Re-attachment relaxed; petitioner allowed limited access to frozen funds subject to Rs.2 crore fixed deposit under s.74 CGST

HC held the re-attachment was excessive and ordered partial relief: petitioner may access funds in the frozen accounts provided Rs. 2 crore is maintained in the specified ICICI account as a fixed deposit to protect revenue. The provisional attachment was relaxed subject to that condition; no SCN under s.74 CGST had been issued. The court directed the filing of a counter-affidavit within four weeks and any rejoinder within a further four weeks, listing the matter before the Joint Registrar on 23 Sept 2025.

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ISSUES PRESENTED AND CONSIDERED

1. Whether a provisional attachment under Section 83 of the CGST Act, 2017 can be re-issued in respect of the same bank account after expiry of the initial one-year period.

2. Whether re-attachment is permissible where there is an allegation of large-scale fraudulent availment of Input Tax Credit (ITC) and whether such facts bring the matter within the exception recognised in paragraph 31 of the controlling precedent.

3. Whether provisional attachment under Section 83 can lawfully be effected in the absence of issuance of a Show Cause Notice under Section 74 of the CGST Act during the investigation.

4. The balance between protection of the revenue and the petitioner's right to conduct business where substantial funds remain in frozen accounts - including the applicability of a security/deposit principle (10% pre-deposit or other protective measures) as a condition for relief.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of re-attachment of the same bank account after expiry of the initial one-year attachment under Section 83 CGST Act

Legal framework: Section 83 provides for provisional attachment of property, including bank accounts, for protection of revenue; such provisional attachments are time-limited and ordinarily valid for one year unless extended in accordance with the Act.

Precedent Treatment: The Court relied upon the controlling Supreme Court decision (referred to as Keshari Nandan Mobile) which held categorically that issuance of attachments upon expiry of the first attachment would not be permissible in law, subject to exceptions noted in that decision.

Interpretation and reasoning: The Court recognised the general principle against automatic re-attachment of the same property after expiry of the statutory period. However, it acknowledged that the controlling precedent itself contemplates circumstances in which re-attachment may be permissible (see paragraph 31 of the precedent) - i.e., where there is a change in circumstances or material new evidence justifying renewed protective measures.

Ratio vs. Obiter: The prohibition on mechanical re-attachment after the expiry of the one-year period is treated as the ratio of the precedent; the possibility of re-attachment on changed circumstances is a qualified exception equally emanating from the precedent and treated as binding guidance for cases presenting new material facts.

Conclusions: Re-attachment is not permissible as a matter of routine after expiry of the initial attachment period; however, re-attachment may be justified if there is a demonstrable change in circumstances or fresh material warranting protection of revenue as envisaged by the controlling precedent.

Issue 2: Application of the changed-circumstances exception where there is an allegation of fraudulent availment of ITC

Legal framework: The changed-circumstances exception must be evaluated against the facts alleged and supported by the Department; the Department bears the onus to show material new grounds justifying renewed attachment to protect revenue pending conclusion of proceedings.

Precedent Treatment: The Court referred to paragraph 31 of the controlling Supreme Court decision as the operative guidance allowing re-attachment in exceptional cases where circumstances have materially changed.

Interpretation and reasoning: The Respondent alleges fraudulent availment of ITC amounting to approx. Rs 40 crores from multiple suppliers - a substantial allegation said to constitute new material. The Petitioner disputes the allegation and points to business prejudice caused by freezing of accounts. The Court noted these competing contentions and observed that the question of validity of re-attachments on these grounds requires adjudication after pleadings and affidavits are complete.

Ratio vs. Obiter: The statement that large allegations of fraud can constitute changed circumstances sufficient to justify re-attachment is prima facie considered relevant but remains a matter for detailed adjudication (not finally decided on merits at the interim stage).

Conclusions: Allegations of extensive fraudulent ITC availment may, if supported by material, satisfy the changed-circumstances exception for re-attachment; however, the Court deferred final determination pending pleadings and directed filing of affidavits to test the factual matrix.

Issue 3: Lawfulness of provisional attachment in the absence of a Show Cause Notice under Section 74

Legal framework: Section 83 permits provisional attachment for protection of revenue; Section 74 relates to issuance of Show Cause Notices in certain penalty/penal provisions. Procedural fairness and statutory propriety require that investigations progress in accordance with mandated steps.

Precedent Treatment: The Court noted that in an earlier challenge a fresh provisional attachment was issued immediately after filing of a writ petition and observed with concern that, despite investigation commencing in May 2024, no SCN had been issued to date.

Interpretation and reasoning: The Court found it relevant that no SCN had been issued while attachments were in place, and that issuance of a fresh attachment immediately after contesting the earlier attachment raised procedural concerns. The absence of an SCN is material to the lawfulness and reasonableness of continued or renewed provisional attachment because the statutory process under which recovery/prosecution may follow had not been activated.

Ratio vs. Obiter: The Court's observation that no SCN has been issued is treated as a material fact affecting interim relief; the legal implication that attachment without commencement of statutory adjudicatory steps is suspect is applied as part of the Court's interim assessment (ratio for interim relief; final determination reserved).

Conclusions: The absence of a Show Cause Notice despite an ongoing investigation is a material factor weighing against unfettered continuance of freezing of funds; the Court required the Department to file a counter affidavit and reserved consideration of the broader legality of re-attachment until pleadings are complete.

Issue 4: Protective measures balancing revenue interest and petitioner's ability to conduct business - interim security and pre-deposit considerations

Legal framework: Courts balance protection of revenue against the right to carry on business and access to funds; interim measures (fixed deposits, security deposits, or pre-deposit percentages) are commonly imposed to protect revenue while mitigating hardship.

Precedent Treatment: The Court accepted the applicability of the general principle of protective deposits/pre-deposits (including reference to a 10% pre-deposit notion) but applied it flexibly in light of the record, available funds, and magnitude of alleged fraud.

Interpretation and reasoning: Considering that considerable funds remained in the frozen accounts (over Rs 6 crores) and that the petitioner had earlier paid Rs 1.2 crores under protest, the Court found the revenue's interest would be sufficiently protected by maintaining Rs 2 crores in a Fixed Deposit in the ICICI account. The Court thereby relaxed the freezing subject to this condition, permitting the petitioner to use remaining funds for business, while directing the Department to file counter-affidavit and reserving legal issues for later adjudication.

Ratio vs. Obiter: The direction to maintain Rs 2 crores in FD as interim protection is an operative interim order (ratio for the present relief). The Court's comments on the 10% pre-deposit principle are obiter to the extent they are not applied rigidly but inform the Court's balancing exercise.

Conclusions: Interim relief was granted subject to protective security - specifically, maintenance of Rs 2 crores in fixed deposit in the ICICI account - balancing revenue protection and the petitioner's right to conduct business; final adjudication on validity of re-attachment deferred until pleadings conclude.

Procedural and consequential directions (interim and interlocutory)

1. The Department to file a counter affidavit within four weeks and rejoinder, if any, within four weeks thereafter; the question of validity of re-attachments to be considered after pleadings are complete.

2. Interim relaxation: subject to maintaining Rs 2 crores in fixed deposit in the ICICI bank account, freezing of the two bank accounts is relaxed and the petitioner may conduct its business using remaining funds.

3. Final hearing dates and registry listing were directed for continued adjudication; prior writ challenging earlier attachment was rendered infructuous by issuance of a fresh attachment and thus disposed of earlier, but the present challenge proceeds on the merits after completion of pleadings.

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