XYZ Ltd., a multinational conglomerate operating across various sectors, faces a critical decision regarding a strategic partnership proposal with a promising tech start-up. With 12 directors on the board, the urgency of

CS Professional · Drafting, Pleadings and Appearances · PYQS · June 2024
XYZ Ltd., a multinational conglomerate operating across various sectors, faces a critical decision regarding a strategic partnership proposal with a promising tech start-up. With 12 directors on the board, the urgency of the matter, coupled with the diverse locations of its board members, poses a challenge in convening an in-person meeting. Consequently, the company seeks an alternative method to pass the resolution. W acted as a director on the Board of Directors of XYZ Ltd. between 2016 and 2018. He is also a shareholder in the said company, owning approximately 25.66% equity shares, and drew a salary of ₹ 2.50 lakh per month. The Commissioner of Central Goods and Service Taxes, based on the information received indicating that XYZ Ltd. was availing Input Tax Credit (ITC) against fake/ineligible invoices, commenced an investigation under section 67 of the Central Goods and Services Tax Act, 2017, against XYZ Ltd. W, as per the commissioner's statement, admitted to the fact that he had acted as a director of the company between 2016 and 2018, and since then, he has been working in the company in the capacity of a mentor/advisor. Furthermore, W also stated to the CGST Department that, in his capacity as the mentor/advisor to the company, he received ₹ 30 Lakh in the concerned FY i.e., 2019-2020, from the company. According to W, this money was given as he had been providing "strategic guidance" to the Company. The bank accounts of W have also been attached to the CGST Department. XYZ Ltd. enters into a contract with B, a logistics provides, to deliver a shipment of newly manufactured electronic gadgets to various retail stores across the country. The contract specifies a delivery deadline crucial for the upcoming Deepawali season sales. However, due to B's negligence, the delivery is delayed by two weeks, causing significant financial losses to XYZ Ltd. As a result of the delay, XYZ Ltd. misses the peak sales window, leading to decreased revenue and tarnished brand reputation. The company is contemplating seeking legal remedy for the loss caused. The Ministry of Road Transport and Highways of India has announced a significant infrastructure project for the construction of Megha Highway. This highway project aims to connect various cities and towns, boosting transportation and economic development in the region. To execute this project, the ministry has initiated a tendering process inviting bids from qualified construction firms. XYZ Ltd., which is also engaged in construction activity, is contemplating participating in the tendering process for construction of the Megha Highway. As a major player in the construction industry, XYZ Ltd. sees this project as lucrative opportunity to showcase its expertise, expand its portfolio, and contribute to the nation's infrastructure development. XYZ Ltd. wants to enter into e-contracts across the country for the sale of their various products. The company's counsel is considering the fact that conventional contract law may not be sufficient to address all the issues arising in electronic contracts. The Information Technology Act (IT Act) addresses some of the peculiar issues arises in the formation and authentication of electronic contracts. The Indian Evidence Act, 1872, deals with the presumption as to e-records, providing electronic records as evidence in disputed matters (Sections: 85A, 85B, 88A, 85C). Based on the facts of above case study, answer following questions : W has approached you to seek your opinion on the matter of attaching his bank accounts. Write an opinion.

Answer & Explanation:

Date: ............ On the basis of the reference received from W, the following question has been framed for legal opinion: Question: Whether the attachment of Bank Account of director is sustainable merely on the ground of allegation against Company. 1. Section 83 of the Central Goods and Services Act, 2017. 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. or Alternate paragraph to above paragraph (1) Where, after the initiation of any proceeding under Chapter XII, Chapter XIV or Chapter XV, 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 or any person specified in sub-section (1A) of section 122, 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). (2) The Delhi High Court in the case of Roshni Sana Jaiswal v. Commissioner of Central Taxes GST Delhi (East) W.P.(C) NO. 2348 OF 2021 CM NO. 6860 OF 2021 has inter alia decided as under: The petitioner claimed, in her voluntary statement, that she was paid ₹ 1.50 crores in the FY 2019-2020 for rendering services in her capacity as a mentor/advisor to Milkfood Ltd. Therefore, even if we assume, for the moment, that, since investigations are on against the taxable person, and therefore, proceedings are pending under section 67 of the Act, there is nothing placed on record to show that there was material available with the respondent, linking the petitioner to purported fake invoices. In other words, in the absence of such material, the impugned action concerning provisional attachment of the petitioner's bank accounts, which is otherwise a "draconian" step, was unsustainable. In the zeal to protect the interest of the revenue, the respondent cannot attach any and every property, including bank accounts of persons, other than the taxable person. Analysis In view the above quoted provisions and the case decided by the Hon'ble High Court of Delhi, attachment of the petitioner's bank accounts may be unsustainable. Disclaimer: The opinions expressed herein are given to you solely for your use and may not be relied upon by any other person or entity or for any purpose whatsoever without our prior written consent. The opinions herein are provided as legal opinions only, and not as representations of fact. The opinions expressed herein are as of the date of this letter and we have no obligation to update these opinions for any period following the date of this letter. I advice accordingly. Sincerely yours, (P) (Name & Signature)

Topics: Goods and Services Tax (GST)

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