Bank Accounts can be defreezed, which were reattached after Lapse: SC

RHC Global Exports Private Limited & Ors. Vs Union of India & Ors. (Supreme Court of India)

Summary: In the case of RHC Global Exports Pvt. Ltd. & Ors. v. Union of India, the Supreme Court addressed the legality of reattaching bank accounts after an initial attachment had expired. The applicant, engaged in the gem and jewelry business in Surat’s Special Economic Zone, faced attachment of three bank accounts due to provisions under the Central Goods and Services Tax Act, 2017 (CGST Act). While two of the accounts were confirmed as no longer attached, the third account had been reattached after the initial attachment lapsed. The applicant contended that once the attachment expired, the tax authorities lacked the jurisdiction to reattach the account, leading to the present legal challenge.

Introduction: The Supreme Court concluded that the reattachment of the bank account violated the provisions of the CGST Act. It directed the tax authorities to lift the attachment and defreeze the bank account, as the renewal of the attachment lacked lawful basis. The Court also referenced a recent advisory circular that clarified the procedures surrounding the provisional attachment of property under the CGST Act, emphasizing the importance of adhering to statutory time frames for attachments. This ruling highlights the need for tax authorities to operate within the confines of the law, ensuring that procedural guidelines are respected when dealing with taxpayers’ assets.

The Hon’ble Supreme Court in the case of RHC Global Exports Pvt. Ltd. & Ors. v. Union of India [SLP(C) No. 015992 – 015994 / 2023 dated September 18, 2024] allowed the application and directed ‘lifting’ and ‘defreezing’ of bank account attachment. Although, attachment had lapsed, there has been a renewal of attachment. Hence, directed to unfreeze the bank account that was previously frozen (blocked from access) and had been re-attached or frozen again after the original freeze had expired.

Facts:

M/s RHC Global Exports Pvt. Ltd. (“the Applicant”) had principal place of business in Surat Special Economic Zone (“SEZ”) and was engaged in the business of Gem and Jewellery. Three bank accounts were attached. The first account was lapse, in terms of the second account there was no attachment and in terms of the third account, although the attachment got lapsed in accordance with section 83(2) of the Central Goods and Services Tax Act, 2017 (“the CGST Act”), it was renewed and therefore, it was attached.

The Applicant contended that there was no ground to lift the said attachment because once the attachment expires by in accordance with 83(2) of the CGST Act, there is no provision or jurisdiction vested with the Department to once again attach an account. In the circumstances, the attachment made on August 30, 2024 insofar as the third account is concerned is without authority of law and therefore, a direction may be issued for lifting of the said attachment. The first account has lapsed and that there is no attachment of the second account, a direction may be issued for lifting of the attachment insofar as the third account is concerned.

Further, Circular bearing F. No. GST/INV/Provisional Attachment/Advisory/2023-24 dated September 2, 2023 (“the Circular”) states that a time-frame for the initiation and conclusion of proceedings and bearing in mind the effect of the expiry of the attachment in Section 83(2) of the CGST Act.

Hence, aggrieved by the circumstances, the Applicant filed the present Interim Application.

Issue:

Whether bank accounts can be defreezed, which were reattached after lapse?

Held:

The Hon’ble Supreme Court in SLP(C) No. 015992 – 015994/2023 held as under:

• Held that, the attachment made of the third account by the Respondent on August 30, 2024 be lifted and the account be defreezed allowed the interim application.

Our Comments:

Section 83 of the CGST Act governs the provisional attachment to protect revenue in certain cases. Further, Section 83(1) of the CGST Act was substituted vide The Finance Act 2021 dated January 01, 2022. It states that where , after the initiation of any proceeding under Chapter XII, Chapter XIV or Chapter XV, the Commissioner is of the opinion that for the purpose of protecting the interest of the Government revenue it is necessary so to do, he may, by order in writing, attach provisionally, any property, including bank account, belonging to the taxable person or any person specified in sub-section (1A) of section 122 of the CGST, in such manner as may be prescribed. Lastly, Section 83(2) of the CGST Act, every such provisional attachment shall cease to have effect after the expiry of a period of one year from the date of the order made under section 83(1) of the CGST Act.

Section 83 of the CGST Act is read with Rule 159 of the Central Goods and Service Tax Rules, 2017 (“the CGST Rules”). Rule 159 of the CGST Rules governs the provisional attachment of property. It states as follows:

1. Where the Commissioner decides to attach any property, including bank account in accordance with the provisions of section 83 of the CGST Act, he shall pass an order in FORM GST DRC-22, the details of property which is attached.

2. The Commissioner shall send a copy of the order of attachment in FORM GST DRC-22 to the concerned Revenue Authority or Transport Authority or any such Authority to place burden on the said movable or immovable property, which shall be removed only on the written instructions from the Commissioner to that effect or on expiry of a period of one year from the date of issuance of order under sub-rule (1), whichever is earlier, and a copy of such order shall also be sent to the person whose property is being attached under section 83 of the CGST Act.

3. Where the property attached is of perishable or hazardous nature, and if the person, whose property has been attached, pays an amount equivalent to the market price of such property or the amount that is or may become payable by such person, whichever is lower, then such property shall be released forthwith, by an order in FORM GST DRC-23, on proof of payment.

4. Where such person fails to pay the amount referred to in sub-rule (3) in respect of the said property of perishable or hazardous nature, the Commissioner may dispose of such property and the amount realized thereby shall be adjusted against the tax, interest, penalty, fee or any other amount payable by such person.

5. Any person whose property is attached may file an objection in FORM GST DRC-22A to the effect that the property attached was or is not liable to attachment, and the Commissioner may, after affording an opportunity of being heard to the person filing the objection, release the said property by an order in FORM GST DRC- 23.

6. The Commissioner may, upon being satisfied that the property was, or is no longer liable for attachment, release such property by issuing an order in FORM GST DRC- 23.

In accordance with the law, the CBIC issued the Circular (supra) for procedure to be followed with respect to Section 83(2) of the CGST Act and provisional attachment of property ceases to have effect because there were instances noticed where the person concerned filed writ petition seeking that Commissioner should also follow up by issuing intimation of release of such provisional attachment because Banks/relevant authority ask for such communication. Such matters have come up before the Hon’ble High Court of Delhi.

The Circular clarified that as per the property is no longer liable to provisional attachment, however, it requires further consultation and actions to incorporate a prescribed language for such type of release/restoration of provisional attachment in a specified Form like FORM GST DRC-23.

Therefore, keeping in view the convenience of taxpayers, the Board prescribes the procedure that in such types of situations, the Commissioner shall issue communication/an intimation to the concerned authority/bank, drawing attention to the particulars of the Order/GST Form DRC-22 (which made the provisional attachment) and the provisions of section 83 (2) of the CGST Act, and further indicating the release/restoration of the relevant property/account, in terms of those provisions.

FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT

We have heard learned senior counsel for the petitioners and learned senior counsel for the respondent-State and others on the application filed by the petitioners herein.

During the course of submissions, learned senior counsel for the respondent-State submitted that three bank accounts are the subject matter of this application: the attachment in respect of the First Account (Account No.18961900005060) lapsed on 03.03.2024. That in fact there is no attachment of the Second Account (Account No.20012021006064) mentioned by the petitioners herein; that as far as the Third Account (Account No.916020074041235) is concerned although the attachment lapsed on 03.03.2024 by virtue of sub-section (2) of Section 83 of the Central Goods and Services Tax, Act, 2017 (hereinafter referred to as the “Act’) there has been a renewal of the attachment on 30.08.2024 and the third account is presently attached. There is no ground made out by the petitioners for lifting the said attachment. Hence, there is no merit in this application and the same may be dismissed.

In response to this submission, learned senior counsel for the petitioners stated that once the attachment expires by virtue of operation of law in terms of sub-section (2) of Section 83 of the Act, there is no provision or jurisdiction vested with the Department to once again attach an account. In the circumstances, the attachment made on 30.08.2024 insofar as the third account is concerned is without authority of law and therefore, a direction may be issued for lifting of the said attachment. Submission was made that keeping in view the fact that the attachment of the first account has lapsed and that there is no attachment of the second account, a direction may be issued for lifting of the attachment insofar as the third account is concerned.

Learned senior counsel for the petitioners also brought to our notice a Circular dated 02.09.2023 and particularly to paragraph ‘3.1’ of the said Circular which prescribes a time-frame for the initiation and conclusion of proceedings and bearing in mind the effect of the expiry of the attachment in sub-section(2) of Section 83 of the Act.

Having regard to the aforesaid facts, we allow the application made by the petitioners herein. We direct that the attachment made of the third account by the respondent-State (Department) on 30.08.2024 be lifted and the account be defreezed.

The application is disposed of in the aforesaid terms.

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