Gujarat High Court Mandates Release of Seized Assets Following Statutory Lapses by Tax Authorities

The Hon'ble High Court of Gujarat in Reevan Creation vs. State of Gujarat [R/Special Civil Application No. 21039 of 2023] dated January 9, 2026 held that since the competent officer failed to issue a notice within six months of seizure as mandated under Section 67(7) of the Central Goods and Services Tax Act, 2017, and the provisional attachment of bank accounts exceeded the one-year statutory limit prescribed under Section 83(2), the seized items and bank accounts must be released. The Court observed that the statutory timelines are mandatory and any continued retention of property or freezing of accounts beyond these periods, without the issuance of requisite notices or fresh orders, is legally unsustainable.

FACTS OF THE CASE

On March 9, 2022, the Assistant Commissioner of State Tax (Ghatak-8) conducted a search under Section 67(2) of the Goods and Services Tax Act, 2017, at the registered premises of the Petitioner, doing business as J.K. Traders Proprietorship. Following this search, on March 10, 2022, the Respondent Authority issued an order of provisional attachment in Form GST DRC-22 (hereinafter referred to as "the provisional attachment order"), which attached the Petitioner’s bank accounts maintained with HDFC Bank and SBI Bank.

During continued search proceedings on March 14, 2022, the Respondent Authority seized 1175.82 grams of gold mixed with other metals, silver, diamonds, and jewellery, alongside ₹5,54,130 in cash. An order of seizure in Form GST INS-02 (hereinafter referred to as "the order of seizure") was issued accordingly. These actions were part of a broader investigation into alleged tax evasion, during which a panchanama was prepared and an individual named Mr. Anant Shah was arrested on March 13, 2022.

The Petitioner contended that despite the passage of more than 20 months from the date of seizure, the Respondent Authority neither released the seized items nor defreezed the bank accounts. The Petitioner submitted formal requests for the release of goods and the lifting of attachments via letters dated September 6, 2023, October 5, 2023, and October 17, 2023. Receiving no response to these grievances, the Petitioner filed the current Writ Petition (hereinafter referred to as "the writ petition").

Arguments of the Petitioner: The learned Counsel for the Petitioner argued that under Section 83(2), a provisional attachment order automatically expires after a period of one year. Furthermore, the learned Counsel for the Petitioner emphasized that pursuant to Section 67(7), the failure to issue a notice within six months of seizure mandates the return of the seized goods to the person from whom they were taken. The Petitioner placed heavy reliance on the judicial precedent of Bharatkumar Pravinkumar and Co. v. State of Gujarat.

Arguments of the Respondent: The learned Assistant Government Pleader, representing the Respondent Authority, opposed the writ petition by alleging a massive tax evasion of approximately ₹26.75 Crore involving various firms operated by the Petitioner. The Respondent Authority explained that the procedural delay arose because investigation files were transferred to a single conducting officer on April 27, 2022, to streamline the complex case. Notably, a notice under Section 130 (hereinafter referred to as "the notice of confiscation") was only issued on June 21, 2024—more than two years after the initial seizure—during the pendency of the writ petition.

ISSUE

1. Whether the provisional attachment of bank accounts can continue beyond the one-year period prescribed under Section 83(2) of the GST Act.

2. Whether the Respondent Authority is mandated to return seized goods and cash if no notice is issued within six months as required under Section 67(7) of the GST Act.

HELD BY THE COURT

The Hon'ble High Court of Gujarat in Reevan Creation vs. State of Gujarat [R/Special Civil Application No. 21039 of 2023] held that:

The Court observed that the provisional attachment of the Petitioner’s bank accounts had expired by operation of law. Under Section 83(2) of the GST Act, such attachments are valid only for a maximum period of one year. The Respondent Authority explicitly admitted that no fresh order of provisional attachment had been passed after the initial order on March 10, 2022, thereby rendering the continued freezing of the accounts a clear violation of statutory limits.

Regarding the seizure of gold mixed with other metals and cash, the Court reaffirmed the mandatory nature of Section 67(7). The statute dictates that seized goods must be returned if no notice is issued within six months. The Court found that the competent officer failed to issue any notice within this timeframe, and the subsequent retention of the goods for over 20 months was devoid of legal authority.

The Court delineated "The Four Pillars of Procedural Failure" attributable to the Respondent Authority: (i) the failure to issue a notice within the initial six-month window; (ii) the failure to utilize the proviso of Section 67(7) to seek a lawful extension of time; (iii) the expiration of the provisional bank attachment without the issuance of a fresh order; and (iv) the issuance of the notice of confiscation only after a delay of two years and during the pendency of the writ petition.

The Hon'ble High Court lambasted the conduct of the officials, characterizing the lapses as a "serious dereliction in carrying out official duty." The Court sarcastically remarked that the "thoughtful" approach of the officers in ignoring statutory timelines and limitation periods appeared calculated to give leverage to the Petitioner. This negligence effectively paved the way for the Petitioner to escape confiscation despite the grave allegations of loss caused to the Revenue.

Consequently, the Court allowed the writ petition and issued a peremptory directive to the Respondent Authority to release the seized gold, metals, and cash, and to lift the provisional attachment of the bank accounts. These directives must be implemented within ten days from the date of receipt of the Court’s order.

Finally, the Court directed the Chief Commissioner of State Tax to conduct a formal inquiry against the officers involved in these procedural failures. This inquiry is specifically intended to investigate the loopholes left by the officials which ultimately benefited the Petitioner at the cost of the Revenue, ensuring accountability for the fiscal impact of such official omissions.

RELEVANT SECTIONS

• Section 67 of the Central Goods and Services Tax Act, 2017 – Power of inspection, search and seizure.

• Section 67(7) of the Central Goods and Services Tax Act, 2017 – Mandatory return of goods if notice not issued within six months.

• Section 83(2) of the Central Goods and Services Tax Act, 2017 – Expiry of provisional attachment after one year.

• Section 130 of the Central Goods and Services Tax Act, 2017 – Confiscation of goods or conveyances and levy of penalty.

PARI MATERIA / CASES REFERRED

1. Bharatkumar Pravinkumar and Co. v. State of Gujarat: GST 756/79 GSTL 28 (Gujarat) – This precedent was cited to support the contention that seized articles and bank accounts must be released when the Respondent Authority breaches the strict statutory timelines for notices and attachments.

__________________________________________________________

DISCLAIMER: The views expressed are strictly of the author and NLF Tax and Legal Advisory. The contents of this article are solely for informational purposes and for the reader’s personal non-commercial use. It does not constitute professional advice or a recommendation of the firm. Neither the author nor the firm and its affiliates accept any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon. Further, no portion of our article or newsletter should be used for any purpose(s) unless authorized in writing, and we reserve the legal right for any infringement on usage of our article or newsletter without prior permission