|
CGST Act |
Sec 83 r/w 90 |
CGST Rule |
— |
There is a substantial difference between the circumstances for invoking proceedings for ‘recovery’ and ‘provisional attachment’. The former proceedings are instituted if there is a confirmed demand against the taxable person, and later proceedings are instituted prior thereto. Further, the expression “taxable person” is clearly defined in the law. It means only that person who is registered under the Act i.e., person who is supplying the goods or services or both. Provisional attachment u/s 83 can only be made against a taxable person whereas recovery of confirmed dues under the Act can also be made from the partner of a LLP.
Appreciating the above reasoning, Hon’ble Gujarat High Court quashed the order for provisional attachment of assets belonging to partner of a LLP. The court also quashed the order for attachment of stock and debtors of the firm. Read about the case [Utkarsh Ispat LLP Versus State of Gujarat (2022)] below:
Facts of the Case
- Search proceedings were undertaken on the allegation of availing input tax credit based on fake invoices received from fictitious firms at the premises of LLP as well as premises of one of its partners.
- Respondents provisionally attached:
2.1. Factory premises
2.2. Plant & Machinery
2.3. Bank Accounts including FD
2.4. Stock and Sundry Debtors
2.5. Immovable property of one of partners
Observations of the Court
- A partner of an LLP is not a taxable person. It is the LLP i.e. the partnership firm who is a “taxable person”.
4. The liability of the firm is yet to be determined. There has been no assessment so far as the liability of the firm is concerned. The day such liability is determined and fixed, it is open for the department to proceed not only against the firm as a taxable person, but also against individual partner of the firm.
5. As far as possible, the authority should ensure that the attachment does not hamper the normal activities of the taxable person. It has been clarified that the raw materials and input required for the production or finished goods should not normally be attached by the department.
6. We do not approve the provisional attachment of the goods, stock and receivables, more particularly, when the entire stock and receivables have been pledged and a floating charge has been created in favour of the Kalupur Commercial Bank Limited for the purpose of availing the cash credit facility with the provisional attachment of the goods, stock and receivables the entire business will come to a standstill.
Paksh Remarks
- The difference between the circumstances for invoking proceedings for provisional attachment, and for recovery have been rightly appreciated by the Court.
- Even in the case of confirmed demands, the personal assets of the partner / director of a LLP / Company shall not be attached unless they are given an opportunity to prove that non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of firm/company.