Provisional Attachment to Protect Revenue in Certain Cases – Section 83 of GST

The Central Goods and Services Tax (CGST) Act contains numerous provisions that empower authorities to safeguard government revenue during tax proceedings. One such powerful provision is Section 83, which deals with provisional attachment of property to protect the interest of the revenue. This measure is preventive in nature and is used sparingly due to its significant implications on businesses and individuals.

In this article, we delve deep into the scope, applicability, and implications of Section 83 of the CGST Act, especially in light of the amendments made through the Finance Act, 2021.

Legal Text of Section 83: A Closer Look

Sub-section (1)

“Where, after the initiation of any proceeding under Chapter XII, Chapter XIV or Chapter XV, 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 or any person specified in sub-section (1A) of section 122, in such manner as may be prescribed.”

This provision empowers the Commissioner to attach provisionally any property, including bank accounts, of:

• The taxable person, or

• Any person specified under Section 122(1A)

Such attachment can only be made after initiation of proceedings under any of the following chapters:

• Chapter XII: Assessment

• Chapter XIV: Inspection, Search, Seizure and Arrest

• Chapter XV: Demands and Recovery

Sub-section (2)

“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).”

This limits the validity of the provisional attachment to one year from the date of the attachment order.

Evolution of Section 83: Amendment by Finance Act, 2021

Originally, Section 83 permitted provisional attachment only during the pendency of specific proceedings under sections 62, 63, 64, 67, 73, or 74.

However, with effect from 1st January 2022, vide Notification No. 39/2021-C.T., dated 21st December 2021, the scope of Section 83 was substantially expanded by the Finance Act, 2021:

Key Changes:

• Attachment is now permitted after initiation (not just during pendency) of any proceedings under Chapter XII, XIV, or XV.

• The scope of individuals whose property can be attached was widened to include persons specified under Section 122(1A), not just the taxable person.

This expansion gives more power to the tax authorities and enhances the tools available to secure revenue interests in cases where tax evasion or non-compliance is suspected.

Who Are Persons Under Section 122(1A)?

Section 122(1A) covers persons who retain the benefit of certain transactions and are involved in the evasion of tax, even if they are not the registered taxable person. This includes individuals who:

• Retain the benefit of supplies without issuance of an invoice,

• Issue invoices without any actual supply,

• Avail input tax credit without receipt of goods/services,

• Distribute credits fraudulently.

Hence, even third parties can face provisional attachment if they are linked to fraudulent activities.

Objective of Section 83: Safeguarding Government Revenue

The primary objective of Section 83 is to prevent the dissipation of assets by individuals or entities who are under investigation or assessment for potential tax liabilities. This preemptive strike ensures that the government can recover its dues if the proceedings conclude in its favour.

This is particularly crucial in cases where:

• There is evidence of tax fraud or evasion,

• The taxpayer may transfer or dispose of assets to defeat tax recovery,

• There is a risk of non-realisation of government dues.

Manner of Attachment: Prescribed Rules

The manner of provisional attachment is governed by Rule 159 of the CGST Rules. Key procedural steps include:

1. Issuance of Order in Form GST DRC-22: The Commissioner issues an order of provisional attachment.

2. Communication to Concerned Authority: The order is sent to relevant authorities such as banks or registrars.

3. Filing of Objections: The affected person may file objections against the attachment.

4. Order for Release: After considering the objections, the Commissioner may release the property by issuing an order in Form GST DRC-23.

Safeguards Against Arbitrary Use

While the provision grants significant power, judicial scrutiny ensures it is not misused. Courts have emphasized that:

• The Commissioner must form an independent opinion based on material evidence.

• The power should be exercised sparingly and in exceptional cases.

• The affected person should be given a fair opportunity to present their case.

In Radha Krishan Industries v. State of Himachal Pradesh (2021), the Supreme Court laid down that provisional attachment must not be used as a routine administrative measure but rather as a last resort in serious cases.

Duration and Validity

The provisional attachment under Section 83 is valid for one year only. After that period, unless fresh proceedings or orders are initiated, the attachment automatically lapses.

Conclusion

Section 83 of the CGST Act serves as a critical safeguard to protect the interests of the revenue during tax proceedings. However, given its far-reaching consequences, it must be used judiciously and within the boundaries set by law and judicial pronouncements. Businesses and individuals must stay compliant and proactive in addressing any queries or notices from the GST authorities to avoid such drastic measures.

Understanding the scope, procedural requirements, and legal safeguards under this section is essential for both tax professionals and taxpayers navigating the complexities of GST law.

Need guidance on handling GST notices or provisional attachment orders? Consult a qualified tax professional like us at +91 9769647582 to ensure timely compliance and protect your legal rights.