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The Supreme Court on Tuesday said the rule of law in a constitutional framework is fulfilled when law is substantively fair, procedurally fair and applied in a fair manner, as it held that the power to order a provisional attachment of property, including a bank account, of a taxable person, under the GST law is "draconian in nature".

The top court emphasised that this power of attachment can't be used as an "unguided discretion" by the authorities.

A bench of Justices D.Y. Chandrachud and M.R. Shah said: "The power to order a provisional attachment of the property of the taxable person including a bank account is draconian in nature and the conditions which are prescribed by the statute for a valid exercise of the power must be strictly fulfilled."

The bench noted a provisional attachment under Section 83 is contemplated during the pendency of certain proceedings, meaning thereby that a final demand or liability is yet to be crystallised. "An anticipatory attachment of this nature must strictly conform to the requirements, both substantive and procedural, embodied in the statute and the rules," said the bench.

In the 61-page judgement, the bench observed the formation of the opinion must be based on tangible material which indicates a live link to the necessity to order a provisional attachment to protect the interest of the government revenue. "The commissioner must be alive to the fact that such provisions are not intended to make pre-emptive strikes on the property of the assessee, merely because property is available," the bench said.

The top court allowed an appeal by Radha Krishna Industries, challenging the Himachal Pradesh High Court order of January 1, 2021. The High Court had dismissed its plea against the order for provisional attachment of properties under the Himachal Pradesh Goods and Service Tax Act, 2017 for tax liability of Rs 5.03 crore.

The top court stressed: "The exercise of unguided discretion cannot be permissible because it will leave citizens and their legitimate business activities to the peril of arbitrary power. Each of these ingredients must be strictly applied before a provisional attachment on the property of an assesses can be levied."

The bench noted that the High Court erred in dismissing the writ petition on the ground that it was not maintainable. "In the facts of the present case, there was a clear non-application of mind by the Joint Commissioner to the provisions of Section 83, rendering the provisional attachment illegal," noted the bench.

The bench said the Commissioner was clearly misconceived in law in coming into conclusion that he had a discretion on whether or not to grant an opportunity of being heard. "The Commissioner is duty bound to deal with the objections to the attachment by passing a reasoned order which must be communicated to the taxable person whose property is attached," said the bench.