Provisional Attachment of Bank Account Lifted Upon Completion of SCN Proceedings and Availment of Appellate Remedy
Issue:
Whether the provisional attachment of an assessee’s bank account under Section 83 of the Central Goods and Services Tax Act, 2017 (CGST Act), should be lifted once the show cause notice (SCN) proceedings, which were the basis for the attachment, have culminated in an order under Section 74, and the assessee has already availed their appellate remedy under Section 107 in respect of that order.
Facts:
The assessee challenged the attachment of his bank account under Section 83 of the CGST Act, as well as the underlying show cause notice (SCN). The grounds for challenge included the lack of prior DRC-01A intimation, the absence of initiated proceedings before attachment, and the lack of the Commissioner’s explicit opinion justifying the attachment. The writ petition was listed.
During the pendency of this writ petition, a Co-ordinate Bench had held that there was no requirement for the material on which the Commissioner formed an opinion to be included in an order passed under Section 83(1), thus finding the contention that the impugned order was vitiated due to exclusion of such material unmerited. This specific Co-ordinate Bench order was assailed by the assessee before the Supreme Court.
Crucially, the Supreme Court passed an order during the pendency of the writ petition, noting that the proceedings initiated by the impugned SCN had continued, and an order under Section 74 had subsequently been passed. Consequently, the assessee had already availed of their appellate remedy under Section 107 in respect of that Section 74 order. In light of this, the only issue that currently remained was in respect of the freezing of the bank account.
Decision:
The court held that after the order passed by the Supreme Court and the culmination of proceedings in respect of the SCN (which was initially impugned), the order freezing the bank account would automatically get lifted. Therefore, since the assessee had already availed their appellate remedy concerning the demand order, the freezing of the assessee’s bank account stood lifted.
Key Takeaways:
- Purpose of Provisional Attachment: Provisional attachment under Section 83 is a temporary measure designed to protect the interest of the revenue during the pendency of certain GST proceedings (like those under Sections 62, 63, 64, 67, 73, or 74). Its purpose is to prevent the assessee from alienating property to defeat future recovery.
- Automatic Lifting Upon Culmination of Proceedings: Once the core proceedings for which the attachment was made (e.g., the SCN proceedings leading to a demand order under Section 74) have concluded, and the assessee has exhausted or availed their immediate statutory remedies (like an appeal under Section 107), the purpose of provisional attachment is served. The attachment is not intended to be indefinite.
- Nexus Between Attachment and Underlying Proceedings: The validity and continuation of a provisional attachment are intrinsically linked to the pendency of the underlying proceedings. Once those proceedings mature into a confirmed demand (which is then subject to appellate review) or are dropped, the basis for the provisional attachment changes.
- Assessee’s Appellate Remedy: The fact that the assessee has already availed their appellate remedy against the Section 74 order further supports the lifting of the provisional attachment, as the revenue now has a concrete demand (though disputed in appeal) against which it can proceed for recovery as per the law, rather than relying on a provisional measure.
- DRC-01A and Commissioner’s Opinion: While the initial challenge included lack of DRC-01A and Commissioner’s opinion, these points became secondary once the SCN proceedings culminated and appellate remedies were pursued. The ultimate focus shifted to the temporary nature of the provisional attachment.
- In Favour of Assessee: The outcome is highly favorable to the assessee, as their bank account, which was provisionally attached, is now unfrozen, providing immediate relief.
CM APPL. No. 29085 of 2025
| (i) | The letter of attachment of bank account (hereinafter ‘attachment letter) under Section 83 of the Central Goods and Services Act, 2017 (hereinafter ‘CGST Act’) dated 28th May, 2024. |
| (ii) | The Show Cause Notice dated 20th June, 2024 (hereinafter ‘SCN’). |
| (i) | at a time when no proceeding was initiated against the Petitioner; and |
| (ii) | in absence of an opinion of the Commissioner as to the necessity to attach the bank account for protecting the government revenue. |
“83. Provisional attachment to protect revenue in certain cases.-
| (1) | Where, after the initiation of any proceeding under Chapter XII, Chapter XIV or Chapter XV, 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. |
| (2) | 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 under sub-section (1).” |
“76. For the above reasons, we hold and conclude that:
76.1. The Joint Commissioner while ordering a provisional attachment under section 83 was acting as a delegate of the Commissioner in pursuance of the delegation effected under Section 5(3) and an appeal against the order of provisional attachment was not available under Section 107(1).
76.2. The writ petition before the High Court under Article 226 of the Constitution challenging the order of provisional attachment was maintainable.
76.3. The High Court has erred in dismissing the writ petition on the ground that it was not maintainable.
76.4. 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.
76.5. 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.
76.6. 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.
76.7. 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.
76.8. In the facts of the present case, there was a clear non-application of mind by the Joint Commissioner to the provisions of Section 83, rendering the provisional attachment illegal.
76.9. Under the provisions of Rule 159(5), the person whose property is attached is entitled to dual procedural safeguards:
| (a) | An entitlement to submit objections on the ground that the property was or is not liable to attachment; and |
| (b) | An opportunity of being heard. |
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.
76.10. 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.
76.11. 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.
76.12. The appellant having filed an appeal against the order under section 74(9), the provisions of sub – sections (6) and (7) of Section 107 will come into operation in regard to the payment of the tax and stay on the recovery of the balance as stipulated in those provisions, pending the disposal ofthe appeal.”