Facts of the Case

The petitioner, M/s. Arhaan Ferrous And Non Ferrous Solutions Pvt Ltd, represented by its Director, is engaged in the iron-scrap business and challenged before the Andhra Pradesh High Court the provisional attachment of its bank accounts with ICICI Bank and Axis Bank vide Form GST DRC-22 orders dated 01.04.2022 and 06.04.2022, issued under Section 83 of the AP GST Act, 2017, following a search under Section 67 of the Act on 31.03.2022. The department's case was that three of the petitioner's principal input suppliers — M/s RP Enterprises, M/s AR Traders and M/s AN Traders, from whom about 90% of the petitioner's inward supplies were sourced — were found non-existent at their declared addresses and suspected of passing on fake Input Tax Credit. On 06.06.2023, a revised assessment order under Section 74 of the Act was passed confirming a demand of Rs.21,58,53,496 along with penalties.

Issues Involved

  1. Whether a provisional attachment order under Section 83 of the AP GST Act is valid where it does not itself record reasons for the formation of opinion that attachment is necessary to protect government revenue.
  2. Whether reasons recorded only in an internal note file, and not disclosed in the DRC-22 order, satisfy the statutory requirement.
  3. Whether a subsequently completed investigation and confirmed Section 74 assessment order cures the initial defect in the provisional attachment order.

Petitioner's Arguments

  • The provisional attachment orders recorded no formation of opinion or subjective satisfaction, contrary to the mandatory requirement of Section 83 of the Act.
  • As on the date of attachment, no proceedings were pending under Section 67, nor had proceedings been initiated under Section 73 or 74 of the Act.
  • Relied on the Supreme Court's ruling in M/s Radha Krishan Industries vs State of Himachal Pradesh and the Gujarat High Court's ruling in M/s Anjani Impex vs State of Gujarat to argue that unguided discretion under Section 83 is impermissible and exposes assessees to arbitrary action.

Respondent's Arguments

  • The Department contended that valid reasons were recorded in the internal note file before issuing the DRC-22 attachment, in order to protect government revenue, and that no procedural infirmity existed.
  • Investigation subsequently confirmed that 90% of the petitioner's input supplies came from three fake, non-existent firms passing on irregular ITC, culminating in a Section 74 assessment confirming a demand of Rs.21,58,53,496.
  • The petitioner's combined bank balances of about Rs.1.44 crore fell well short of even 10% of the assessed demand, and the petitioner had not approached the Court with clean hands.

Court Order/Findings

  • The Court held that, except for a bare recital that attachment was ordered "to protect the interest of the revenue," the DRC-22 orders recorded no reasons for the formation of opinion, and that reasons recorded only in an internal note file — undisclosed in the order itself — cannot satisfy Section 83, since Rule 159(5) presupposes the assessee's ability to file objections against the attachment.
  • Reasons are the "live-nerve" of any order of a public authority; their absence in the provisional attachment order itself renders the exercise of power under Section 83 unsustainable, regardless of subsequent developments such as completion of investigation or passing of the assessment order.
  • Following Radha Krishan Industries, the Court held that exercise of unguided discretion under Section 83 is impermissible.
  • The provisional attachment orders dated 01.04.2022 and 06.04.2022 in Form GST DRC-22 were set aside; the writ petition was allowed, without costs.

Important Clarification

  • A provisional attachment order under Section 83 of the CGST/SGST Act must itself disclose the reasons/tangible material forming the basis of the opinion that attachment is necessary to protect revenue; reasons recorded only in an internal note file, undisclosed to the assessee, do not satisfy this requirement.
  • A subsequently completed investigation or a confirmed assessment order does not retrospectively cure a provisional attachment order that was defective for want of recorded reasons at the time it was passed.
  • Rule 159(5) presupposes that the assessee knows the reasons for attachment so as to meaningfully file objections; a bare recital of protecting revenue is not sufficient compliance.

Sections Involved

  • Section 83, AP GST Act, 2017 — provisional attachment of property, including bank accounts, to protect government revenue.
  • Section 67, AP GST Act, 2017 — power of inspection, search and seizure.
  • Section 74, AP GST Act, 2017 — determination of tax involving fraud or suppression of facts.
  • Rule 159, CGST/SGST Rules, 2017 — procedure for provisional attachment, including filing of objections.

Decision – In Favour of

The decision is in favour of the Assessee. The Andhra Pradesh High Court set aside the provisional bank attachment orders issued under Section 83 for want of recorded reasons, even though a subsequent Section 74 assessment order had confirmed a substantial demand of over Rs.21.58 crore against the petitioner.

Related Case Laws

No directly on-point case notes are currently published on this site.

Case Details

  • Court: High Court of Andhra Pradesh, Amaravati
  • Case No.: Writ Petition No. 12360 of 2022
  • CNR: Not available on record
  • Coram: Hon'ble Sri Justice U. Durga Prasad Rao and Hon'ble Smt Justice Venkata Jyothirmai Pratapa
  • Decision Date: 27 December 2023
  • Disposal Nature: Allowed; provisional bank attachment orders set aside

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