The Bombay High Court, in a judgment delivered in June 2023, held that a provisional attachment of a bank account ordered under Section 83 of the Central Goods and Services Tax Act, 2017 (CGST Act) ceases to have effect after the expiry of one year from the date of the attachment order, by operation of Section 83(2). The Court further held that mere file notings or letters sent by tax authorities to banks directing them to retain the attachment do not constitute valid orders of provisional attachment.
Background
The petitioner challenged the continued freezing of his bank account beyond the one-year statutory period prescribed under Section 83(2) of the CGST Act. The GST authorities had issued a provisional attachment order during the pendency of proceedings, and after the one-year period expired, had sent a letter to the petitioner's bank directing it to continue maintaining the attachment. The petitioner argued that this letter was not a fresh order of provisional attachment and that the original attachment had lapsed by operation of the statutory limitation.
Section 83 of the CGST Act empowers the Commissioner to provisionally attach the property, including bank accounts, of a taxable person during the pendency of proceedings under Sections 62, 63, 64, 67, 73, or 74 of the Act, to protect the interests of government revenue. However, Section 83(2) provides a statutory safeguard: every provisional attachment order ceases to have effect after the expiry of one year from the date of the order.
Key Holdings
The Bombay High Court ruled on the following points:
Automatic cessation after one year: The provisional attachment under Section 83 ceases to have effect automatically upon completion of one year from the date of the original order. No separate order of release is required. The statutory language of Section 83(2) is self-executing.
Letter is not an order: A letter sent by a tax officer to the bank directing continued retention of the attached account does not constitute a fresh provisional attachment order under Section 83(1). A valid provisional attachment requires a formal order passed by the Commissioner during the pendency of qualifying proceedings, meeting all statutory prerequisites.
File notings insufficient: Internal file notings within the tax department cannot serve as the legal basis for extending a provisional attachment beyond the statutory one-year period. The taxpayer's right to access their funds revives automatically upon expiry.
Attachment quashed: The Court quashed the continued attachment and directed the bank to release the petitioner's account from the operational restrictions imposed beyond the one-year period.
Implications for Practitioners
This judgment provides significant relief to taxpayers and businesses whose bank accounts have been subjected to prolonged provisional attachment under GST proceedings. Tax litigation practitioners should immediately audit all cases where Section 83 attachments have been in place for over one year, as the statutory cessation may entitle their clients to immediate release of funds.
The ruling that letters or communications from tax authorities to banks do not constitute valid fresh attachment orders is particularly important. In practice, many GST authorities have adopted the informal approach of writing to banks to extend freezing periods, bypassing the formal requirements for passing a fresh Section 83(1) order. This judgment closes that avenue.
Corporate counsel should ensure that banking relationships include protocols for verifying the legal validity of attachment orders, particularly where the one-year period under Section 83(2) may have elapsed.