Facts of the Case

The batch of petitions involved a common factual background 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 CGST Act, 2017.

In the lead 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 the concerned banks were provisionally attached.

The petitioners sought, inter alia:

  • setting aside of the provisional attachment orders;
  • cancellation of the impugned attachment action;
  • release and defreezing of the attached bank accounts; and
  • relief against the rejection of their representations seeking defreezing of the 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 relation to seven out of the nine bank accounts. Consequently, in view of Section 83 of the CGST Act, the provisional attachment concerning those seven accounts had ceased to operate.

The judgment records an e-mail communication dated 19 October 2022 from the competent authority of the Preventive Section, CGST Gandhinagar, confirming that the provisional attachments had ceased to have effect after expiry of one year. The communication further stated that the authorities were in the process of intimating the concerned banks with approval of the competent authority.

The detailed 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.

Issues Involved

The principal issues before the High Court were:

  1. Whether a provisional attachment of bank accounts under Section 83 of the CGST Act can continue beyond the statutory period of one year.
  2. Whether such provisional attachment automatically ceases to have effect upon expiry of one year in terms of Section 83(2) of the CGST Act.
  3. Whether the GST authorities are required to intimate the concerned banks after expiry of the statutory attachment period so that taxpayers can resume operation of their bank accounts.
  4. Whether the petitioners could continue to remain deprived of access to their bank accounts merely because formal communication regarding cessation of attachment had not yet reached the banks.
  5. What would be the legal position concerning two bank accounts in respect of which fresh provisional attachment orders had been passed.

Petitioners’ Arguments

The petitioners challenged the continued freezing and provisional attachment of their bank accounts under Section 83 of the CGST Act.

Their principal grievance was that:

  • the statutory period of one year had already expired;
  • notwithstanding such expiry, the concerned banks had not been effectively informed about cessation of the provisional attachment;
  • as a result, the petitioners continued to face restrictions in operating their bank accounts even though the original provisional attachments had ceased to have statutory effect; and
  • the authorities should therefore be directed to communicate with the banks and ensure release and operation of the accounts.

The petitioners specifically highlighted that expiry of the statutory period should result in effective restoration of access to the bank accounts and should not remain merely a technical cessation on paper.

Respondents’ Arguments

The respondents fairly admitted before the High Court that the period of one year had expired in respect of seven out 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 also relied upon the communication dated 19 October 2022, which recorded, inter alia, that:

  • the relevant DRC-22 had been issued on 8 October 2021;
  • under Section 83(2) of the CGST Act, the provisional attachments had ceased to have effect upon expiry of one year;
  • the communication treated the attachment as having ceased after the statutory period;
  • investigation had been completed in certain cases;
  • taxpayers and concerned persons had appeared pursuant to summons;
  • FORM GST DRC-01A had been issued and replies had been furnished;
  • show cause notices had been issued in certain cases on 10 October 2022 and 11 October 2022;
  • adjudication remained pending; and
  • reference was also made to paragraph 3.5 of the CBIC Guidelines dated 23 February 2021.

In response to the petitioners’ grievance that 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 accounts within one week from the date of the High Court’s order.

Court Order / Findings

The Gujarat High Court disposed of all the connected petitions with significant observations and directions.

1. Provisional Attachment Ceases After One Year

The Court recorded that the period of one year had expired in respect of seven bank accounts.

Accordingly, as contemplated under Section 83 of the CGST Act, the provisional attachment of those seven accounts had ceased to have effect, and the petitioners’ grievance regarding continuation of those original attachments no longer survived in the same form.

2. Authority’s Communication Taken on Record

The Court took on record the e-mail communication dated 19 October 2022 issued by the competent authority of the Preventive Section, CGST Gandhinagar.

The communication confirmed that the provisional attachments had ceased to have effect upon expiry of one year and that steps were being taken to intimate the banks.

3. Banks to Be Intimated Within One Week

The Court recorded the statement made on behalf of the respondents that the authorities would intimate the concerned banks regarding cessation of the provisional attachments within one week from the date of the order, thereby enabling the petitioners to operate their bank accounts.

4. Fresh Attachment Orders Create Fresh Cause of Action

With respect to the remaining two bank accounts, where fresh provisional attachment orders had reportedly been passed, the Court clarified that such fresh orders would give rise to a fresh cause of action in accordance with law.

5. Petitions Disposed Of

All the petitions were disposed of in terms of the observations and directions recorded by the High Court, and the notices in each petition were discharged subject to those observations.

Important Clarification

This order draws a critical distinction between:

  • the automatic statutory cessation of an existing provisional attachment after expiry of one year; and
  • a fresh provisional attachment order, which may create an independent and fresh cause of action capable of being challenged in accordance with law.

Therefore, the expiry of the original attachment does not mean that a taxpayer is barred from challenging a subsequent fresh attachment. Equally, a fresh attachment cannot simply be treated as a continuation of an expired attachment without considering its independent legal basis and consequences.

A further practical clarification arising from the order is that statutory cessation of attachment must be translated into effective administrative action. Where the bank continues to block an account because it has not received appropriate communication, the concerned authority should intimate the bank so that operation of the account can resume.

Section Involved

Section 83 of the CGST Act, 2017 – Provisional Attachment to Protect Revenue in Certain Cases

Section 83 empowers the competent authority, subject to the statutory conditions, to provisionally attach property, including bank accounts, for protection of government revenue.

Section 83(2) of the CGST Act, 2017

The crucial statutory provision involved in this case is Section 83(2), under which a provisional attachment ceases to have effect after the expiry of one year from the date of the order made under Section 83(1).

The High Court’s order applies this statutory time limitation to the bank account attachments in question.

Link to download the order -https://www.mytaxexpert.co.in/uploads/1783490277_1382compressed.pdf

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