Bank Cannot Freeze Account Solely Due to Voluntary GST Cancellation for Exempt Goods: Rajasthan HC [Read Order]
The Rajasthan High Court ruled that a bank cannot freeze a company’s account merely because of voluntary GST cancellation when the business deals in tax-exempt goods
Freeze Account
Freeze Account
In a recent decision, the Rajasthan High Court at Jodhpur held that a bank cannot freeze a company’s account merely because its GST ( Goods and Services Tax ) registration was voluntarily cancelled, especially when the business deals in goods exempted from GST under Chapter 10 of the Harmonized System of Nomenclature (HSN).
Bhilwara Trading Company, through its proprietor Rakesh Somani, filed a writ petition against the Bank of Baroda, Gandhi Nagar Branch, Bhilwara, challenging the freezing of its current account.
The petitioner’s counsel stated that it deals in goods exempt from GST and had voluntarily applied for cancellation of its GST registration, which the department approved with effect from 31 January 2025.
Despite this, the bank froze the company’s account, citing directions under the GST Act, 2017 and the Reserve Bank of India guidelines treating such accounts as high risk.
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The petitioner’s counsel argued that the freezing of the account was arbitrary and without prior notice, thereby violating Articles 14 and 19(1)(g) of the Constitution of India. They also argued that since the business was lawfully exempt from GST, the bank’s action was unjustified and had disrupted normal business operations.
The single-judge bench comprising Justice Nupur Bhati observed that the petitioner should be given an opportunity to explain its position before the bank.
The court directed the petitioner to submit a detailed representation to the Bank of Baroda within ten days, along with documents showing that its goods are exempt under Chapter 10 of the HSN and that the GST registration was cancelled voluntarily after due verification by the department.
The bank was directed to decide the representation within one month by passing a speaking order.
The court explained that until the bank makes its final decision, the petitioner must be allowed to operate the account and carry out regular transactions. The writ petition and all pending applications were accordingly disposed of.
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