By - Palash Soni
(ADVOCATE AT S.K. SONI & CO. (ADVOCATES & TAX
PRACTITIONERS), Raipur, Chhattisgarh)
Source - The Economic Times
Payment by third parties in case of default:
GST has almost completed four years, the discussion for the attachment of property in relation to recovery of tax from a third-person becomes more important. As many of us as tax professionals may have at least once received attachment notice under Section 83 of the CGST Act 2017 or notice of recovery from a third-person under Section 79 (1) (C) (i). It has become a practice of the GST department to question even genuine transactions. Though the two recovery modes as specified above are different and requires an analysis in this aspect.
Recovery: When and Why?
Officers under GST have far-reaching powers in recovery proceedings. By recovery proceedings, an officer may on his own motion initiate the proceedings to recover an amount that forms part of demand. In other words, when an amount due is not paid, the extent of the unpaid amount may be recovered by the proper officer through recovery proceedings. Though the powers may sound harsh and draconian, the same are for the protection of revenue.
It is to be noted that, a recovery proceeding can only be initiated on the grounds where there is already a demand to that extent.
Section 83 reads as:
Provisional attachment to protect revenue in certain cases.— (1) 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, 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.
(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).
Section 83 on the other hand talks about the provisional attachment to protect revenue in certain cases. Under this section, the proper officer may attach any property belonging to the registered person whereby any proceedings under sections 62 or 63 or 64 or 67 or 73 or 74 are due and the attachment will be valid only for a period of one year.
Contentions & Observations:
The above-specified provisions clarify the attachment of property and the property that may be attached. For the purpose of this article, only a Bank account is taken into consideration. So, a bank account may be attached accordingly if the proper officer is of the opinion that it is necessary for the protection of interest of revenue. But these powers are draconian and has to be exercised with due care and only when no other option is left with the officer. The same has been confirmed by the Supreme court in the case of M/S. Radha Krishan industries vs State of H.P, [CIVIL APPEAL NO. 1155 OF 2021] also by the Gujrat High courts many times. Although the same has been decided in the favour of assessee by the Hon’ble courts, the officers even then may attach the bank accounts or may order the bank U/S. 79 to pay the amount due.
Let us consider a situation where the officer has issued DRC-13 to the bank of the taxpayer. In this aspect, when the bank receives the notice being a third party, it treats the notice as an attachment of property without being aware of the provisions of the CGST Act 2017. The unfairness of the same starts then and there when the same is treated as an attachment by the bank. This is one of the practical situations faced by us.
The observations made in this regard are as follows:
1. The taxpayer is issued notice as he did not file FORM GSTR-3B. FORM GSTR-3B is a summary return to claim the input tax credit and pay taxes thereof according to section 39 of the CGST Act.
2. The bank terms the notice issued to them U/S 79 read with Rule 145 as an attachment and suspends all the transactions taking place thereof.
3. The bank denies the taxpayer to make any transactions thereof. Also, the taxpayer is ready to settle the amount and pay the taxes due to the government but the bank disallowed the payment nor is the bank paying the amount to the government.
4. The bank balance is the amount available to the taxpayer to pay the taxes thereof.
Now, a question arises what to do next if no payment is being made to the government by the bank nor is the bank allowing the taxpayer to discharge the liabilities thereof. One of the options left with the taxpayer is to approach the officer to allow the particular payment to be made through the bank and the amount be settled thereof. Further what to do if the officer is also not allowing the same. The same causes a dilemmatic situation and unnecessary harassment are caused to the taxpayer. The taxpayer is ready to pay the amount and settle the dues but he is not able to as the bank is not allowing the payment though it is for the GST.
What to do next?
The demand for payment by a third party in DRC-13 by the officer to a bank may be given for recovery due to any of the situations as specified under the CGST/ SGST Act 2017, but the situations as specified as above are some of the practical issues faced during the course of proceedings. The possible solutions for the situation are as under.
As analyzed above in all the situations one thing is clear that the taxpayer is unable to make the payment, the following can be done in the due course:
1. Bank should make the payment- The taxpayer can accordingly ask the bank to release the payment either to the GST department or allow the taxpayer to make the payment in the due course. A NEFT challan is created duly by the taxpayer and a cheque be made by the taxpayer specifying ‘Yourself for GST’ and the same be deposited to the concerned bank.
2. Bank disallowed the payment- Now if taking into consideration the above-mentioned point, if the bank does not allow for payment to be made, one thing to be done is to request the proper officer to allow the bank to disburse the payment for GST payment accordingly. Let us further elaborate on another issue where the officer does not allow the same to be paid.
3. Officer rejected the claim: If the officer does not allow the payment to be made through the bank then the taxpayer is left with the option of filing a writ before the concerned High court of the State. In this case, a writ of mandamus or any other writ may suffice.
4. Bank guarantee- Another option is to furnish a bank guarantee with the officer so as to allow the payment.
In this regard, the bank deems the notice as an attachment of property. But in the due course, the bare reading of Section 79 read with Rule 145 of CGST Act 2017 makes it clear that the bank is left with these options:
1. To pay the amount due or the amount specified in the DRC-13 issued to them.
2. Allow the taxpayer to pay the amount if the NEFT challan as specified above is paid to the GST.
3. Pay the amount as specified in the DRC-13 and accordingly receive DRC-14 for the payment confirmation. After this, another issue may arise that in GSTR-3B for which the payments are due how should the taxpayer file GSTR-3B, to this one solution arises in the due course that the GSTR-1 be filed declaring the actual sale figures and the GSTR-3B be filed as NIL till the period for which the payment is made by the bank as per DRC-13. Though there may be a liability mismatch between GSTR-1 GSTR-3B, but the same is justifiable. Even if the GSTR-3B is filed taking the sale figures correctly or if the same is not filed as NIL and the taxes are paid more, in this situation a refund may be applied accordingly by the taxpayer.
By the above discussion, it is clear that banks in certain cases term the notice in DRC-13 as an attachment and stop a particular amount to be transacted by the taxpayer. In that case, the taxpayer when willingly tries to pay the taxes thereof is not allowed by the bank to transact the amount. Nor is the taxpayer is given relief by the officer when the officer disallows the payment to be made through the bank and the taxpayer is left with no other option rather than to approach the Hon’ble High court thereof and unnecessary litigation arises.
Palash Soni is a first-year student at JGLS.