2025 (5) TMI 1342 - HC - GST

Provisional attachment of the petitioner s bank account - Section 83 of the Central Goods Services Tax Act 2017 - Fresh attachment since the initial (previous) attachment order was quashed - failure to render cooperation in the disposal of those show cause proceedings - HELD THAT - Section 83 of the CGST Act mandates that provisional attachment may be exercised in situations where the Commissioner is of the opinion that for the purpose of protecting the interest of Government revenue such an action is necessary so to do . The Supreme Court in Radha Krishnan also recognised the triumvirate conditions embodied in the provision which is that the attachment of property is intended to be provisional i.e. in aid of something else the purpose of such attachment must be to protect the interests of the Revenue and that the conditions as laid down within the provision must be met in order for such attachment to be deemed as a valid exercise of power. The respondents in clear contravention of the requirements laid down in Radha Krishnan 2021 (4) TMI 837 - SUPREME COURT have been unable to demonstrate any reasonable apprehension that the writ petitioner herein was at risk of defaulting on payment of any demands that may come to be imposed. On the contrary the only reasons adduced by the respondents for the initiation of Section 83 proceedings was that the writ petitioner had failed to file any response to the DRC-01 or the SCN did not attend the hearing of the adjudicating authority and allegedly refused to cooperate with the respondents during the adjudication of show cause proceedings - such reasoning abjectly fails to meet the thresholds as engrafted within the provision of the respondents being required to form an opinion that it is necessary to provisionally attach the property so as to protect the interest of government revenue. As observed by the Supreme Court in Radha Krishnan the draconian nature of the provision and the grave consequences that are suffered by a person whose property is provisionally attached necessitates that the criterion for valid initiation of Section 83 actions are met. This requires the production of cogent and credible material basis which the respondents could have reasonably come to form an opinion that a provisional attachment is necessary and essential for the purposes of securing the interests of government revenue. It surely cannot be justified on the basis of vague apprehensions or a failure to cooperate or provide responses to notices. Conclusion - The respondents exercise of power under Section 83 was without the requisite formation of opinion based on tangible material was arbitrary and violated statutory and constitutional principles. The attachment was therefore quashed and directions were issued for the immediate de-freezing of the petitioner s bank account. The impugned order of provisional attachment dated 26 December 2024 set aside - petition allowed.

Summary

The core legal questions considered in this judgment revolve around the validity and legality of the provisional attachment of the petitioner's bank account under Section 83 of the Central Goods & Services Tax Act, 2017 (CGST Act). Specifically, the issues examined include: (i) whether the respondents validly exercised the power of provisional attachment under Section 83 of the CGST Act; (ii) the scope and limitations of the power to provisionally attach property under Section 83; (iii) the necessity and reasonableness of the formation of opinion by the Commissioner before ordering such attachment; (iv) the requirement of tangible material supporting such opinion; (v) the procedural safeguards mandated under the CGST Act and allied rules; and (vi) the applicability of relevant Supreme Court and High Court precedents, particularly the authoritative decision in Radha Krishnan Industries v. State of Himachal Pradesh.

Regarding the validity of the provisional attachment under Section 83, the Court scrutinized the factual matrix and procedural history. The petitioner's bank account was initially frozen by an order dated 12 May 2020, which was quashed on 28 October 2024 due to the provisional attachment exceeding the statutory one-year limit without a fresh order. Subsequently, a fresh provisional attachment order dated 26 December 2024 was challenged. The respondents justified this fresh attachment on the grounds that the petitioner failed to respond to the Show Cause Notice (SCN), did not attend hearings, and that the adjudicating authority had imposed penalties exceeding Rs. 1 crore. However, the Court found that these reasons were insufficient to satisfy the statutory threshold under Section 83.

Section 83 of the CGST Act authorizes the Commissioner to provisionally attach any property, including bank accounts, belonging to a taxable person during the pendency of certain proceedings, if the Commissioner is of the opinion that such attachment is necessary to protect the interest of government revenue. The attachment is provisional and must cease after one year. The Court emphasized that the power under Section 83 is "draconian" and must be exercised sparingly, strictly adhering to statutory conditions.

The Court extensively relied on the Supreme Court's decision in Radha Krishnan Industries, which laid down the legal framework for exercising powers under Section 83. The Supreme Court held that: (i) the power to attach provisionally must be exercised only during the pendency of proceedings under specified sections of the CGST Act; (ii) the Commissioner must form a bona fide opinion that attachment is necessary to protect government revenue; (iii) such opinion must be based on tangible and credible material, not on vague or speculative grounds; (iv) the necessity must be real, not merely expedient; (v) the attachment should not be used to harass the assessee or cause irreversible harm to their business; and (vi) procedural safeguards, including the right to be heard and to submit objections, must be observed.

The Court highlighted that the formation of opinion by the Commissioner must bear a "proximate and live nexus" to the protection of revenue and must be supported by "tangible material" indicating a reasonable apprehension that the assessee may default on payment or dispose of property to defeat recovery. The Court noted that mere non-cooperation or failure to respond to notices does not satisfy this stringent requirement.

In applying these principles to the facts, the Court found that the respondents failed to produce any material evidencing a reasonable apprehension that the petitioner would default on payment or dissipate assets. The only reasons cited were the petitioner's non-response to notices and non-attendance at hearings, which the Court held do not constitute sufficient grounds for provisional attachment under Section 83. The Court observed that the respondents did not demonstrate any "due material change of circumstances" or any credible basis to justify the attachment as necessary to protect revenue interests.

The Court also referred to other High Court decisions emphasizing the limited scope of Section 83, including the requirement that proceedings must be pending against the taxable person whose property is attached, and that the attachment must be linked to specific statutory proceedings. The respondents' failure to establish this nexus further undermined the validity of the attachment.

On procedural safeguards, the Court reiterated that Rule 159(5) of the CGST Rules mandates that the person whose property is attached must be given an opportunity to object and be heard, and the Commissioner must pass a reasoned order dealing with such objections. The Court found no compliance with these safeguards in the present case, rendering the attachment illegal.

In conclusion, the Court held that the respondents' exercise of power under Section 83 was without the requisite formation of opinion based on tangible material, was arbitrary, and violated statutory and constitutional principles. The attachment was therefore quashed, and directions were issued for the immediate de-freezing of the petitioner's bank account.

The significant holdings and principles established include the following verbatim excerpts and core determinations:

"The power to levy a provisional attachment is draconian in nature. By the exercise of the power, a property belonging to the taxable person may be attached, including a bank account... The formation of the opinion must bear a proximate and live nexus to the purpose of protecting the interest of the government revenue."

"The expression 'necessary so to do for protecting the government revenue' implicates that the interests of the government revenue cannot be protected without ordering a provisional attachment... Necessity postulates a more stringent requirement than a mere expediency."

"The Commissioner must be alive to the fact that such provisions are not intended to authorise Commissioners to make pre-emptive strikes on the property of the assessee, merely because property is available for being attached."

"The formation of an opinion by the Commissioner under Section 83(1) must be based on tangible material bearing on the necessity of ordering a provisional attachment for the purpose of protecting the interest of the government revenue."

"The power under Section 83 should neither be used as a tool to harass the assessee nor should it be used in a manner which may have an irreversible detrimental effect on the business of the assessee."

"The attachment of bank account and trading assets should be resorted to only as a last resort or measure."

"There has been a breach of the mandatory requirement of Rule 159(5) and the Commissioner was clearly misconceived in law in coming into conclusion that he had a discretion on whether or not to grant an opportunity of being heard."

Final determinations on each issue are: (i) the provisional attachment order dated 26 December 2024 was invalid and quashed; (ii) the respondents failed to form a valid opinion based on tangible material justifying the attachment; (iii) the attachment was not necessary to protect government revenue; (iv) procedural safeguards under the CGST Act and Rules were not complied with; and (v) the petitioner's bank account must be de-frozen forthwith.