Order Date – 16 May 2023

Parties: M/s Sidhivinayak Chemtech Private Limited Vs Principal Commissioner CGST, Meerut and Ors.

Facts – 

• The Petitioner, M/s Sidhivinayak Chemtech Private Limited, is engaged in the trade of industrial chemicals relating to the pesticide industry. The petitioner has two principal places of business. One in the State of Uttar Pradesh and the other in Haryana.
• On 20.05.2022, a summons under Section 70 of the Central Goods and Service Tax Act, 2017 was issued to the petitioner alleging fraudulent use of Input Tax Credit (ITC) of ₹36.6 crores by M/s Best Crop Science LLP and M/s Best Crop Science Pvt. Ltd. And its bank accounts are provisionally attached

Issue – 

• Whether the Respondent No. 1 can provisionally attach bank accounts?

Order – 

• The Divisional Bench of Hon’ble High Court observed that the assets of a person falling under Sub-section (1A) of Section 122 of the CGST Act can be attached only by a Commissioner who exercises jurisdiction in respect of the said taxable person.
• There must be a live nexus between the reasons for provisionally attaching assets and bank accounts and the material available with the Commissioner. Merely because there was some material (although disputed) to indicate that one of the directors of the petitioner was an employee of another company cannot be the basis to believe that the petitioner company is a dummy company given the material as provided.
• The language of Section 83 of the CGST Act requires the Commissioner to form an opinion that it is necessary to attach the property of a taxable person. However, the said opinion is required to be based on relevant facts and not merely on grounds of suspicion. It is difficult to imagine that a company would survive if its bank accounts are frozen for a protracted period of time. Thus, the nature of the power makes it necessary that the same is exercised with due caution and only when it is necessary.
• Mere suspicion that the petitioner is a dummy company, which is founded on the basis of statements that one of the directors of the petitioner company was, or is an employee of M/s Best Agrolife Group, and is in complete disregard of the corporate documents of the petitioner, would clearly fall foul of the requirement of forming an opinion, as it does not meet the standards required for taking an action under Section 83 of the CGST Act.
• The attachment order is set aside. It is, however, clarified that the concerned authorities are not precluded from proceeding against the petitioner.