PROVISIONAL ATTACHMENT OF BANK ACCOUNTS UNDER GST LAWS

[Mr. M. GOVINDARAJAN]

Provisional attachment of bank account

Section 83 of the Central Goods and Services Tax Act, 2017 provides that where during the pendency of any proceedings under section 62 or section 63 or section 64 or section 67 or section 73 or section 74, the Commissioner is of the opinion that for the purpose of protecting the interest of the Government revenue, it is necessary so to do, he may, by order in writing attach provisionally any property, including bank account, belonging to the taxable person in such manner as may be prescribed.

The said section was substituted by a new section by means of the Finance Act, 2021 which came into effect from 01.01.2022.  The newly substituted Section 83 provides that Where, after the initiation of any proceeding under Chapter XII (Assessment – sections 59 to 64) , Chapter XIV (Inspection, search, seizure and arrest – Sections 67 to 72) or Chapter XV (Demands and Recovery – Sections 73 to 84), the Commissioner is of the opinion that for the purpose of protecting the interest of the Government revenue it is necessary so to do, he may, by order in writing, attach provisionally, any property, including bank account, belonging to the taxable person or any person specified in sub-section (1A) of section 122, in such manner as may be prescribed.  Every such provisional attachment shall cease to have effect after the expiry of a period of one year from the date of the order made.

Procedure for provisional attachment

Rule 159 of Central Goods and Services Tax Rules, 2017 provides that where the Commissioner decides to attach any property, including bank account in accordance with the provisions of section 83, he shall pass an order in Form GST DRC-22 to that effect mentioning therein, the details of property which is attached.  The Commissioner shall send a copy of the order of attachment to the concerned Revenue Authority or Transport Authority or any such Authority to place encumbrance on the said movable or immovable property, which shall be removed only on the written instructions from the Commissioner to that effect.   A  copy of such order shall also be sent to the person whose property is being attached under section 83.

Any person whose property is attached may file an objection in Form GST DRC-22A to the effect that the property attached was or is not liable to attachment, and the Commissioner may, after affording an opportunity of being heard to the person filing the objection, release the said property by an order in Form GST DRC- 23.  The Commissioner may, upon being satisfied that the property was, or is no longer liable for attachment, release such property by issuing an order in Form GST DRC- 23.

Directions of Supreme Court

 In M/S RADHA KRISHAN INDUSTRIES VERSUS STATE OF HIMACHAL PRADESH & ORS. - 2021 (4) TMI 837 - SUPREME COURT, the Supreme Court has issued the following mandatory guidelines to be followed while ordering for provisional attachment including bank account-

• The power to order a provisional attachment of the property of the taxable person including a bank account is draconian in nature and the conditions which are prescribed by the Statute for a valid exercise of the power must be strictly fulfilled.
• The exercise of the power for ordering a provisional attachment must be preceded by the formation of an opinion by the Commissioner that it is necessary so to do for the purpose of protecting the interest of the Government Revenue.  Before ordering a provisional attachment the Commissioner must form an opinion on the basis of tangible material that the assessee is likely to defeat the demand, if any and that therefore, it is necessary so to do for the purpose of protecting the interest of the government revenue.
• The expression ‘necessary so to do for protecting the government revenue’ implicates that the interest of the Government Revenue cannot be protected without ordering a provisional attachment.
• 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.
• Under the provisions of Rule 159(5) the person whose property is attached is entitled to dual procedural safeguard-
  •  An entitlement to submit objections on the ground that the property was or is not liable to attachment; and
  •  An opportunity of being heard.
• The Commissioner is duty bound to deal with the objections to the attachment by passing a reasoned order which must be communicated to the taxable person whose property is attached.
• A final order having been passed under Section 74(9) the proceedings under section 74 are no longer pending as a result of which the provisional attachment must come to an end.             

Case laws

Provisional attachment lapses after one year

Section 83 of the Act provides that every provisional attachment shall cease to have effect after a period of one year from the date of order provisional attachment of bank account. 

In PANAQUA TRADECOM PRIVATE LIMITED VERSUS UNION OF INDIA - 2022 (10) TMI 952 - GUJARAT HIGH COURT, nine bank accounts of the petitioner were provisionally attached during October 2021.  According to Section 83 of the Act the attached bank accounts would be released after expiry of one year.  The petitioner remained the Department to defreeze the bank accounts since one year was lapsed.  In the hearing the Department accepted that one year has been lapsed from the date of provisional attachment.   The Department assured to intimate the banks to defreeze the provisional attachment of the seven bank accounts of the petitioners.    In respect of the two bank accounts where the fresh orders of provisional attachment are passed, it will give fresh cause of action in accordance with law.  The High Court disposed the said writ petitions to comply with the commitments made by the Department before the High Court.

Absence of specific reason

In M/S. KPN TRAVELS INDIA LTD. VERSUS DIRECTOR GENERAL OF GST INTELLIGENCE, CHENNAI - 2022 (6) TMI 359 - MADRAS HIGH COURT, five different bank accounts have been provisionally attached by the Department.  The said impugned orders were challenged by the petitioner before the High Court on the ground that no specific reason based on the tangible material available with the Revenue has been stated to invoke Section 83 of the Act except to state that in order to protect the interest of the Revenue, the power conferred under Section 83 of the Act was invoked.   The High Court observed that the Principal Additional Director General merely stated that the powers conferred on concerned official under Section 83 of the Act was invoked for provisional attachment of bank accounts of the petitioner in order to protect the interests of the Revenue.  However the order did not show any basis for formation of opinion that provisional attachment was necessary to safeguard Revenue’s interest.  No tangible material was disclosed.  The order breached the mandatory pre-conditions for exercise of powers under section 83 of the Act.

In M/S. SREE MEENASHI INDUSTRIES VERSUS THE ADDITIONAL CHIEF SECRETARY/COMMISSIONER OF COMMERCIAL TAX, CHENNAI, THE JOINT COMMISSIONER (ST) , THE DEPUTY COMMISSIONER (ST) , THE STATE TAX OFFICER, THE SUPERINTENDENT OF GST & CENTRAL EXCISE, THE SUPERINTENDENT OF GST & CENTRAL EXCISE, THE INDIAN BANK, TAMILNADU MERCHANTILE BANK - 2022 (5) TMI 1418 - MADRAS HIGH COURT the High Court held that the Commissioner’s order for provisional attachment of bank account not indicating on what basis he decided to invoke Section 83 of the Tamil Nadu Goods and Services Tax Act, 2017, whether the Commissioner formed opinion to do so, what are the tangible material available before him, so as to enable him to form such opinion.  Therefore the Commissioner did not follow the mandatory guidelines issued by Supreme Court  in ‘Radha Krishan Industries’ case (supra) while passing order under Section 83 making provisional attachment of bank account of petitioner.  The High Court set aside the provisional attachment made by the Commissioner.

Communication of attachment

In ORIGINATIVE TRADING PRIVATE LIMITED VERSUS UNION OF INDIA THROUGH THE JOINT SECRETARY, DEPARTMENT OF REVENUE, MINISTRY OF FINANCE, MUMBAI, CENTRAL BOARD OF INDIRECT TAXES & CUSTOMS, NEW DELHI, THE DIRECTOR GENERAL, DIRECTORATE GENERAL OF GST INTELLIGENCE, NEW DELHI, THE PRINCIPAL ADDITIONAL DIRECTOR GENERAL DIRECTORATE GENERAL OF GST INTELLIGENCE MUMBAI - 2022 (3) TMI 262 - BOMBAY HIGH COURT, the investigation team of the Department caused an investigation against the petitioner and conducted search at the petitioner’s premises on 18.02.2021,  during which the original documents were seized.  Statements of the officials were recorded.  Summons was issued to the petitioner.  On 07.12.2021 the petitioner was informed by its banks that the accounts of the petitioner with various banks had been frozen by the Department.  Therefore the petitioner filed the present writ petition before the High Court. 

The petitioner submitted the following before the High Court-

• The letter issued by the Department for the provisional attachment of bank accounts was not addressed to the petitioner.
• The said letter was addressed to the bank with a copy to the petitioner.
• The provisional order of freezing bank accounts of the petitioner was not in compliance with Section 83 of the Act and was not issued in the manner provided in Rule 159.
• Unless the opinion formed by the Commissioner is communicated to the petitioner, the petitioner would not be able to raise any objection.
• The circular dated 23.02.2021 provides that the Commissioner shall record such an opinion on file and not communicate the same to the taxable person.  It would not an order of provisional attachment under Section 83 of the Act.

The Department submitted the following before the High Court-

• The petitioner cannot challenge the circular since the same has been issued in compliance with the principles of law laid down by the Supreme Court in M/S RADHA KRISHAN INDUSTRIES VERSUS STATE OF HIMACHAL PRADESH & ORS. - 2021 (4) TMI 837 - SUPREME COURT
• The provisional attachment of bank account was issued to protect the interests of the Revenue.
• There is a remedy available for filing appeal against the said order and therefore the present writ petition is not maintainable.

The High Court held that the contention of the Revenue is right – if the communication would have been issued to the petitioner at the first instance, there is likely that the petitioner would have withdrawn the amounts lying in the bank account which would not have been in the interests of the Revenue.  However the petitioner is to be given the opinion arrived at by the Commissioner so that he can file objections and if the case is decided against him, after giving a reasonable opportunity afforded to him and the case is decided by the Commissioner.  The High Court, in view of the facts of the present case, made orders as below-

• The respondent No. 4 is directed to furnish a certified copy of the opinion/reasons formed by the Commissioner to the petitioner within one week from the date of receipt of the order.  The petitioner is allowed to raise objection to the prima facie opinion formed by the Commissioner within one week from the date of furnishing such copy of the opinion.
• The respondent No.4 shall grant an opportunity of being heard to the petitioner before passing the final order.  If the respondent No. 4 is satisfied that the bank accounts of the petitioner were no longer liable for attachment, shall withdraw the provisional attachment.  If not satisfied the respondent No.4 may reject such objection.
• This exercise shall be done within two weeks from the date of filing the objections.  The order that would be passed by the respondent No.4 shall be communicated to the petitioner within one week from the date of passing order.
• If the order is adverse against the petitioner, the petitioner would be at liberty to file appropriate proceedings.

Debiting amount from bank

In PRADEEP KUMAR SIDDHA PROPRIETOR OF ALPHA CORPORATION VERSUS UNION OF INDIA & ORS.-  2022 (8) TMI 1142 - BOMBAY HIGH COURT the bank accounts were provisionally attached by the Department.  The petitioner filed writ petition before High Court with the prayer to direct the revenue to unfreeze he account maintained by the petitioner with the bank.  The petitioner also contended that the respondents took away Rs.62,43,400/- from the accounts of the petitioner to the bank account of the respondents by means of RTGS.  The petitioner did not give instructions to debit the amount from his account and transfer to the bank account of the respondents.

The High Court wondered as to how the authorities get this power to take away amount from anybody’s account without account holder’s permission or even after taking away the money, they would not even consider it necessary to inform the account holder that money from their account has been debited.  This shows the high handedness and gross abuse of the power.

The High Court directed the concerned officer to file his personal affidavit explaining under what authority of law that he got removed the money from petitioner’s account or directed the bank to debit the bank account and why did he do it without even informing the petitioner even after giving instructions to the bank.  The High Court may even consider taking action against the officer if it is not satisfied with his explanation.