2023 (11) TMI 1332 - HC - GST

Tax Authorities Cannot Indefinitely Freeze Bank Accounts Without Valid Extension Under Section 83 of CGST Act

The HC ruled that the provisional attachment order under Section 83 of the CGST Act expired after one year, and the bank must allow account operations. ... Lifting of attachment of the bank account of the petitioner - HELD THAT:- In the present case, provisional attachment order has been passed in terms of Section 83 of the CGST Act, 2017 on 02.09.2021. In terms of the Section 83 (2), provisional attachment will be in force only for a period of one year. Therefore, the said order could remain in force only till 01.09.2022. However, this Writ Petition is filed on account that the second respondent/Bank has refused to permit the petitioner to operate the bank account citing that they have not received any further communication from respondents 1 and 3 with regard to lifting of the attachment. Since in terms of Section 83 (2) of CGST Act, the attachment order can no longer be alive and it will automatically expires within a period of one year from the date of issuance of the same, unless or otherwise, it is extended and intimated to the concerned Bank. As far as the present case on hand, the attachment order, which was issued on 02.09.2021, was already expired on 01.09.2022. Therefore, as on date, there is no attachment order against the petitioner. The Writ Petition is disposed by directing the second respondent to permit the petitioner to operate the bank account maintained with the second respondent-Bank since in terms of Section 83 (2) of the CGST Act, attachment order can no longer remain in force for more than one year from the date of issuance of the same. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:Whether the provisional attachment order issued under Section 83 of the Central General Sales Tax Act, 2017 (CGST Act) is still in force.Whether the bank is justified in refusing to allow the petitioner to operate their bank account in the absence of a communication lifting the attachment order.What are the implications for the revenue's interest if the attachment order is liftedRs.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of the Provisional Attachment OrderRelevant Legal Framework and Precedents: Section 83 of the CGST Act allows for provisional attachment of property, including bank accounts, to protect revenue interests during proceedings. Section 83(2) specifies that such an attachment remains valid for one year unless extended. The Supreme Court's decision in M/S Radha Krishan Industries vs The State of Himachal Pradesh clarifies the temporal limitation of such orders.Court's Interpretation and Reasoning: The court recognized that the attachment order dated 02.09.2021 expired on 01.09.2022, in accordance with Section 83(2) of the CGST Act. The court emphasized that the order could not remain in force beyond this period unless explicitly extended and communicated to the bank.Key Evidence and Findings: The attachment order was not extended beyond the one-year validity period, and no communication was sent to the bank to indicate otherwise.Application of Law to Facts: The court applied the statutory limitation of one year to conclude that the attachment order was no longer valid.Treatment of Competing Arguments: The respondent's concern about revenue loss was acknowledged, but the court noted that the responsibility for any potential revenue loss lay with the third respondent for not taking timely action.Conclusions: The attachment order is no longer in force, and the bank should allow the petitioner to operate their account.Issue 2: Bank's Refusal to Allow Account OperationRelevant Legal Framework and Precedents: The court referred to the CGST Act and the precedent set by the Supreme Court regarding the expiry of attachment orders.Court's Interpretation and Reasoning: The court reasoned that banks cannot indefinitely restrict account operations based on expired attachment orders. It is the responsibility of the issuing authority to communicate any extension.Key Evidence and Findings: The bank had not received any communication extending the attachment order beyond its expiry.Application of Law to Facts: The court applied the legal framework to determine that the bank's refusal was unjustified.Treatment of Competing Arguments: The court recognized the bank's position but emphasized the legal requirement for communication of any extension.Conclusions: The bank must permit the petitioner to operate the account.Issue 3: Implications for Revenue's InterestRelevant Legal Framework and Precedents: The court relied on the CGST Act and the procedural obligations of the tax authorities.Court's Interpretation and Reasoning: The court noted that the tax authorities had not taken steps to revive the attachment or recover the dues, which was a lapse on their part.Key Evidence and Findings: The tax authority's inaction was a significant factor in the potential risk to revenue.Application of Law to Facts: The court highlighted the procedural lapse by the tax authority and its impact on revenue protection.Treatment of Competing Arguments: The court balanced the need to protect revenue with the procedural requirements for maintaining attachment orders.Conclusions: The responsibility for any revenue loss lies with the tax authority due to their failure to act.3. SIGNIFICANT HOLDINGSVerbatim Quotes of Crucial Legal Reasoning: 'In terms of Section 83 (2) of CGST Act, the attachment order can no longer be alive and it will automatically expire within a period of one year from the date of issuance of the same, unless or otherwise, it is extended and intimated to the concerned Bank.'Core Principles Established: Provisional attachment orders under the CGST Act are time-bound and require explicit extension and communication to remain valid. Banks cannot indefinitely restrict account operations based on expired orders.Final Determinations on Each Issue: The court directed the bank to allow the petitioner to operate their account, acknowledging that the attachment order had expired. The court left open the possibility for the tax authority to pursue recovery of dues through appropriate legal channels.