The Hindu Business Line : Equity detachment in property attachment

THE Customs Act, 1962 and the Central Excise Act, 1944 contain mechanisms to recover arrears of Customs duties, Central Excise duties and penalties. When such arrears are not paid by the persons concerned, the department is given powers to adopt methods to recover the dues.

One of the methods available is to attach the properties, both movable and immovable, belonging to such persons and sell them.

Recently, the Government introduced the Taxation Laws Amendment Bill 2005 in Parliament to amend certain provisions in the Customs Act and the Central Excise Act relating to attachment of properties for recovery of dues. Clause 20 of the Bill proposes a new Section 28BA to the Customs Act, as per which, when any proceeding is pending by way of a demand notice for recovery of Customs duty under Sections 28 or 28B, then, with the approval of the Commissioner of Customs, a proper officer of Customs can provisionally attach the property belonging to the noticee.

Such provisional attachment will be valid for six months. This can be extended for a further period of a maximum of two years by the Chief Commissioner of Customs. Clause 33 of the above Amendment Bill proposes a similar provision for introducing a new Section 11DDA in the Central Excise Act for provisional attachment of properties in respect of pending proceedings under Section 11A or 11D of the Central Excise Act, for recovery of excise duties.

The Customs and the Central Excise legislation as they are in enforce today already provide for attachment of properties as one of the mechanisms for recovery of the arrears. Section 142 of Customs Act provides for i) adjusting the amounts belonging to the person concerned and which is available with the department for recovery of Customs dues; ii) detaining and selling the goods, belonging to the person concerned and which are under the control of the department and/or iii) issue of certificate for attachment of the movable or immovable property belonging to the person concerned. Attachment of property is the last option provided in Section 142.

Similar provisions are made in Section 11 of the Central Excise Act for recovery of Central Excise dues. However, these provisions relate to recovery of arrears, which are already confirmed as due from the importers and assessees.

The proposed amendments now empower the authorities to order provisional attachment in respect of even pending proceedings.

Powers for provisional attachment of properties are already available to the Settlement Commission established under the Central Excise Act in respect of cases where an assessee applies to the Settlement Commission, accepting duty liability.

In such cases, in terms of Section 32G of Central Excise Act, the Commission is empowered to order provisional attachment for protecting government revenue. For Customs cases, a similar provision is incorporated in Section 127D of the Customs Act.

Thus, as can be seen, the power to provisionally attached properties can be exercised only when an assessee or an importer accepts duty liability and voluntarily goes to the Settlement Commission.

Now, as a departure from this, the Government proposes to grant powers to the authorities to provisionally attach properties, even in respect of pending proceedings.

There are no corresponding provisions in other fiscal laws. Under the Income-Tax Act, a certificate is issued to the Tax Recovery Officer under Section 222 only for recovery of confirmed dues.

Even in respect of the Narcotic Drugs & Psychotropic Substances Act, 1985, forfeiture of property belonging to a person can be ordered only when that person has been convicted in terms of the provisions of that Act or when he has been detained and his detention order has not been revoked by the advisory board or by a court.

Similarly, in the sales tax provisions of several States, provisions exist for attachment of properties only for recovery of confirmed arrears.

The departure in the Customs and excise cases for provisional attachment of properties, even before the proceedings are finalised and confirmation is made that an importer or an assessee is indeed liable to pay certain dues, will have serious repercussions in the functioning of the system. It appears the intention is to ensure that the smart importers and assessees do not dispose of their properties.

But the ill-effects can outweigh the benefits. It can lead, in the absence of effective safeguards, to improper use and application of pressure tactics on gullible importers and assessees.

Besides these, the proposed legislation raises several issues and throws up several questions:

First, in terms of the existing provisions, even for recovery of confirmed arrears, attachment appears as the last option in the relevant Sections.

The present proposal will enable property attachment straightaway ignoring other options, that too, even when arrears have not been confirmed as due.

Second, the proposals enable the authorities to make provisional attachment only when the proceedings are pending. When the proceedings are concluded and an order is issued, what happens to the provisional attachment is not specified. In case, the proceedings are dropped, the proposal does not state that the provisional attachment will be lifted or will cease to have any affect.

Similarly, in case the demand is confirmed after conclusion of the proceedings, whether the attachment will become permanent and whether recovery will be made by disposing of the property is not discussed.

Third, when the provision is silent in this regard, it is likely to result in conflict with the appeal provisions provided in the Customs Act and the Central Excise Act.

Both the pieces of legislation provide for appeals against duty demands and also for seeking waiver of pre-deposit of duties, penalties and so on, pending disposal of such appeals.

The Department also has issued instructions to the field officers that when such appeals along with applications for waiver of pre-deposits are pending before appellate authorities, coercive measures should not be taken to recover the arrears. If provisional attachments continue, then the provisions relating to waiver of pre-deposit of duties and penalties will be effectively nullified.

Fourth, when properties are attached, the person from whose possession such attachment is made will not be able to make use of such property. In the context of the Customs and Central Excise provisions, it is the importers and manufacturers who have duty liabilities. And if their establishments and their factories, including plant and machinery, are attached, then their business and manufacturing operations will come to a standstill. How they will function during the period of provisional attachment is not explained.

Fifth, in terms of the Customs (Attachment Property of Defaulters for Recovery of Government Dues) Rules, 1995, when property is attached, the defaulter will not be competent to mortgage, charge or lease any property except with the written permission of the authorities.

The proposed amendment does not explain as to whether, in respect of provisional attachment of properties, similar restrictions will apply.

It is not uncommon that the department comes up with demands of Customs and excise duties based on audit objections or frivolous issues. Basically, such demands are issued to protect the department from the limitation angle. It is also a fact that a majority of the demands, though confirmed at lower levels, are not sustained in further appeal proceedings.

Therefore, empowering the authorities to go for provisional attachment of properties, both movable and immovable, even when proceedings are pending can lead to improper use of this provision. Under threat of attachment of properties and the stoppage of their operations, the importers and the assessees may be compelled to pay the dues even before completion of the pending proceedings. Thus, when survival and business sense take the centre stage, the real issues will take a backseat.

However, one thing that is certain is that henceforth an importer or assessee cannot take demands issued by the authorities under the Customs Act or the Central Excise Act lightly and sleep over them for months together.

With the threat of provisional attachment of properties hanging over their heads, they have to be alert and on their toes.

(The author is a Chennai-based advocate.)

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