Facts of the Case

The batch of petitions involved a common thread of facts and an identical legal issue concerning the provisional attachment of bank accounts under Section 83 of the CGST Act, 2017. Accordingly, the Gujarat High Court considered all the petitions simultaneously and disposed of them by a common oral order.

In the representative matter, Panaqua Tradecom Private Limited vs Union of India, the petitioner challenged orders dated 11 March 2021 and 12 October 2021, passed by the Commissioner of CGST and Central Excise, Ahmedabad in FORM GST DRC-22, whereby bank accounts maintained with concerned banks were attached.

The petitioners sought setting aside of the attachment orders, cancellation of the impugned action and release of the attached bank accounts. They also questioned the rejection of their representations seeking defreezing of the bank accounts.

Across the connected petitions, a total of nine bank accounts had been provisionally attached. During the hearing, the respondents fairly admitted that the statutory period of one year had expired in respect of seven out of the nine bank accounts. Consequently, under Section 83 of the CGST Act, the provisional attachments of those seven accounts had ceased to have effect. In respect of the remaining two bank accounts, fresh provisional attachment orders had been passed.

The petitioners also produced an e-mail communication dated 19 October 2022 issued by the competent authority of the Preventive Section, CGST, Gandhinagar. The communication confirmed that the provisional attachment in respect of seven bank accounts had ceased after expiry of one year. The High Court took this communication on record.

Importantly, the table reproduced on page 3 of the judgment identified seven affected bank accounts relating to Mavaiya Enterprises Private Limited, Asterpetal Trade & Services Private Limited, Manmish Traders Private Limited and Panaqua Tradecom Private Limited, along with the concerned banks and account balances. The communication further recorded that the relevant DRC-22 had been issued on 8 October 2021 and that the attachments had ceased to have effect after expiry of one year.

Issues Involved

The principal issues before the High Court were:

  1. Whether a provisional attachment of a bank account under Section 83 of the CGST Act, 2017 can continue after expiry of the statutory period of one year.
  2. Whether, by operation of Section 83(2), the provisional attachment automatically ceases to have effect upon expiry of one year from the date of the attachment order.
  3. Whether the GST authorities are required to intimate the concerned banks after the provisional attachment has ceased to operate so that the taxpayers can resume operation of their bank accounts.
  4. Whether fresh provisional attachment orders relating to certain bank accounts create a separate and fresh cause of action available to be challenged in accordance with law.

Petitioner’s Arguments

The petitioners contended that their bank accounts had been provisionally attached by the GST authorities in exercise of powers under Section 83 of the CGST Act, 2017.

They argued that the statutory life of the provisional attachment had already expired because the period of one year contemplated under Section 83(2) had elapsed. Therefore, continuation of restrictions over the bank accounts was legally unsustainable.

The petitioners relied upon the official e-mail communication dated 19 October 2022, which itself acknowledged that the provisional attachments had ceased to have effect upon expiry of one year.

A specific grievance was raised that, notwithstanding expiry of the statutory period, the concerned banks had not been duly intimated regarding cessation of the provisional attachment. As a practical consequence, the petitioners remained unable to operate their bank accounts even though the attachments had ceased in law.

Respondent’s Arguments

The respondents fairly admitted before the High Court that the period of one year had expired in relation to seven of the nine provisionally attached bank accounts.

The respondents acknowledged that, as contemplated under Section 83 of the CGST Act, the provisional attachment of those seven bank accounts had ceased to have effect.

The respondents further stated that, in respect of the remaining two bank accounts, fresh orders of provisional attachment had been passed.

In response to the grievance that the banks had not yet been informed, counsel for the respondents stated that the authorities would intimate the concerned banks so as to enable operation of the bank accounts by the petitioners within one week from the date of the High Court’s order.

Court Order / Findings

The Gujarat High Court recorded that the one-year period had expired in respect of seven bank accounts and, therefore, as contemplated under Section 83 of the CGST Act, 2017, the provisional attachments had ceased to have effect.

The Court took on record the official communication dated 19 October 2022 from the Preventive Section, CGST, Gandhinagar, which fortified the position that the provisional attachments had ceased after expiry of the statutory period.

The Court also recorded the statement made on behalf of the respondents that the authorities would intimate the concerned banks within one week so as to enable the petitioners to operate their bank accounts.

With respect to the two bank accounts for which fresh provisional attachment orders had been passed, the High Court observed that such fresh orders would give rise to a fresh cause of action in accordance with law.

Accordingly, all the petitions were disposed of in terms of the observations and directions contained in the order, and the notices in each petition were discharged subject to those directions.

Important Clarification

This judgment makes an important distinction between:

(a) expiry of an existing provisional attachment, and
(b) issuance of a fresh provisional attachment order.

For the seven bank accounts where the original attachment period had completed one year, the provisional attachment ceased to have effect under Section 83(2) of the CGST Act, 2017.

However, where fresh provisional attachment orders had been issued for two bank accounts, the High Court did not adjudicate the legality of those fresh orders in the disposed petitions. Instead, it clarified that such fresh orders would create a fresh cause of action, which could be dealt with in accordance with law.

Another significant practical clarification is that mere statutory cessation of attachment may not immediately restore actual banking operations unless the GST authorities communicate the cessation to the concerned banks. The Court therefore recorded the respondents’ statement that the banks would be intimated within one week.

Sections / Provisions Involved

Section 83 of the Central Goods and Services Tax Act, 2017 – Power relating to provisional attachment for protection of government revenue.

Section 83(2) of the CGST Act, 2017 – The central provision involved in the dispute, under which a provisional attachment ceases to have effect after expiry of one year from the date of the order made under Section 83(1).

FORM GST DRC-22 – Form associated with the provisional attachment action challenged in the petitions.

FORM GST DRC-01A – Referred to in the departmental communication reproduced in the judgment.

CBIC Guidelines dated 23 February 2021 – Paragraph 3.5 was referred to in the official communication concerning cessation of provisional attachment after expiry of one year.

Link to download the order -https://www.mytaxexpert.co.in/uploads/1783419615_1376compressed.pdf

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