GST Bank Accounts Cannot Stay Frozen Forever: The One-Year Limit Is Absolute

The Gauhati High Court has reaffirmed that provisional attachment under Section 83 of the CGST Act, 2017 is an exceptional, time-bound protective measure. It cannot become an indefinite freeze on personal bank accounts, particularly when the account holders are not even noticees in the tax proceedings.

When a Temporary Safeguard Becomes a Continuing Restraint

The power to provisionally attach property under the Goods and Services Tax law is among the most severe measures available to the tax administration. It permits the authorities to freeze bank accounts or attach other property even before the alleged tax liability has been finally determined.

Precisely because the power operates before adjudication, Parliament has surrounded it with statutory safeguards. One of the most important safeguards is contained in Section 83(2) of the Central Goods and Services Tax (CGST) Act, 2017. It provides that every provisional attachment ceases to have effect after one year from the date of the attachment order.

In SMT RITU MANDELIA, SMT KAVITA MANDELIA AND SHRI ASHOK KUMAR MANDELIA Versus UNION OF INDIA AND OTHERS - 2026 (9) TMI 1825 - GAUHATI HIGH COURT, the Gauhati High Court examined what happens when bank accounts remain frozen long after the statutory period has expired. The Court's answer was unequivocal: once the one-year period ends, the provisional attachment loses its legal force. Administrative inaction, an ongoing investigation, or allegations of substantial tax evasion cannot extend a restriction that the statute itself has brought to an end.

The Investigation Behind the Account Freezes

The dispute arose from an investigation into M/s Salasar Exim Limited. The GST authorities alleged that the company had engaged in transactions supported by fake or bogus invoices, without the corresponding movement of goods.

According to the Department, the company had availed substantial ineligible input tax credit. This allegedly included credit of approximately Rs.55.37 crore received from suppliers whose GST registrations had been cancelled on grounds such as fraud or non-existence. The authorities also referred to alleged input tax credit of about Rs.106.08 crore based on invoices unaccompanied by the actual supply of goods, as well as an excess credit difference of approximately Rs.3.37 crore between the figures appearing in Forms GSTR-2A and GSTR-3B.

The seriousness and scale of these allegations led to an extensive investigation. The authorities claimed that the company had transferred funds to its directors and their relatives. Based on this perceived financial trail, authorities provisionally attached the personal bank accounts of three members of the Mandelia family through orders issued in Form GST DRC-22 on 19 May 2022 and 23 May 2022.

The petitioners were Smt Ritu Mandelia, the wife of a director of the company; Smt Kavita Mandelia, the mother of two individuals associated with it; and Shri Ashok Kumar Mandelia, their father and a shareholder in the company. The attachment affected four personal bank accounts belonging to these petitioners.

The Missing Link Between the Petitioners and the Tax Demand

The petitioners contended that they had not been served with the attachment orders in Form GST DRC-22. They also submitted several representations in March, May, June and July 2026 seeking release of their accounts, but received no effective relief. Their more fundamental objection was that the Department's subsequent proceedings were not directed against them.

A demand-cum-show cause notice dated 25 June 2025 was issued to M/s Salasar Exim Limited and its chief executive officer and erstwhile director, Shri Ashish Kumar Mandelia. The notice proposed substantial penalties for alleged wrongful availment and onward passing of input tax credit. However, none of the three petitioners whose personal accounts remained frozen was made a noticee or recipient of that show cause notice.

This distinction assumed considerable importance. The petitioners were related to persons associated with the company, and one of them had also been summoned and examined during the investigation. But family relationship, shareholding or participation in an inquiry could not, by itself, preserve a provisional attachment that had already expired under the statute.

Section 83 Is Protective, Not Punitive

Section 83 of the CGST Act, 2017 authorises the Commissioner to provisionally attach property, including a bank account, during the pendency of specified proceedings if the Commissioner forms an opinion that such attachment is necessary to protect government revenue. The provision is preventive in character. It is intended to ensure that property is not dissipated or placed beyond the Department's reach while proceedings are pending. It is not a substitute for adjudication, recovery or punishment.

This distinction is essential. A provisional attachment is imposed before the affected person's liability has necessarily been conclusively determined. If permitted to continue indefinitely, it could produce consequences as severe as final recovery, without the procedural protections that ordinarily precede such recovery.

For that reason, the statutory requirements governing Section 83 of the CGST Act, 2017 must be applied strictly. The power can be exercised only in the circumstances identified by law, on the basis of a properly formed opinion, and for the limited period authorised by the statute.

The One-Year Sunset Operates Automatically

The central issue before the Gauhati High Court was the effect of Section 83(2) of the CGST Act, 2017, which provides that every provisional attachment ceases to have effect one year after the order. The attachment orders in the present cases were issued on 19 May 2022 and 23 May 2022. Consequently, they ceased to have effect on 19 May 2023 and 23 May 2023, respectively.

The statutory language leaves little room for administrative discretion. It does not state that the attachment may be withdrawn after one year or that the affected person must first obtain a separate revocation order. Instead, the attachment "shall cease to have effect." Termination therefore occurs by operation of law.

Once this period expires, the bank account cannot remain frozen merely because the bank has not received fresh instructions, the investigation is still pending, or the Department has not formally communicated the expiry. The legal authority supporting the restriction has disappeared.

The High Court also recorded the Department's confirmation that it had not issued any subsequent provisional attachment order during or after the original one-year period. Consequently, no order remained in force to support the continued freezing of the accounts.

A Provisional Attachment Cannot Quietly Become Recovery

The judgment reinforces the boundary between provisional attachment and statutory recovery.

Provisional attachment protects a possible future demand. Recovery proceedings, by contrast, seek to realise an amount determined as payable after the prescribed adjudicatory process. These powers serve different purposes and operate at different stages.

Allowing an expired attachment to continue merely because a show cause notice or investigation remains pending would erase that distinction. It would transform an interim protective measure into an indefinite recovery mechanism, without a final demand against the affected account holder.

The Court's reasoning is particularly significant because the show cause notice dated 25 June 2025 was not addressed to the petitioners. Even after the original attachment orders expired, the notice proposed no tax or penalty demand against them. Nevertheless, their personal accounts remained inaccessible.

The judgment makes clear that the Department cannot preserve an expired provisional attachment by relying generally on allegations against a company or other persons. Any continued restraint on an individual's property must be supported by an existing statutory source of authority applicable to that individual.

The Supreme Court's Warning Against Draconian Use

The Gauhati High Court drew support from two important Supreme Court decisions. In M/s Radha Krishan Industries Versus State of Himachal Pradesh & Ors. - 2021 (4) TMI 837 - Supreme Court, the Supreme Court described Section 83 of the CGST Act, 2017 as a drastic or draconian power. Because the provision permits attachment before adjudication is concluded, its conditions must be strictly fulfilled. The Commissioner's opinion must be based on tangible material showing that attachment is necessary to protect revenue. The necessity requirement is not an empty formality. The authority must consider whether the facts genuinely justify depriving a person of access to property before liability has been established.

The High Court also relied on KESARI NANDAN MOBILE Versus OFFICE OF ASSISTANT COMMISSIONER OF STATE TAX (2), ENFORCEMENT DIVISION – 5 - 2025 (8) TMI 992 - Supreme Court. In that case, the Supreme Court emphasised the literal and mandatory nature of the one-year limit in Section 83(2). The limit prevents provisional attachment from becoming perpetual and preserves the distinction between an interim measure and final recovery.

If authorities could simply continue, renew or recreate the same attachment after the statutory period without proceeding under the appropriate recovery provisions, Section 83(2) would be reduced to a dead letter. The one-year safeguard would exist in the text of the law but have no practical meaning.

Serious Allegations Do Not Extend Statutory Power

The allegations against M/s Salasar Exim Limited were undoubtedly serious and involved substantial input tax credit. However, the gravity of an allegation cannot extend the duration of a statutory power. This is one of the judgment's most important administrative-law lessons. Courts may recognise the Department's legitimate interest in safeguarding revenue, but it must pursue that interest through the mechanisms authorised by Parliament.

An ongoing investigation does not suspend the expiry provision. Nor does the magnitude of the suspected evasion permit the authorities to disregard the statutory timeline. If a liability is subsequently determined, the CGST Act, 2017 provides specific recovery procedures. The Department must use those provisions against persons who are legally liable, rather than continuing an expired provisional attachment.

The Court did not express any opinion on the merits of the allegations against the company or the recipients of the show cause notice. It neither terminated the investigation nor prevented lawful adjudication or recovery. Its intervention was confined to the continued freezing of accounts for which no valid attachment order remained in force.

Relationship Alone Cannot Sustain an Attachment

The case also highlights the vulnerability of relatives and other connected persons during tax investigations. Financial transfers between a company, its directors, shareholders and family members may legitimately attract scrutiny. In an appropriate case, the authorities may examine whether assets have been diverted to defeat revenue recovery. But suspicion arising from a relationship or transfer does not displace the statutory conditions governing attachment.

Each attachment must have an identifiable legal basis. The Department must establish why the property of the particular person is liable to be restrained, issue the prescribed order and observe the statutory period. Once the order expires, the account cannot remain frozen merely because the account holder is related to someone under investigation. This principle is commercially significant. Freezing a personal account can disrupt household finances, loan repayments, investments, medical expenditure and ordinary business activities. When such a restriction continues for years without a live order or a demand against the account holder, the prejudice can be substantial.

Expired Attachments Fall: Bank Accounts Must Be Unfrozen Immediately

Having found that the attachment orders had ceased to operate after one year, the High Court directed that the four bank accounts be unfrozen. The accounts were to become operable forthwith upon receipt of a certified copy of the judgment by the concerned banks. Accordingly, the Court allowed all three writ petitions, with no order as to costs.

The direction reflects an important practical reality. Even when an attachment has expired in law, a bank may hesitate to restore operations without formal instructions or a court order. The judgment therefore converted the statutory expiry into an immediately enforceable banking consequence.

No Room for Administrative Inertia: Authorities and Banks Must Act on Expiry

For tax authorities, the ruling underscores the need for disciplined monitoring of provisional attachments. Authorities should track every order under Section 83 from the date of issuance, with a clear record of its statutory expiry. An account should not remain frozen merely because the Department's systems or correspondence have not been updated. Authorities should also distinguish between persons against whom proceedings are pending and those only connected with the investigation. If further legal action is considered necessary, it must be taken under the correct provision, against the appropriate person, and within the limits imposed by law.

Banks must likewise recognise that a provisional attachment is not open-ended. While banks ordinarily act upon directions received from statutory authorities, they should maintain accurate records of the order, the date of attachment, subsequent directions, and any judicial order requiring de-freezing.

For taxpayers, the judgment demonstrates the importance of checking the date and legal basis of every attachment. A representation should identify the original DRC-22 order, calculate when the one-year period expired, indicate whether any fresh legally valid order exists, and clarify whether any demand or notice has been issued to the account holder personally.

Statutory Power Ends Where the Rule of Law Begins

At its core, the judgment concerns the rule of law in revenue administration. The State unquestionably has wide powers to investigate tax evasion and protect public revenue. Yet the legitimacy of those powers depends on adherence to the conditions and limits the legislature prescribes. A power granted for one year cannot be exercised for several years merely because the underlying investigation continues.

Section 83 seeks to balance two competing interests: the Government's need to protect revenue and the taxpayer's right to use and enjoy property before liability is finally established. Section 83(2) is central to that balance. It ensures that an extraordinary interim measure does not become an ordinary instrument of indefinite restraint.

Provisional attachment is a temporary measure and cannot continue beyond the period prescribed by law. Once that period expires, the attachment must end. Any further action to protect or recover revenue must be taken through the adjudication and recovery procedures provided under the GST law.

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