Facts of the Case

The petitioner, R Enterprises, approached the Delhi High Court challenging the communication dated 06.12.2022 issued under Section 83 of the Central Goods and Services Tax Act, 2017, whereby its bank account maintained with ICICI Bank was provisionally attached (frozen). The petitioner contended that its bank account had already become inoperative from 05.11.2021 without any explanation from the bank, preventing it from carrying on its business. Subsequently, the impugned communication disclosed that the attachment was ordered on the ground that the petitioner was allegedly non-existent and had failed to respond to summons issued under Section 70 of the CGST Act.

Issues Involved

  1. Whether provisional attachment of a bank account under Section 83 of the CGST Act can extend beyond the amount involved in the alleged tax liability.
  2. Whether the petitioner was entitled to know the reasons for freezing of its bank account prior to the issuance of the provisional attachment order.
  3. Whether the provisional attachment was justified in the facts of the case.

Petitioner’s Arguments

  • The petitioner submitted that its bank account had been frozen since 05.11.2021 without any communication or justification.
  • Despite repeated requests, neither the bank nor the authorities disclosed the reasons for restricting operations of the account.
  • The petitioner argued that the attachment should not prevent it from operating the account beyond the amount allegedly involved in the investigation.
  • It was further submitted that the attachment order should be interpreted as freezing the account only to the extent of the alleged GST refund of ₹2.4 crore.

Respondent’s Arguments

  • The GST Department submitted that the impugned communication was a provisional attachment order issued under Section 83 of the CGST Act.
  • It stated that summons under Section 70 had been issued to the petitioner, but the petitioner failed to appear.
  • The Department informed the Court that information received from DGGI, Ghaziabad indicated that the petitioner was one of the entities suspected of fraudulent availment of GST benefits.
  • It was further submitted that the petitioner had allegedly availed GST refund amounting to approximately ₹2.4 crore, which was under investigation.

Court Order / Findings

The Delhi High Court observed that the power under Section 83 of the CGST Act permits provisional attachment only for protecting Government revenue during specified proceedings. Since the alleged GST refund under investigation was ₹2.4 crore, the authorities could not justify freezing the petitioner's bank account beyond that amount.

The Court accepted the petitioner's submission that the attachment order should be read as restricting withdrawal only to the extent necessary to maintain a balance of ₹2.4 crore in the account. Accordingly, the petitioner was permitted to operate the bank account for any amount exceeding the minimum balance of ₹2.4 crore.

The Court also recorded the statement of the GST Department that no communication had been issued to ICICI Bank prior to 06.12.2022 directing freezing of the account. Consequently, the petitioner could not attribute the earlier freezing of the account to the GST authorities.

Further, the Court directed ICICI Bank to disclose to the petitioner the reasons for freezing the account prior to the issuance of the provisional attachment order and expected the Department to complete the investigation expeditiously. The writ petition was disposed of while reserving all legal remedies available to the petitioner.

Important Clarification

  • Provisional attachment under Section 83 of the CGST Act must remain proportionate to the alleged tax exposure.
  • A taxpayer cannot be deprived of operating its bank account beyond the amount required to safeguard the Government's revenue.
  • If a bank freezes an account independently before issuance of a statutory attachment order, the account holder is entitled to seek reasons directly from the bank.
  • The judgment reinforces that powers under Section 83 should not be exercised in an excessive or arbitrary manner.

Section Involved

  • Section 83 – Provisional Attachment to Protect Revenue (CGST Act, 2017)
  • Section 70 – Power to Summon Persons to Give Evidence and Produce Documents (CGST Act, 2017)

Link to download the order - https://www.mytaxexpert.co.in/uploads/1782889154_102compressed.pdf

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