Bank account attachment vacated on 10% deposit; SCN reply treated as objection to ITC blocking

Bank account attachment vacated on 10% deposit; SCN reply treated as objection to ITC blocking

Issue

Whether the provisional attachment of a bank account and blocking of Input Tax Credit (ITC) should be continued when the petitioner has already replied to the Show Cause Notices (SCN) issued on the same subject matter, and whether a conditional lifting of attachment is appropriate to balance revenue interest with business continuity.

Facts

• The Action: The Revenue Department blocked the petitioner’s Input Tax Credit (ITC) under Rule 86A via intimation notices and provisionally attached their bank account under Section 83 in connection with a tax dispute.

• The Proceedings: The Proper Officer had concurrently issued Show Cause Notices (SCNs) in FORM GST DRC-01 covering the same issues.

• Petitioner’s Response: The petitioner had already filed a detailed reply to the SCNs.

• The Challenge: The petitioner filed writ petitions challenging the intimation notices blocking the ITC and the attachment of the bank account, arguing that these actions paralyzed their business operations while the adjudication was still pending.

Decision

• Reply to SCN is Sufficient: The High Court held that since the petitioner had already filed a reply to the main SCNs, this reply should be treated as the reply to the impugned intimation notices (blocking ITC) as well. The officer was directed to consider this reply and pass orders on merits within four weeks.

• Balancing Equities: Acknowledging that the tax amount involved was high but business operations were hindered, the Court sought to balance the interests of both parties.

• Conditional Relief: The Court directed the petitioner to deposit 10% of the disputed tax in cash within thirty days.

• Lifting of Attachment: Subject to this 10% deposit (and ensuring no other undisputed arrears exist), the bank account attachment stood vacated.

• Consequence of Default: If the petitioner fails to make the deposit, the Revenue is at liberty to proceed with recovery as if the writ petitions were dismissed in limine.

• Ruling: The writ petitions were disposed of with these directions, effectively granting relief to the assessee while securing a part of the Revenue’s demand.

Key Takeaways

Provisional Attachment is not Absolute: Courts often view the attachment of bank accounts as a measure of last resort. If the taxpayer comes forward to secure a portion of the demand (e.g., 10%), courts are inclined to lift the attachment to allow the business to function.

Consolidated Defence: If you have replied to the main SCN (DRC-01), you do not necessarily need to file separate exhaustive replies for ancillary actions like ITC blocking (Rule 86A) on the same issue. Courts may direct the officer to treat the main reply as the defense for all related coercive actions.

Section 83 vs. Rule 86A: While Section 83 attaches property (assets/bank), Rule 86A blocks the Electronic Credit Ledger. Both are “provisional” measures pending adjudication. This judgment clarifies that relief from both can be sought simultaneously through writ jurisdiction by showing bona fide conduct (partial deposit).