The Importance of Judicial Prudence in Provisional Bank Account Attachments under GST Law [Find Draft Reply Format Here]

The GST is a destination-based tax on the consumption of goods and services. The Goods and Services Tax (GST) regime, which went into effect in 2017, has revealed a new aspect of India’s indirect tax structure.

The provisional attachment of bank accounts under the Central Goods and Services Tax (CGST) Act, 2017, has become a sensitive subject, particularly when it comes to protecting businesses’ interests while also protecting government revenue. The power to provisionally attach bank accounts, granted by Section 83 of the CGST Act, is an extreme measure designed to protect against prospective tax liabilities. However, it must be used with extreme caution because it can have serious consequences for a company’s financial health and operational continuity.

GST Provisions with regard to Provisional Bank Account Attachments Under GST Law

Section 83 of the CGST Act authorizes tax authorities to provisionally attach properties, including bank accounts, if they believe it is necessary to protect revenue. However, this authority is not absolute and must be utilized carefully.

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Section 83 of the Act states that: “Provisional attachment to protect revenue in certain cases. (l) Where during the pendency of any proceedings under section 62 or section 63 or section

or section 67 or section 73 or section 74, the Commissioner is of the opinion that for the of protecting the interest of the Government revenue, it is necessary to do, he may, by or

writing attach provisionally any property, including bank account, belonging to the taxable in such manner as may be prescribed.

(2) Every such provisional attachment shall cease to have effect after the expiry of a period year from the date of the order made under sub-section (l). “

 Inferring from Section 83 of the CGST Act, the following grounds must exist for resorting to provisional attachment of property under the provisions of Section 83 of the Act:

• There must be a pendency of a proceeding against a taxable person under the sections mentioned in section 83 of the CGST Act,
• The Commissioner must have formed the opinion that provisional attachment to the property belonging to the taxable person is necessary for the purpose of protecting the interest of the government revenue.

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With regard to the attachment period, every provisional attachment shall cease to have effect after the expiry of a period of one year from the date of the provisional attachment order. Property exempt from attachment and sale for implementation of a civil court decree is exempt from interim attachment under the Code of Civil Procedure, 1908.

The provisional attachment of bank accounts under the Central Goods and Services Tax (CGST) Act, 2017, is a strong power granted to tax authorities to safeguard government revenue. However, this power must be exercised with caution and restraint, as it can have severe consequences for businesses. Judicial precedents have established the fact that provisional attachment should be a measure of last resort, used only when there is a genuine risk of revenue loss. Courts have repeatedly cautioned against the routine or mechanical use of this provision, as it can disrupt business operations and lead to unnecessary litigation.

Moreover, the attachment of bank accounts should only be resorted to when other measures are insufficient to secure the revenue’s interest. The court also highlighted that this power should not be used to harass taxpayers or cause irreversible harm to their businesses.

To strike a balance between protecting revenue and ensuring business continuity, courts have often allowed the removal of provisional attachments subject to the maintenance of a minimum balance in the bank account.

As the GST regime evolves, it is crucial for tax authorities to exercise their powers judiciously. The provisional attachment of bank accounts should not become a routine measure but should be reserved for cases where there is a clear and present risk to revenue. By adopting a balanced approach and adhering to judicial guidelines, tax authorities can uphold the spirit of the law without unduly burdening businesses. This will not only protect the interests of the government but also foster a more business-friendly environment, ensuring the smooth functioning of the economy.

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