Introduction
Central Goods and Services Tax (‘CGST’) Act contains provisions for ‘safeguarding the interest of Revenue’. These provisions are also known as provisions for ‘Provisional Attachment’.
‘Provisional Attachment’ is a process wherein the Tax Authorities restricts the taxpayer from having access to a specific set of assets held by them during pendency of proceedings, irrespective of the fact that the final liability in respect of transactions undertaken by such taxpayer is yet to be finalised. This process helps the tax authorities to prevent the taxpayer from disposing the assets and escaping with proceeds of such sales thereby leaving Tax Authorities optionless to recover liabilities.
Legal Provisions
Under GST law, Section 83 of CGST Act contains provisions empowering tax authorities to undertake provisional attachment during the pendency of proceedings under GST law. Section 83 of CGST Act provides as follows:
- 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, in such manner as may be prescribed.
- 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 sub-section (1)
From a plain reading of the above provisions, it can be clearly established that the above provisions are subjective in nature and there is no particular test or defined set of parameters that provide whether provisional attachment can take place or not in a particular case. From subjective understanding and experience, if the Commissioner of is of the opinion that it is necessary in the interest of revenue, he may order provisional attachment, irrespective of the interest of the taxpayer and the hardships which taxpayer may have to go through due to such provisional attachment.
Furthermore, whereas the sub-section (2) clearly provides that the provisional attachment shall cease to have effect after the expiry of one year from the date of order, there exists lack of clarity whether there exists any scope of renewal once the period of one year is completed from the date of provisional attachment in a case where the assessment of tax is taking a longer period of time.
Observations of Courts
The subjectivity in the law coupled with the hardships faced by the taxpayers has led the taxpayer to seek recourse from the various judicial forums in multiple cases. In respect of cases related to provisional attachment, whereas on the one hand, the tax authorities have always made an effort to justify their action, on the other hand the taxpayers have alleged that the tax authorities are using such stringent provisions as a tool for harassing of taxpayers. The taxpayers have also tried to highlight the hardships faced by them due to exercise of such stringent provisions by the tax authorities.
Whereas the judicial forums have always made extraordinary efforts to answer this unanswered question and lay down jurisprudence for tax authorities to enable them use their powers cautiously and with due care, however, irrespective of the fact whether the Tax Authorities have exercised their powers with caution or not, the taxpayers in various instances have sough Court’s interference for seeking relief and navigating from hardships caused due to Tax Authority’s actions.
A landmark judgement setting judicial precedent in relation to provisional attachment is of M/s Radha Krishan Industries vs State of Himachal Pradesh & Ors. (2021-VIL-50-SC) wherein the Appellant had challenged the order of provisional attachment passed by the Join Commissioner before the Hon’ble Supreme Court.
In the said case, the Tax Authorities had attached the account receivables of the petitioner on the grounds that the inward and outward supply transactions undertaken by the supplier of the Petitioner were found to be fictitious and therefore, the Petitioner was not eligible to claim the Input Tax Credit (‘ITC’) in respect of supplies received from the said supplier as per provisions of Section 16 of CGST Act.
In the said case, whereas the Tax Authorities provisionally attached the receivables of the Petitioner, an opportunity of being heard was also not provided which was available to the Petitioner in accordance with provisions of Rule 159(5) of CGST Rules. In this case, the Tax authorities took a plea that once the Petitioner had filed objections, then any opportunity of hearing was discretion of Ld. Commissioner.
In the above case, after thorough examination of the case and jurisprudence available in this regard, the Hon’ble Court inter-alia held as follows:
(iv) The power to order a provisional attachment of the property of the taxable person including a bank account is draconian in nature and the conditions which are prescribed by the statute for a valid exercise of the power must be strictly fulfilled;
(v) The exercise of the power for ordering a provisional attachment must be preceded by the formation of an opinion by the Commissioner that it is necessary so to do for the purpose of protecting the interest of the government revenue. Before ordering a provisional attachment, the Commissioner must form an opinion on the basis of tangible material that the assessee is likely to defeat the demand, if any, and that therefore, it is necessary so to do for the purpose of protecting the interest of the government revenue.
(vi) The expression “necessary so to do for protecting the government revenue” implicates that the interests of the government revenue cannot be protected without ordering a provisional attachment;
(vii) The formation of an opinion by the Commissioner under Section 83(1) must be based on tangible material bearing on the necessity of ordering a provisional attachment for the purpose of protecting the interest of the government revenue;
(viii) In the facts of the present case, there was a clear non-application of mind by the Joint Commissioner to the provisions of Section 83, rendering the provisional attachment illegal;
(ix) Under the provisions of Rule 159(5), the person whose property is attached is entitled to dual procedural safeguards:
(a) An entitlement to submit objections on the ground that the property was or is not liable to attachment; and
(b) An opportunity of being heard;
There has been a breach of the mandatory requirement of Rule 159(5) and the Commissioner was clearly misconceived in law in coming into conclusion that he had a discretion on whether or not to grant an opportunity of being heard;
(x) The Commissioner is duty bound to deal with the objections to the attachment by passing a reasoned order which must be communicated to the taxable person whose property is attached;
The above observations and comments of the Hon’ble Apex Court clearly establishes the impact, which Provisional Assessment may have on the business of the taxpayer. However, it is imperative to note that the Hon’ble Apex Court provides a set of guidelines which Tax Authorities should adhere to for constructive use of draconian provisions wherever necessary. Adherence to the same ensures that the provisions are cautiously exercised after analysis of the situation in hand before the Commissioner.
On the basis of the above observations of Hon’ble Apex Court, various High Courts have either upheld or have quashed the orders of Provisional Attachment on the basis of factual matrix of each case.
In a recent case of M/s Rajat Infra Developers Pvt Ltd. Vs Union of India (2025-VIL-257-ALH), the taxpayer approached High Court of Allahabad challenging the provisional attachment of bank account of the petitioner. The petitioner relied on judgment of Radha Krishan Industries (Supra) and sought removal of Provisional Attachment. However, after careful examination of the factual matrix of the particular case and the reasons of Provisional Attachment recorded by the Tax Authorities, the Hon’ble Court upheld the act of Provisional Attachment by the Tax Authorities.
Conclusion
An act of exercise of Provisional Attachment in itself subjective in nature and exercise of the same depends upon the opinion formed by the Commissioner on the basis of factual matrix of each case.
For a taxpayer, provisional attachment is draconian as it hampers the business and affects the livelihood of not merely the taxpayer but also employees and other persons dependent on such business.
However, whether such provisional attachment is justified or a tool to harass taxpayer would depend upon various aspects. This is due to the reasons that whereas it is necessary to ensure that bonafide taxpayers should not suffer, however, it is equally important interest of revenue is also safeguarded and the elements having malice element are culled out of the tax ecosystem.
The taxpayers would have to introspect and would need to check as to whether the Commissioner has followed the due process laid by the law in exercising powers of the Provisional Attachment before approaching courts for seeking appropriate relief. On the other hand, a judicious exercise of powers by the Tax Authorities would ensure that GST would meet its implementation objectives and make tax ecosystem simpler for common citizens of this Country.
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