of the proper officer by whom the notice is issued.
Provided that, where such property is in the custody of a Court, any question of title or priority arising between the proper officer and any other person, not being the defaulter, claiming to be interested in such property by virtue of any assignment, attachment or otherwise, shall be determined by such Court.
Service of notice of attachment: – A copy of the order of attachment shall be served on the defaulter in the same manner as prescribed for the service of order or decision in section 153 of the Act, 1962.
Proclamation of attachment: – The order of attachment shall be proclaimed at some place on or adjacent to the property attached by beat of drum or other customary mode, and a copy of the order shall be affixed on a conspicuous part of the property and on the notice board of the office of the proper Officer.
Property exempt from attachment: – (i) All such property as is by the Code of Civil Procedure, 1908 (5 of 1908), exempted from attachment and sale for execution of a decree of a Civil Court shall be exempt from attachment and sale under these rules. (ii) The decision of the Proper Officer as to what property is so entitled to exemption shall be final.
Provisions for attachment of property under GST law:
Section 81, 82 & 83 of the Central Goods and Services Tax Act, 2017, (CGST Act, 2017) provide for various modes of recovery of amount due the Government. Section 83(1) prescribes provisional attachment to protect revenue in certain cases where, during the pendency of any proceedings under Section 62 or Section 63 or section 64 or Section 67 or Section 73 or Section 74 of the CGST Act,2017, the Commissioner is of the opinion that for the purpose of protecting the interest of the Government revenue, it is necessary so to do, he may, by order in writing attach provisionally any property, including bank account, belonging to the taxable person in such manner as may be prescribed.
Every such provisional attachment shall cease to have effect after the expiry of a period of one year from the date of the order made under sub-section (1) of Section 83 of the CGST Act, 2017.
Recovery by sale of movable or immovable property: Rule 147 of CGST Rules, 2017 prescribes that (1) The proper officer shall prepare a list of movable and immovable property belonging to the defaulter, estimate their value as per the prevalent market price and issue an order of attachment or distraint and a notice for sale in
FORM GST DRC- 16 prohibiting any transaction with regard to such movable and immovable property as may be required for the recovery of the amount due:
Provided that the attachment of any property in a debt not secured by a negotiable instrument, a share in a corporation, or other movable property not in the possession of the defaulter except for property deposited in, or in the custody of any Court, shall be attached in the manner provided in rule 151.
(2) The proper officer shall send a copy of the order of attachment or distraint to the concerned Revenue Authority or Transport Authority or any such Authority to place encumbrance on the said movable or immovable property, which shall be removed only on the written instructions from the proper officer to that effect.
(3) Where the property subject to the attachment or distraint under sub-rule (1) is-
(a) an immovable property, the order of attachment or distraint shall be affixed on the said property and shall remain affixed till the confirmation of sale;
(b) a movable property, the proper officer shall seize the said property in accordance with the provisions of Chapter XIV of the Customs Act, 1962, and the custody of the said property shall either be taken by the proper officer himself or an officer authorised by him.
(4) The property attached or distrained shall be sold through auction, including e-auction, for which a notice shall be issued in FORM GST DRC- 17 clearly indicating the property to be sold and the purpose of sale.
Attachment of debts and shares: Rule 151 of the CGST Rules, 2017, prescribes that a debt not secured by a negotiable instrument, a share in a corporation, or other movable property not in the possession of the defaulter except for property deposited in, or in the custody of any Court shall be attached by a written order in FORM GST DRC-16.
Attachment of property in custody of Courts or Public Officer: Rule 152 of the CGST Rules, 2017, prescribes that where the property to be attached is in the custody of any Court or Public Officer, the proper officer shall send the order of attachment to such Court or officer, requesting that such property, and any interest or dividend becoming payable thereon, may be held till the recovery of the amount payable.
Attachment of interest in partnership: Rule 153 of the CGST Rules, 2017 prescribes that where the property to be attached consists of an interest of the defaulter, being a partner, in the partnership property, the proper officer may make an order charging the share of such partner in the partnership property and profits with payment of the amount due under the certificate, and may, by the same or subsequent order, appointment a receiver of the share of such partner in the profits, whether already declared or accruing, and of any money which may become due to him in respect of the partnership, and direct accounts and enquires and make an order for the sale of such interest or such other order as the circumstances of the case may require.
Provisional attachment of property: Rule 159 (1) of the CGST Rules, 2017 prescribes that where the Commissioner decides to attach any property, including bank account in accordance with the provisions of Section 83, he shall pass an order in FORM GST DRC-22to that effect mentioning therein, the details of property which is attached.
(2) The Commissioner shall send a copy of the order of attachment to the concerned Revenue Authority or Transport Authority or any such Authority to place encumbrance on the said movable or immovable property, which shall be removed only on the written instructions from the Commissioner to that effect.
(3) Where the property attached is of perishable or hazardous nature, and if the taxable person pays an amount equivalent to the market price of such property or the amount that is or may become payable by the taxable person, whichever is lower, then such property shall be released forthwith, by an order in FORM GST DRC-23, on proof of payment.
(4) Where the taxable person fails to pay the amount referred to in sub-rule (3) in respect of the said property of perishable or hazardous nature, the Commissioner may dispose of such property and the amount realized thereby shall be adjusted against the tax, interest, penalty, fee or any other amount payable by the taxable person.
(5) Any person whose property is attached may, within seven days of the attachment under sub-rule (1), file an objection to the effect that the property attached was or is not liable to attachment, and the Commissioner may, after affording an opportunity of being heard to the person filing the objection, release the said property by an order in FORM GST DRC- 23.
(6) The Commissioner may, upon being satisfied that the property was, or is no longer liable for attachment, release such property by issuing an order in FORM GST DRC- 23.
Case Laws:
The Hon’ble High Court of Andhra Pradesh, in the case of Sri Vishnupriya Industries Ltd, v. Superintendent of C.EX & Customs, reported in 2005 (184) E.L.T. 227 (A.P.), had held that Section 142 of the Customs Act deals with recovery of sums due to Government. It provides the procedure and manner in which the dues have to be recovered, and what are the steps to be taken by the officers concerned, in the event the dues are not recoverable. It is required to notice that under Section 142 of the Customs Act, thy Board of CBEC issued Circular, providing the procedure and manner in which the sale of moveable/immovable properties for recovery of dues, has to be effected, and they inter alia, include attachment in terms of Rules 9 and 10 of the Customs (Attachment of Property of Defaulters for Recovery of Government Dues) Rules, 1995 and serving of attachment order on the owner of the goods, and they should be in appropriate forms. In the absence of any procedure provided for sale of the detained goods under Section 72(2) of the Customs Act, it has to be held that once the goods are detained for sale under Section 72(2) of the Customs Act, they have to follow the procedure contemplated under Section 142 of the Customs Act and the CBEC Circulars governing thereof. This apart, in the instant case, it may be noticed that the respondents while granting Warehousing License under Section 59(2) of the Customs Act, got executed a bond on 28-8-1989, wherein it is inter alia, agreed that any amount due under the bond may be recovered in the manner laid down in sub-section (1) of Section 142 of the Customs Act without prejudice to any other mode of recovery. The respondents having taken a bond from the company at the time of issuing Warehousing License that the amount due thereunder may be recovered in terms of the procedure laid down in sub-section (1) of Section 142 of the Customs Act, now cannot contend that for recovery of the dues, they need not follow the procedure contemplated under Sec. 142 of the Customs Act, which deals with recovery of sums due to Government, or the guidelines issued thereunder by the Board for CBEC in their Circular dated 15-12-1997, with respect to sale of movable/immovable properties by Central Excise Officers for recovery of Central Excise dues, and that mere compliance of the provisions under Section 72(2) of the Customs Act, is sufficient for selling the detained goods.
The Hon’ble High Court of Calcutta in the case of Amazonite Steels Private Limited, v. Union of India, reported in 2020 (36) G.S.T.L. 184 (Cal.), held that the new regime under the GST Act, 2017 is a new legislative creation by which the Union Government along with all the State Governments have streamlined various statutes under which tax was earlier collected to enhance the ease of doing business by preventing multi-point taxation that was extremely cumbersome and time consuming for the citizens of India. The raison d’etre of the GST Act, 2017 is to reduce the burden of tax and also to simplify the procedures. This, however, is coupled with certain far reaching and drastic measures that would be applicable on persons who evade the payment of such taxes. One need not stress the importance of the responsibility that comes upon the Government officials who take such drastic measures upon the citizens of this country. Nonetheless, these drastic provisions come with a purpose, and that is to ensure collection of taxes so that the inequities in society may be reduced by the Government. Provisions such as provisional attachment are necessary to ensure that persons who intend to evade taxes and/or are a part of a mechanism to defraud the Government are nipped in the bud and appropriate taxes can be collected from such persons.
The Hon’ble High Court of Gujarat in the case of Kanval Enterprise, v. State of Gujarat, reported in 2020 (36) G.S.T.L. 206 (Guj.), held that “the short point falling for our consideration is whether the impugned order of attachment of property under Section 83 of the Act could have been passed on the ground of proceedings instituted under Section 71(1) of the Act. The plain reading of Section 83 of the Act would indicate that the powers can be invoked during the pendency of proceedings under Sections 62, 63, 64, 67, 73 and 74 of the Act. There is no power vested in the authorities to invoke the provisions of Section 83 during the pendency of the proceedings instituted under Section 71(1) of the Act.
The Hon’ble High Court of P &H, in the case of Bindal Smelting Pvt. Ltd, v. Addl. Directorate Gen. of GST Intelligence, reported in 2020 (34) G.S.T.L. 592 (P & H), the object and intention of Legislature to endow Commissioner with power of attachment under Section 83 is very clear. It is drastic and far-reaching power which must be used sparingly and only on substantive weighty grounds and reasons. The power should be exercised only to protect interest of revenue and not to ruin business of any taxable person. Primarily Section 83 permits to attach property. Property means an asset which may be movable, immovable, tangible, intangible or in the form of some instrument. Cash in hand as well bank account is property, in the form of liquidity which is better than immovable property and directly affects working in the form of working capital of a dealer. A dealer may be having cash in hand or in account in the form of fixed deposit or saving account.
The mandate of Section 83 in our considered opinion is to attach amount lying in an account in the form of FDR or saving and it cannot be intention or purport of Section 83 to attach an account having debit balance. No purpose leaving aside securing interest of revenue is going to be achieved except closure of business which cannot be permitted unless and until running of business itself is prohibited by law. The contention of Respondent that they have power to attach bank account irrespective of nature of account cannot be countenanced.
The Hon’ble Court also held that respondent can attach an account only if there is some balance in the form of FDR or savings. The power of attachment of bank account cannot be exercised as per whims and caprices of the Authority. The Commissioner is bound to ensure that by attachment of property or bank account, interest of revenue is going to be protected. In case a property is mortgaged with bank and value of property is less than outstanding dues of bank, provisional attachment is meaningless and action remains only on paper. In the absence of record showing that interest of revenue is protected by attaching property or bank account, action deserves to be declared as taken without application of mind and formation of opinion on the basis of cogent material. Thus, attachment of current account having debit balance does not protect interest of revenue, instead merely ruins the business of a dealer. Such an action of attachment of “over cash credit” account for the sake of recovery of confirmed demand, may in some peculiar case, may be still permitted but not at the stage of pending investigation.
Conclusion: From the statutory provisions and judicial pronouncements discussed above, it can be concluded that the provisions of attachment of property prescribed both under Customs as well as under GST laws, wherein the proper officer has been authorised to initiate proceedings to recover Government dues, if pending with default taxpayers. However, since power of attachment of property is stringent action in the hands of the department officers to initiate recovery proceedings against defaulter of taxpayers, it should be exercised sparing with caution in deserving cases only. The attachment of movable and immovable property belonging to defaulter, cash balance in bank account, his securities etc, can be made. The proper officer with observance of due procedure will sell or dispose the attached properties of the defaulter and adjust the tax amount payable out of the proceeds sale or auction of properties.
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