Provisional Attachment: 1-Year Limit on Bank Account Freeze - Bharat Parihar v. State of Maharashtra

[Bombay HC] Provisional attachment of a bank account cannot continue after the expiry of a year from the date of the original attachment.

In the case of Bharat Parihar v. State of Maharashtra Thr. PP Office and Ors., 152 taxmann.com 6 (Bombay) it was held that u/s 83 of the Central Goods and Services Tax Act, 2017 (“CGST”) the provisional attachment of a bank account, shall cease to be effective after the expiry of one year from the date of its attachment.

Brief Facts

• The Petitioner challenged the provisional attachment of his bank account in Mumbai, made u/s 83 of the CGST Act. The provisional attachment was initially made on 21.04.2022, and a subsequent communication dated 19.04.2023 stated that the provisional attachment would be retained and continued.

• Further, the said provisional attachment order which was passed on 21.04.2022, ceased to be effective from 21.04.2023 i.e., after the expiry of one year from the date of such order being passed. With respect to the said facts, the Court observed that there was no fresh order being issued by the Respondents on 19.04.2023 to attach the Petitioner's bank account and hence the previous order cannot be continued.

• According to Section 122(1-A) of the CGST Act, it states that “any person”, who has retained the benefit of a transaction and in whose presence, the transaction is conducted, does not contemplate of a situation where the person should be located within the State in which the transaction is carried out. Furthermore, it was also alleged that the Petitioner had fraudulently claimed the GST refund and had become the beneficiary of it.

• Owing to the aforementioned fact, the jurisdiction and validity of the provisional attachment communication dated 21.04.2022 and 19.04.2023 were also challenged, as the Petitioner and the bank account of the Petitioner against which the provisional attachment was passed were located in Chennai.

Held

• This Hon'ble Court held that the communication dated 21.04.2022, which provisionally attached the Petitioner's bank account is illegal and invalid u/s Section 83(2) of the CGST Act. Furthermore, Hon’ble Court also observed that the extension of the said provisional attachment order vide communication dated 19.04.2023 was also illegal and invalid, hence it was quashed and set aside.

• The Hon’ble High Court further held that the powers given to the Commissioners u/s 83 of the CGST Act read with Section 122(1-A) of the CGST Act, empower the Commissioner to take action against "any person", including a person located outside the jurisdiction of the said Commissioner. Considering this fact, the Court not only quashed the retained communication dated 21.04.2022 which provisionally attached the Petitioner's bank account but also quashed the extension of the provisional attachment dated 19.04.2023 as per the provisions of section 83 (2) of the CGST Act.

Conclusion

• Since the provisional attachment order is a grave step taken towards an Assessee, this judgement will assist the Assessees in releasing their bank accounts that have been frozen for more than a year due to expired provisional attachment.

• In this case, the jurisdiction of the provisional attachment was also addressed, and the Court clearly stated that as per the provisions of Section 122 (1-A) of the CGST act, the Commissioner has the power to exercise jurisdiction over any person, irrespective of the jurisdiction in which the person is located.

• As it is also observed by the Apex Court that the provisional attachment order is a draconian step as it freezes the account of the person being assessed, causing serious financial hardships to the Assessee. Hence, this judgement will be a welcome relief to all those Assessees whose bank accounts have been provisionally attached by the CGST authorities abusing their powers against section 83 of the CGST Act and has retained or extended the expired provisional attachment orders arbitrarily causing serious financial troubles to the Assesses.

*Authored by Aishwarya Pawar, Associate at Metalegal Advocates. The views are personal and do not constitute legal opinion. *