Facts of the Case

The batch of petitions before the Gujarat High Court involved a common thread of facts and an identical legal issue concerning the provisional attachment of bank accounts by the GST authorities in exercise of powers under Section 83 of the Central Goods and Services Tax Act, 2017.

Taking Special Civil Application No. 6853 of 2022 as the representative matter, 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 the petitioner’s bank accounts maintained with the concerned banks were provisionally attached.

The petitioner sought, inter alia:

  • setting aside of the provisional attachment orders;
  • cancellation of the impugned attachment;
  • release and defreezing of the attached bank accounts; and
  • challenge to the rejection of the representation made before the authorities for defreezing the accounts.

The other connected petitions contained substantially similar prayers.

In total, nine bank accounts of the petitioners had been provisionally attached. During the hearing, counsel appearing for the respondents fairly admitted that the statutory period of one year had already expired.

Consequently, as contemplated under Section 83 of the CGST Act, the provisional attachment in respect of seven out of the nine bank accounts had ceased to operate. In respect of the remaining two bank accounts, fresh provisional attachment orders had reportedly 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, since the period of one year had expired, the provisional attachments had ceased to have effect.

Significantly, the communication reproduced in the order recorded that the DRC-22 had been issued on 8 October 2021 and, in view of Section 83(2) of the CGST Act, 2017, the provisional attachments had ceased to have effect after expiry of one year, i.e. from 7 October 2022.

The communication further recorded that investigation had been completed in the cases of certain taxpayers, including Panaqua Tradecom Private Limited, that the taxpayers and concerned persons had appeared pursuant to summons, that FORM GST DRC-01A had been issued and replied to, and that show cause notices had been issued while adjudication remained pending.

The table reproduced on page 3 of the order identified seven affected bank accounts belonging to Mavaiya Enterprises Private Limited, Asterpetal Trade & Services Private Limited, Manmish Traders Private Limited and Panaqua Tradecom Private Limited, together with the respective banks, account particulars and balances/status. The Court took the authority’s communication on record.

Issues Involved

The principal issues arising before the High Court were:

  1. Whether a provisional attachment of bank accounts made under Section 83 of the CGST Act can continue after expiry of one year from the date of the attachment order.
  2. Whether the provisional attachment automatically ceases to have effect upon expiry of the statutory one-year period contemplated under Section 83(2) of the CGST Act.
  3. Whether the GST authorities are required to communicate cessation of the attachment to the concerned banks so that taxpayers can resume operation of their bank accounts.
  4. Whether the grievance of the petitioners survives once the statutory period of provisional attachment has expired.
  5. What is the legal effect of fresh provisional attachment orders passed in respect of certain bank accounts after the earlier attachment has ceased to operate.

Petitioner’s Arguments

The petitioners’ principal grievance was that their bank accounts had been provisionally attached by the GST authorities under Section 83 of the CGST Act, thereby restricting operation of the accounts.

The petitioners challenged the attachment orders issued in FORM GST DRC-22 and sought release of the attached bank accounts.

It was further pointed out that representations had been made before the authorities seeking defreezing of the bank accounts, but the request had been rejected.

During the hearing, the petitioners relied upon the communication dated 19 October 2022 from the competent authority of the Preventive Section, CGST Gandhinagar. This communication itself confirmed that the one-year period had expired and that the provisional attachments had ceased to have effect.

The petitioners specifically raised the grievance that, despite expiry of the one-year period, the concerned banks had not been duly intimated regarding cessation of the provisional attachment. As a result, the practical restriction on operation of the bank accounts continued even though the attachment had legally ceased to have effect.

Respondent’s Arguments / Stand

The learned advocate appearing for the respondents fairly admitted before the High Court that the period of one year had expired.

The respondents accepted that, in accordance with the statutory scheme of Section 83 of the CGST Act, the provisional attachment in respect of seven out of nine bank accounts had ceased to have effect.

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

When the petitioners complained that the banks had not yet been informed about cessation of the earlier attachment, counsel for the respondents stated before the Court that the authorities would intimate the concerned banks within one week so as to enable the petitioners to operate their bank accounts.

Court Order / Findings

The Gujarat High Court disposed of all the connected petitions by recording and acting upon the statutory consequence of expiry of the one-year period.

The Court’s material findings and directions were as follows:

  • The respondents admitted that the one-year period was over.
  • In view of the statutory framework under Section 83 of the CGST Act, the provisional attachment concerning seven out of nine bank accounts had ceased to have effect.
  • Therefore, the petitioners’ grievance concerning those seven bank accounts did not survive in the same manner.
  • The Court took on record the e-mail communication dated 19 October 2022 from the competent GST authority confirming cessation of the attachment.
  • The respondents stated that the authorities would intimate the concerned banks within one week from the date of the Court’s order, thereby enabling operation of the bank accounts by the petitioners.
  • As regards the two bank accounts subjected to fresh provisional attachment orders, the Court observed that such fresh orders would give rise to a fresh cause of action in accordance with law.
  • All petitions were accordingly disposed of in terms of the observations and directions recorded by the Court.
  • Notices in each petition were discharged subject to the above directions.

The operative portion appears on pages 4 and 5 of the order, where the respondents’ undertaking regarding communication to the banks within one week and the Court’s observation concerning a fresh cause of action against new attachment orders are specifically recorded.

Important Clarification

This order is particularly important for understanding the statutory life of a provisional attachment under the CGST Act.

1. Provisional Attachment Cannot Continue Indefinitely

A provisional attachment under Section 83 is temporary in nature. Once the statutory period prescribed under Section 83(2) expires, the attachment ceases to have effect.

2. Cessation After One Year Operates by Statutory Consequence

The case demonstrates that expiry of the one-year period is not merely an administrative consideration. The provisional attachment itself ceases to have effect under the statutory framework.

In the present case, the authority’s own communication acknowledged that the DRC-22 was issued on 8 October 2021 and that the attachment ceased after expiry of one year, i.e. from 7 October 2022.

3. Banks Must Be Informed to Give Practical Effect to Cessation

A significant practical issue highlighted in the case was that, even after the attachment had ceased legally, the petitioners complained that the banks had not been informed.

The respondents therefore stated that the concerned banks would be intimated within one week, enabling the petitioners to operate their accounts.

This aspect is important because statutory cessation of attachment must be practically implemented so that the taxpayer is not deprived of access to the bank account merely due to absence or delay of communication to the bank.

4. Fresh Attachment Order Creates a Fresh Cause of Action

The Court clearly distinguished between:

  • an earlier provisional attachment that had ceased after expiry of the statutory period; and
  • a fresh provisional attachment order subsequently passed in respect of certain accounts.

The Court observed that a fresh attachment order would give rise to a fresh cause of action in accordance with law. Therefore, the legality of a new attachment must be considered independently and may be challenged through appropriate legal proceedings.

5. Pending Adjudication Does Not Automatically Extend an Expired Attachment

The authority’s communication recorded that investigation had been completed in certain cases, DRC-01A had been issued and replied to, show cause notices had been issued, and adjudication was pending. Nevertheless, the communication acknowledged that the provisional attachments had ceased after expiry of one year.

This is an important factual and legal clarification emerging from the order: the mere pendency of adjudication did not, on the facts recorded in this matter, keep the old provisional attachment alive beyond its statutory duration.

Sections and Provisions Involved

Section 83 of the Central Goods and Services Tax Act, 2017
Deals with provisional attachment for protection of government revenue, subject to statutory conditions.

Section 83(2) of the CGST Act, 2017
Relevant to the duration of provisional attachment. The case proceeded on the basis that the provisional attachment ceased to have effect after expiry of one year from the date of the attachment order.

FORM GST DRC-22
The prescribed form used in connection with provisional attachment of property, including bank accounts.

FORM GST DRC-01A
The order records that DRC-01A had been issued in certain matters and duly replied to by the taxpayers.

Link to download the order -https://www.mytaxexpert.co.in/uploads/1783489320_1379compressed.pdf

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