Date of the Judgement
12/5/2021
Parties
Petitioner - Roshani Sana Jaiswal
Respondent - Commissioner of Central Tax
Bench
Justice Rajiv Shakdher
Justice Talwant Singh
Overview
● The Delhi High Court ruled that the CGST cannot be used to seize the promoters' personal bank accounts.
● Before activating the provisions of Section 83 of the Act, the respondent had to satisfy himself that there was a "pending" proceeding under Section 62, Section 63, Section 64, Section 67, Section 73, or Section 74 of the Act.
● The Court can and should use its powers under Article 226 of the Constitution, among other things, in cases where the challenged action or order lacks jurisdiction. The complainant is not a taxable citizen, which is one of the jurisdictional ingredients that is lacking in this case.
● The GST Department failed to document any evidence of the Promoters of Milk Food's personal involvement in the alleged fraud, and second, that the Promoters are not "Taxable Persons" under section 2(107) of the CGST Act, 2017, and hence their personal bank accounts could not have been provisionally attached under the CGST Act, 2017.
● The Provisional Attachment Order was quashed by the Hon’ble High Court of Delhi, which held that: In order to protect the revenue, the respondent cannot attach any and all land, including bank accounts of persons other than the taxable person.
Facts
● The above-mentioned orders are being challenged against the backdrop of the following undisputed facts and circumstances.
● Between 2006 and 2008, the applicant served as a director on the Board of Directors of a company called Milkfood Ltd. The petitioner is also a shareholder in the firm, owning roughly 14.33 per cent of the stock. During the financial year (or ‘FY') 2019-2020, the applicant was paid a payment of Rs.1.50 crores per annum.
● The respondent began an investigation against Milkfood Ltd. under Section 67 of the Central Goods and Services Tax Act, 2017 (in short ‘the Act'), based on information obtained that Milkfood Ltd. was claiming Input Tax Credit (in short ‘ITC') for fake/ineligible invoices.
● The declaration of the persons who regulated entities that allowed Milkfood Ltd. to say ITC was captured in the course of the investigation, according to the respondent. According to the respondent, the petitioner's "voluntary declaration" was registered on 03.12.2020 in this context.
● According to the respondent, the petitioner acknowledged in her statement to the concerned officer that she served as a director of the firm, Milkfood Ltd., between 2006 and 2008, and that she has been working as a mentor/advisor for the company since then.
● Furthermore, the complainant is said to have claimed that she earned Rs.1.50 crores from Milkfood Ltd. in the relevant FY, i.e. 2019-2020, in her capacity as a mentor/advisor to the company. This money was provided to the petitioner because she was offering “strategic guidance” to Milkfood Ltd, according to the petitioner.
● As previously mentioned, the plaintiff acknowledged that she owned a 14.33 per cent equity interest in Milkfood Ltd.
● Because the plaintiff was aggrieved by the respondent's action, she filed this writ petition with this Court. The respondent has filed a counter-affidavit in response to the notice.
Arguments of the petitioner
● Mr Harpreet Singh, who represents the respondent, has submitted the following arguments - The petitioner has taken advantage of the alternative remedy provided by Rule 159(5) of the Central Goods and Services Tax Rules, 2017 (in short, the Rules), by filing objections under the said Rule, albeit while the writ petition was pending. Mr Singh claims that since the objections were filed during the pendency of the writ petition and after the counter–affidavit was filed on behalf of the respondent, the counter–affidavit makes no mention of this aspect of the case. According to Mr Singh, the objections were dismissed by an order dated April 19, 2021.
● The Milkfood Ltd. was also the subject of investigations launched under Section 67 of the Act.
● Based on fake invoices, Milkfood Limited was able to obtain ITC credit worth approximately Rs.85 crores. The respondent had arrested individuals who were in charge of the companies that provided Milkfood Ltd with fake invoices. Coercive charges were also planned to be brought against Milkfood Ltd's directors and employees.
● The persons related to the suppliers and the directors/employees of Milkfood Ltd. had applied for bail in the relevant courts. In those proceedings, the respondent was required to deposit Rs.10 crores as a condition of bail. In addition, Milkfood Ltd. made a voluntary deposit of Rs.6 crores with the respondent. A total of Rs.16 crores has been deposited with the respondent out of an estimated sum of Rs.85 crores.
● The Supreme Court's judgment in M/s Radha Krishan Industries vs. State of Himachal Pradesh & Ors., 2021 SCC OnLine SC 334 [in short, the "Radha Krishan Industries Case"), relied on by petitioner, is inapplicable to the instant case since an adjudication order had already been issued in that case.
Arguments of the respondent
● On the other hand, Mr Harsh Sethi, who represents the petitioner, argued that the proceeding brought against him under Section 83 of the Act lacks jurisdiction because the petitioner does not fall under the scope of a "taxable individual," the taxable person being Milkfood Ltd, not the petitioner. As a result, the contested orders cannot be upheld since this vital jurisdictional component is missing.
● Other ingredients specified in Section 83 of the Act, according to Mr Sethi, are also missing. Before activating the provisions of Section 83 of the Act, the respondent had to satisfy himself that there was a "pending" proceeding under Section 62, Section 63, Section 64, Section 67, Section 73, or Section 74 of the Act. Mr Sethi also claims that, before resorting to Section 83 of the Act, the respondent was required to form an opinion that the attachment of the petitioner's bank account was sufficient to protect the revenue's interests.
● The concepts enunciated in the Radha Krishan Industries case, according to Mr. Sethi, squarely relate to the instant case. Mr Sethi cites paragraphs 41 and 72(iv) and (v) of the Radha Krishan Industries case in this regard.
Judgement
● Mr Singh's argument that the instant petition should not be heard because the applicant did not pursue an alternative remedy under Article 226 of the Constitution does not persuade us, because the exercise of power under Section 83 of the Act was, to begin with, without jurisdiction. The fact that a litigant has an alternative remedy is a self-imposed restriction on the Court; something that did not discourage the Court when the notice was first served in the case, possibly because of the allegations contained in the petition.
● The Court can and should use its powers under Article 226 of the Constitution, among other things, in cases where the challenged action or order lacks jurisdiction1. The complainant is not a taxable citizen, which is one of the jurisdictional ingredients that is lacking in this case.
● This is supported by a review of the contested orders, which are similar. The respondent states in the impugned orders dated 07.12.2020 that Milkfood Ltd. is the taxable individual.
● As previously mentioned, the order rejecting the petitioner's objections under Rule 159(5) was issued on April 19, 2021. This order has not been entered into the system. The date on which the objections were filed is also unknown to us. When pressed, Mr Singh admits that the order issued on 19.04.2021, pursuant to the aforementioned Law, is not appealable.
● Provisional attachment may only be ordered qua land, including bank accounts, belonging to the taxable individual, according to subsection 1 of Section 83 of the Act2. Furthermore, the definition of "taxable person" in Section 2(107) of the Act states that only those who are registered or liable to be registered under the Act may be taxable person. It is not even the respondent's case that the complainant is either registered or was required to be registered under the Act's Section 2(107) provisions. As a result, we believe the proceedings must fail solely on this basis.
● The other submissions, as to whether or not proceedings under Section 67 of the Act are pending, do not, in our opinion, need to detain us for the reasons mentioned above.
● However, we must point out that, apart from this, the respondent has not been able to present us with any evidence to the contrary. Before invoking the provisions of Section 83 of the Act, the concerned officer had considered the other important factor, namely, that the provision had to be invoked to protect the revenue's interests.
● The respondent's only argument about the petitioner in the counter-affidavit is that she made a "voluntary" declaration on December 3, 2020. We alluded to what the petitioner said in her complaint, which was gleaned from the respondent's counter-affidavit. Nothing in the petitioner's complaint, in our view, shows that she had something to do with the supposed illicit transaction allegedly carried out between Milkfood Ltd. [i.e., the taxable person] and its suppliers.
● In her voluntary statement, the complainant alleged that she was paid Rs.1.50 crores in the fiscal year 2019-2020 for her services as a mentor/advisor to Milkfood Ltd. Even if we conclude, for the time being, that inquiries are ongoing against the taxable individual, and thus that proceedings under Section 67 of the Act are pending, there is nothing on record to indicate that the respondent had material linking the petitioner to alleged fake invoices.
● In other words, the impugned action concerning provisional attachment of the petitioner's bank accounts, which is otherwise a "draconian" measure, was unsustainable in the absence of such content. The respondent cannot bind any and all land, including bank accounts of persons other than the taxable individual, in order to protect the revenue's interests.
● As a result of the above considerations, we are inclined to grant the writ petition. It is arranged in this manner. The disputed provisional attachment orders dated 07.12.2020 have been revoked. The respondent will inform the concerned banks of the order issued today.
