An alternate remedy by itself does not divert the HC of its powers under Art. 226: SC

In spite of availability of the alternative remedy, the High Court may still exercise its writ jurisdiction in at least three contingencies: (i) where the writ petition seeks enforcement of any of the fundamental rights; (ii) where there is failure of principles of natural justice; or (iii) where the orders or proceedings are wholly without jurisdiction or the vires of an Act is challenged. (Para 26)

M/S RADHA KRISHAN INDUSTRIES VS. STATE OF HIMACHAL PRADESH & ORS.

Civil Appeal No 1155 of 2021 (Arising out of SLP © No 1688 of 2021)

20th April 2021

The Divisional Bench of Hon’ble Supreme Court consisting of Justice Dr. Dhananjaya Y Chandrachud and Justice M.R. Shah allowed the writ petition filed by the appellant under Article 226 of the Constitution by setting aside the judgment of the High Court dated 1st January 2021 and the orders of provisional attachment dated 28th October 2020.

Since 2008 the appellant was manufacturing lead in his factory at village Meerpur Gurudwara, Kala-Amb in the District of Sirmaur of Himachal Pradesh, according to the specific requirements of its clients. After introducing the Goods and Service tax, the appellant migrated and was registered under GST on 1st July 2017.

On 21st October 2020, the Commissioner of State Taxes and Excise, Himachal Pradesh, delegated his powers under Section 83 of the HPGST Act to the third respondent. In exercise of the power delegated by the Commissioner, on 28th October 2020 the third respondent issued orders under Rule 159(1) of HPGST Rules to Fujikawa Power and M/s Deepak International, customers of the appellant. The orders noted that Fujikawa Power owed about Rs. 4 crores and Deepak International owed Rs. 2.91 crores to the appellant. The order states that the appellant was found to be involved in an ITC fraud amounting to Rs. 5.03 crores.

On 4th November 2020, the appellant filed a representation and objections against the attachment and denied liability which the third respondent has rejected on an order dated 6th November 2020. Consequently, the appellant challenged the provisional order passed by the Commissioner on 21st October 2020, delegating his powers under Section 83 of the HPGST Act to the respondent before the High Court in a writ petition under Article 226, which the High Court later dismissed.

The dismissal of the petition challenging the orders of provisional attachment is in question in the present proceedings.

Issues framed by the Hon’ble Bench:

1. Maintainability of the writ petition before the High Court.

2. Challenge on merits: the improper invocation of Section 83.

Mr. Puneet Bali, learned senior counsel appearing on behalf of the appellant, addressed the following submissions: (i) No alternative remedy is available against the orders of provisional attachment passed under Section 83 of the HPGST Act. Under the GST Act, an appeal against the Commissioner's orderlies before the GST Appellate Tribunal has not been constituted to date. Thus, the only remedy available to the appellant was by filing a writ petition. (ii) As per Whirlpool Corporation vs. Registrar of Trademarks, Mumbai, the alternative remedy is not a bar to exercise the writ jurisdiction of the High Court. (iii) The third respondent has withdrawn the earlier order, on the same set of facts, after considering the representation filed by the appellant. Thus, this amounts to a review, which is contrary because the HPGST Act does not provide powers of review. (iv) Theprovisional attachment orders violate the procedure established under sub-rule (5) of Rule 159 of HPGST Rules. The third respondent rejected the objections on 6 November 2020 without providing an opportunity to be heard. (v) The High Courts should not dismiss the writ petition on the grounds of maintainability, according to the case Rajasthan State Electricity Board vs. UOI, Calcutta Discount Co. Ltd. vs. Income Tax Officer, Companies District I, Calcutta and Commissioner of Income Tax, Gujarat vs. M/s A Raman and Co. the High Court can exercise its powers under Article 226, to issue an order prohibiting the tax officer from proceedings from assessing the liability, if the conditions precedent to exercise of such jurisdiction have not been met.

In respect of second issue, learned counsel contended that (i) the power under Section 83 of the HPGST Act cannot be exercised unless the precondition is fulfilled to produce sufficient material on record. There should not be any pendency of proceedings under Section 62, 63, 64, 67, 73, or 74 of the HPGST Act. However, both these conditions remain unfulfilled; hence this section cannot be exercised. (ii) Order under Section 74 against the appellant's supplier, G.M. Powertech, is insufficient to invoke the powers of provisional attachment against the appellant. (iii) the third respondent has failed to show that there is a threat to the interests of the revenue on account of the appellant's alleged involvement in the said ITC fraud of G.M. Powertech. (iv) Even if the revenue has to attach the assailable properties, immovable properties must be attached. (v) The provisional attachments of the appellant's assets were made without jurisdiction and in violation of Section 83. (vi) The provisional attachment of 100% of the alleged amount before the finalization of the tax demand is contrary to Section 74 of HPGST Act. (vii) the third respondent has taken a contradictory stand concerning tax collection; even if it was admitted that the transaction between the appellant and G.M. Powertech was fake, it follows that neither the appellant can claim a refund of ITC nor would be liable to pay tax on outward supplies. However, the appellant has already paid Rs. 12.49 crores of tax on outward supplies. (viii) Once the third respondent has already raised a demand against G.M. Powertech for illegally availing ITC, refusal to grant ITC to the appellant would amount to double collection of tax.

Opposing these submissions, Mr. Akshay Amritanshu, learned counsel appearing on behalf of the State of Himachal Pradesh, submitted that: (i) The SLP should be dismissed as the appellant has an alternate remedy of an appeal under Section 107 of the HPGST Act. Moreover, the SLP has been rendered infructuous due to the order dated 18 February 2021 under Section 74(9) of the HPGST Act and the consequent appeal filed by the appellant against this order before the appellate authority. (ii) In paragraph 4 of thejudgment, it has been noted that the appellant had admitted that it had an alternative remedy by way of an appeal under Section 107 of the HPGST Act. (iii) The delegation of powers under Section 83 of the HPGST Act by the second respondent to the third respondent does not imply an irregular or illegal exercise of jurisdiction by the second respondent. (iv) Under Section 74(9), the order against G.M. Powertech has not been challenged and has gained finality. Thus, the transaction between G.M. Powertech and the appellant would also be fraudulent. (v) To avoid a similar situation like G.M. Powertech against the appellant and protect the interests of revenue, theprovisional attachment orders were passed. (vi) The proceedings of provisional attachment under Section 83 of the HPGST Act had concluded after the rejection of the objections filed by the appellant on 6 November 2020. The appellant participated in these proceedings and did not challenge the orders of provisional attachment. Thus, the appellant is estopped from challenging the initiation of proceedings under Section 83 of the HPGST Act. (vii) Theprovisional attachment orders were based on a fresh set of allegations after the proceedings against G.M. Powertech had been concluded. (viii) After the appellant filed objections to the orders of provisional attachment, it was in the discretion of the Commissioner whether or not to grant an opportunity of a hearing to the appellant. (ix) Merely because the appellant has paid Rs. 12 crores of tax does not imply that the appeal did not engage in the ITC fraud. (x) The necessary prerequisites for triggering Section 83 of the HPGST Act were complied with; (xi) The appellant had not sought any prior stay on the orders of provisional attachment, and thus, it is not conceivable that the business of the appellant has become paralyzed due to these orders; (xii) The provisional attachment is not only for recovery but is intended to safeguard the interests of the revenue while the proceedings are pending, and (xiii) The legislature did not provide any quantum or percentage for provisional attachment under Section 83 of the Act. Thus, a comparison with other provisions of the HPGST Act, including Section 107, is incorrect.

After hearing contention of both the parties, referred necessary provisions and various case laws and concluded the following:

i. The Joint Commissioner while ordering a provisional attachment under section 83 was acting as a delegate of the Commissioner in pursuance of the delegation effected under Section 5(3) and an appeal against the order of provisional attachment was not available under Section 107 (1).

ii. The writ petition before the High Court under Article 226 of the Constitution challenging the order of provisional attachment was maintainable.

iii. The High Court has erred in dismissing the writ petition on the ground that it was not maintainable.

iv. The power to order a provisional attachment of the property of the taxable person including a bank account is draconian in nature and the conditions which are prescribed by the statute for a valid exercise of the power must be strictly fulfilled.

v. The exercise of the power for ordering a provisional attachment must be preceded by the formation of an opinion by the Commissioner that it is necessary so to do for the purpose of protecting the interest of thegovernment revenue. Before ordering a provisional attachment the Commissioner must form an opinion on the basis of tangible material that the assessee is likely to defeat the demand, if any, and that therefore, it is necessary so to do for the purpose of protecting the interest of the government revenue.

vi. The expression “necessary so to do for protecting the government revenue” implicates that the interests of the government revenue cannot be protected without ordering a provisional attachment.

vii. The formation of an opinion by the Commissioner under Section 83(1) must be based on tangible material bearing on the necessity of ordering aprovisional attachment for the purpose of protecting the interest of the government revenue.

viii. In the facts of the present case, there was a clear non-application of mind by the Joint Commissioner to the provisions of Section 83, rendering the provisional attachment illegal.

ix. Under the provisions of Rule 159(5), the person whose property is attached is entitled to dual procedural safeguards:

a) An entitlement to submit objections on the ground that the property was or is not liable to attachment; and

b) An opportunity of being heard; There has been a breach of the mandatory requirement of Rule 159(5) and the Commissioner was clearly misconceived in law in coming into conclusion that he had a discretion on whether or not to grant an opportunity of being heard.

x. The Commissioner is duty bound to deal with the objections to the attachment by passing a reasoned order which must be communicated to the taxable person whose property is attached.

xi. A final order having been passed under Section 74(9), the proceedings under Section 74 are no longer pending as a result of which the provisional attachment must come to an end; and

xii. The appellant having filed an appeal against the order under section 74(9), the provisions of sub-Sections 6 and 7 of Section 107 will come into operation in regard to the payment of the tax and stay on the recovery of the balance as stipulated in those provisions, pending the disposal of the appeal. (Para 72)

Subsequently, the petition is allowed in the aforesaid terms.

View/ download judgment : M/S RADHA KRISHAN INDUSTRIES VS. STATE OF HIMACHAL PRADESH & ORS.

Swadheen Singh