Bank account attachment under Section 83 CGST Act cannot exceed one year without fresh order

Gujarat HC ruled that provisional attachment of bank accounts under Section 83 of CGST Act cannot continue beyond one year without fresh order. The court held that attachment during investigation requires strict compliance with statutory preconditions and proportionality doctrine. Commissioner's opinion must be based on tangible material with live nexus to revenue protection, not unguided discretion. Continuing attachment after statutory period without fresh order violates Article 19 constitutional rights. Court emphasized that provisional attachment being draconian power must be exercised with due caution and proper procedural safeguards including natural justice principles.

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Issues Involved:
1. Legality of the provisional attachment of bank accounts under Section 83 of the CGST Act.
2. Allegation of forced admission of GST liability.
3. Continuation of investigation and its impact on the provisional attachment.
4. Compliance with procedural requirements under the CGST Act and Rules.

Issue-wise Detailed Analysis:

1. Legality of the provisional attachment of bank accounts under Section 83 of the CGST Act:
The petitioners challenged the action of the respondent directing the Branch Managers of AU Small Finance Bank, Kotak Mahindra Bank, and State Bank of India to freeze their bank accounts and stop the operation of the bank locker under Section 83(1) of the CGST Act. The respondents justified the provisional attachment stating it was necessary to protect government revenue, as the petitioners were allegedly involved in substantial GST evasion and fraudulent activities. The court noted that Section 83 allows for provisional attachment during the pendency of proceedings under specified sections of the CGST Act to protect government revenue. The court emphasized the necessity of forming an opinion based on tangible material and the requirement that such attachment should not be arbitrary or excessive. The court referred to precedents, including the Supreme Court's decision in Radha Krishan Industries vs. State of Himachal Pradesh, which highlighted the draconian nature of provisional attachment and the need for strict compliance with statutory preconditions.

2. Allegation of forced admission of GST liability:
The petitioners contended that the admission of GST liability amounting to Rs. 51 crores was made under coercion and force by the GST officers. They argued that there was no genuine admission of liability and that the business model of the petitioners did not attract GST. The court noted the petitioners' claim that the GST department had not taken any steps even after the expiry of the one-year period from the date of attachment and the issuance of the show-cause notice. The court acknowledged the petitioners' assertion that the investigation was based on assumptions and lacked a legal basis. However, the court refrained from delving into the merits of the petitioners' business model and the taxability of their transactions, stating that these issues should be addressed by the appropriate authority during the assessment proceedings.

3. Continuation of investigation and its impact on the provisional attachment:
The respondents argued that the investigation was ongoing and that the provisional attachment was necessary to prevent the petitioners from utilizing the funds in the bank accounts, which were allegedly generated through illegal activities. The court recognized the respondents' need to protect government revenue but also noted that the investigation had been prolonged. The court directed the respondents to complete the investigation within three months, emphasizing that the prolonged investigation should not unduly harm the petitioners' business operations. The court also highlighted that if the investigation was not completed within the specified period, the provisional attachment would need to be lifted.

4. Compliance with procedural requirements under the CGST Act and Rules:
The petitioners alleged that the respondents had not followed the due procedure prescribed under the CGST Act and Rules, particularly concerning the issuance of authorization for seizure and the extension of the provisional attachment beyond the one-year period. The court examined the procedural requirements under Section 83 and Rule 159 of the CGST Rules, which mandate the formation of an opinion by the Commissioner, the issuance of an order in writing, and the provision of an opportunity for the affected party to file objections and be heard. The court found that the respondents had issued fresh orders of provisional attachment after the expiry of the initial one-year period, thereby complying with the statutory requirements. However, the court stressed the importance of adhering to procedural safeguards and ensuring that the provisional attachment was not used as a tool for harassment.

Conclusion:
The court disposed of the petition by directing the respondents to complete the investigation within three months and to ensure compliance with procedural requirements. The court upheld the provisional attachment, noting that it was based on the need to protect government revenue, but emphasized that the attachment should not be prolonged unduly and should be lifted if the investigation was not completed within the specified period. The court also highlighted the necessity of providing the petitioners with an opportunity to be heard and to file objections against the provisional attachment.

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