Calcutta High Court Rules Cash-Credit Facility Not Provisionally Attachable in GST

In the case of J. L. Enterprises v. Assistant Commissioner, State Tax [W.P.A. No. 12132 of 2023 dated May 25, 2023], the Hon’ble Calcutta High Court delivered a significant judgment regarding the attachability of cash-credit facilities in Goods and Services Tax (GST) cases. The court held that cash-credit facilities are not considered as debts and, therefore, cannot be subjected to provisional attachment orders.

Summary of the Case:

• M/s. J. L. Enterprises, a partnership firm, was inspected by State Tax Department Officers on March 4, 2023.
• The department issued a show cause notice to the petitioner, alleging false exports and incorrect transactions, including the activation of mobile phones in Indian territory after export, generating e-invoices after goods left India, and lack of e-way bills for purchased goods.
• The show cause notice disallowed input tax credit (ITC) amounting to INR 1,15,92,650 and demanded interest and penalties.
• Subsequently, the department issued FORM DRC-14 to the petitioner’s banker for the provisional attachment of the cash-credit facility under Section 83 of the CGST Act.

Petitioner’s Contention:

• The petitioner challenged the provisional attachment order before the Calcutta High Court, arguing that the cash-credit facility provided by the bank to its customers is not a debt and, therefore, cannot be attached by the Revenue department.

Revenue Department’s Contention:

• The Revenue department contended that the cash-credit facility is a bank account issued by the bank, which the petitioner used for GST payments. They argued that the provisional attachment was justified.

Court’s Ruling:

• The court ruled in favor of the petitioner, stating that cash-credit facilities are not debts and, thus, cannot be provisionally attached.
• The court referred to precedents to support its decision, emphasizing that cash-credit limits provided by banks are facilities for customers to utilize money, rather than debts subject to attachment.
• However, the court acknowledged that the petitioner has an alternative statutory remedy available under Rule 159 Sub-Rule 5.
• The court advised the petitioner to pursue this statutory remedy instead of seeking relief under Article 226 of the Constitution.

Conclusion:

The Calcutta High Court’s judgment in the J. L. Enterprises case clarified that cash-credit facilities are not debts and, therefore, cannot be provisionally attached by the Revenue department. The court highlighted the availability of an alternative statutory remedy and dismissed the writ petition, suggesting the petitioner pursue the available remedy under Rule 159 Sub-Rule 5. This ruling establishes an important precedent regarding the attachability of cash-credit facilities in GST cases.

 This Article is only a knowledge-sharing initiative and is based on the Relevant Provisions as applicable and as per the information existing at the time of the preparation. In no event RMPS & Co. or the Author or any other persons be liable for any direct and indirect result from this Article or any inadvertent omission of the provisions, update etc. if any.

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