High Court quashes provisional attachment of bank accounts issued without proper reasons under Section 83 GST Act

The Hon'ble High Court of Judicature at Allahabad in M/s Soraza Recycling Private Limited vs. Union Of India And 4 Others [Writ Tax No. 4630 of 2025] dated September 22, 2025 held that provisional attachment orders under Section 83 of the Central Goods and Services Tax Act, 2017 issued without proper reasons and based merely on the ground that proceedings have been launched under Section 74 are perverse, arbitrary, and without any basis in law. The Court held that Section 83, being a draconian provision, requires formation of proper opinion based on adequate reasons and tangible material before such action can be taken. The Court quashed both provisional attachment notices dated July 23, 2025, and directed the authorities to release the same within 48 hours, while clarifying that authorities are not hindered from issuing fresh notices in accordance with law.

FACTS OF THE CASE

The Petitioner, M/s Soraza Recycling Private Limited, was a registered taxpayer under the Central Goods and Services Tax Act, 2017 (the Act).

The revenue authorities conducted a search in the premises of the Petitioner, and investigation against the Petitioner was stated to be an ongoing process. The revenue stated that Section 74 proceedings would be initiated against the Petitioner at the earliest.

On July 23, 2025, Respondent No. 2 passed impugned orders of provisional attachment in Form DRC-22, provisionally attaching two bank accounts of the Petitioner - bank account number 120033996329 maintained with Canara Bank, Kotdwar Branch and bank account bearing number 25430200000000263 maintained with Indian Overseas Bank, Kotdwar Branch, under Section 83 of the Act.

Subsequently, on July 28, 2025, Respondent No. 3 passed an impugned order blocking the electronic credit ledger of the Petitioner to the tune of Rs. 1,95,57,339/-.

The learned counsel for the Petitioner submitted that the reasons provided in the attachment notice were absolutely false and contrary to the facts. He submitted that the reason for attachment had been stated to be that proceedings had been launched against the aforesaid taxable person under Section 74 of the Act. He further submitted that till date, no show cause notice had been issued under Section 74 of the Act. He also submitted that Section 83 of the Act, being a draconian provision wherein the bank accounts of the Petitioner had been attached resulting in complete halt in the business of the Petitioner, was to be applied in rare instances and only after proper reasons for the same were provided by the authorities.

The provisional attachment letter issued to the Petitioner stated that proceedings had been launched against the Petitioner under Section 74 of the CGST Act 2017 to determine the tax or any other amount due from the Petitioner. It stated that as per information available with the department, the said person had the mentioned bank account. The letter stated that in order to protect the interests of revenue and in exercise of powers conferred under Section 83 of the Act, the Commissioner of CGST, Noida provisionally attached the aforesaid accounts and all other bank accounts associated with the PAN number. However, the letter did not contain any specific reasons for the provisional attachment beyond stating that proceedings had been launched under Section 74.

Per contra, the learned counsel appearing on behalf of the revenue submitted that a search was carried out in the premises of the Petitioner and the investigation against the Petitioner was an ongoing process. He submitted that Section 74 proceedings would be initiated against the Petitioner at the earliest. He supported the attachment order passed on July 23, 2025, stating that the authorities were of the view that the Petitioner may alienate a sum of money that was lying in his bank accounts.

The Petitioner was aggrieved by the provisional attachment orders dated July 23, 2025, and the blocking order dated July 28, 2025, on the ground that these orders were passed without providing proper reasons and without formation of reasoned opinion, and therefore filed the present writ petition seeking to quash the impugned orders.

ISSUE

Whether provisional attachment orders under Section 83 of the Central Goods and Services Tax Act, 2017 can be sustained when issued without proper reasons and based merely on the ground that proceedings have been launched under Section 74, particularly when no show cause notice has been issued and no tangible material or formation of reasoned opinion demonstrating necessity to protect government revenue has been provided?

HELD BY THE COURT

The Hon'ble High Court of Judicature at Allahabad in Writ Tax No. 4630 of 2025 held that:

1.   The Court observed that a plain reading of Section 83 of the Act reveals that the provisional attachment should only be carried out to protect the interest of the Government when the authorities find it necessary to do so, and such order of attachment is required to be in writing. The Supreme Court and this Court in catena of judgments have categorically held that the reasons provided in the attachment notice must be proper. Lack of reasons would result in quashing of the provisional attachment as a valuable right of the petitioner is threatened by the said provisional attachment.

2.   The Court extensively quoted from the Supreme Court judgment in Radha Krishan Industries v. State of H.P. reported in (2021) 6 SCC 771, which categorically held that opinion for provisional attachment must be based on existence of some tangible material and should not be based on mere discretion of authorities. The Court held that before the Commissioner can levy a provisional attachment, there must be a formation of "the opinion" and that it is necessary "so to do" for the purpose of protecting the interest of the government revenue. The power to levy a provisional attachment is draconian in nature. Conscious as the legislature was of the draconian nature of the power and the serious consequences which emanate from the attachment of any property including a bank account of the taxable person, it conditioned the exercise of the power by employing specific statutory language which conditions the exercise of the power.

3.   The Court opined that the language of the statute indicates first, the necessity of the formation of opinion by the Commissioner; second, the formation of opinion before ordering a provisional attachment; third, the existence of opinion that it is necessary so to do for the purpose of protecting the interest of the government revenue; fourth, the issuance of an order in writing for the attachment of any property of the taxable person; and fifth, the observance by the Commissioner of the provisions contained in the rules in regard to the manner of attachment. Each of these components of the statute are integral to a valid exercise of power. When the exercise of the power is challenged, the validity of its exercise will depend on a strict and punctilious observance of the statutory preconditions by the Commissioner. The formation of the opinion must bear a proximate and live nexus to the purpose of protecting the interest of the government revenue.

4.   The Court held that by utilizing the expression "it is necessary so to do", the legislature has evinced an intent that an attachment is authorized not merely because it is expedient to do so (or profitable or practicable for the Revenue to do so) but because it is necessary to do so in order to protect interest of the government revenue. Necessity postulates that the interest of the Revenue can be protected only by a provisional attachment without which the interest of the Revenue would stand defeated. Necessity postulates a more stringent requirement than a mere expediency. The exercise of unguided discretion cannot be permissible because it will leave citizens and their legitimate business activities to the peril of arbitrary power. Each of these ingredients must be strictly applied before a provisional attachment on the property of an assessee can be levied. The Commissioner must be alive to the fact that such provisions are not intended to authorize Commissioners to make pre-emptive strikes on the property of the assessee, merely because property is available for being attached. There must be a valid formation of the opinion that a provisional attachment is necessary for the purpose of protecting the interest of the government revenue.

5.   The Court further observed that the formation of the opinion must be based on tangible material which indicates a live link to the necessity to order a provisional attachment to protect the interest of the government revenue. The Court also relied upon its own judgment in R.D. Enterprises v. Union of India reported in 2024:AHC:149247-DB, wherein it was held that this provision being draconian in nature necessitates the formation of an opinion based on cogent reasons before exercising power for provisional attachment. The Court observed that the legislature never intended this provision to be read in a casual manner, as the provision for provisional attachment is a drastic measure that the Department takes even before assessing the liability of the petitioner. This provision is in the nature of preventive detention in criminal cases where one detains a person without any offence having been committed.

6.   Upon perusal of the provisional attachment letter issued to the Petitioner, the Court observed that the only reason that emanates is that the present provisional attachments are required to be made as proceedings have been launched against the aforesaid taxable person under Section 74 of the Act. There was not a whisper of any specific requirement or ground at the present stage or formation of any reasoned opinion for provisionally attaching the said bank accounts. Secondly, as it appeared from the facts, no proceedings had been initiated under Section 74 of the Act. The Court held that there was no reason provided for the provisional attachment notice and the alleged supportive reason that had been provided was a completely ludicrous one. If the reason that provisional attachment is being done as proceedings have been initiated under Section 74 of the Act is allowed to stand, then in all proceedings wherein show cause notice is issued under Section 74, provisional attachment would become valid. The law as laid down in the abovementioned judgments makes it patently clear that a proper opinion has to be formed based on adequate reasons for such a draconian action to be taken. In the present case, such reasons were definitely lacking and the impugned order was absolutely perverse and arbitrary.

7.   In light of the above, the Court held that both the provisional attachment notices were without any basis in law and were required to be quashed and set-aside. The Court accordingly quashed and set-aside the provisional attachment notices dated July 23, 2025, with a direction upon the authority concerned to have the same released within a period of 48 hours from date. The Court made it clear that the order passed in Court shall not in any way hinder the authorities from issuing a fresh notice under Section 83 of the Act in accordance with law. With regard to blocking of the electronic credit ledger, the authorities were directed to look into the reply of the petitioner, grant a personal hearing, and thereafter, pass a reasoned order in accordance with law. The entire process of passing a reasoned order on the issue of blocking of the electronic credit ledger should be completed within a period of two weeks from date.

RELEVANT SECTIONS

Section 83 of the Central Goods and Services Tax Act, 2017 - "Provisional attachment to protect revenue in certain cases"

"(1) Where during the pendency of any proceedings under section 62 or section 63 or section 64 or section 67 or section 73 or section 74, 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 in such manner as may be prescribed.

(2) 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)."

Section 74 of Chapter 15 of the Central Goods and Services Tax Act, 2017 - "Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any wilful misstatement or suppression of facts"

PARI MATERIA / CASES REFERRED

1. Radha Krishan Industries v. State of H.P. [(2021) 6 SCC 771]

The Hon'ble Supreme Court held that the power to levy a provisional attachment under Section 83 of the GST Act is draconian in nature. Before the Commissioner can levy a provisional attachment, there must be a formation of "the opinion" and that it is necessary "so to do" for the purpose of protecting the interest of the government revenue. The formation of the opinion must bear a proximate and live nexus to the purpose of protecting the interest of the government revenue. By utilizing the expression "it is necessary so to do", the legislature has evinced an intent that an attachment is authorized not merely because it is expedient to do so but because it is necessary to do so in order to protect interest of the government revenue. Necessity postulates that the interest of the Revenue can be protected only by a provisional attachment without which the interest of the Revenue would stand defeated. The exercise of unguided discretion cannot be permissible because it will leave citizens and their legitimate business activities to the peril of arbitrary power. There must be a valid formation of the opinion that a provisional attachment is necessary for the purpose of protecting the interest of the government revenue. The formation of the opinion must be based on tangible material which indicates a live link to the necessity to order a provisional attachment to protect the interest of the government revenue.

2. R.D. Enterprises v. Union of India [2024:AHC:149247-DB]

The Hon'ble Allahabad High Court held that the provision for provisional attachment under Section 83 being draconian in nature necessitates the formation of an opinion based on cogent reasons before exercising power for provisional attachment. The legislature never intended this provision to be read in a casual manner, as the provision for provisional attachment is a drastic measure that the Department takes even before assessing the liability of the petitioner. This provision is in the nature of preventive detention in criminal cases where one detains a person without any offence having been committed. Without such justification being provided by the Department, by way of specific reasons, such provisional attachment would be illegal, arbitrary and non est in law.

3. Amazonite Steels Pvt. Ltd. vs. Union of India [2020 (36) G.S.T.L. 184 (Cal.)]

The Hon'ble Calcutta High Court observed that the new regime under the GST Act, 2017 is to reduce the burden of tax and simplify the procedures. However, this is coupled with certain far reaching and drastic measures that would be applicable on persons who evade the payment of such taxes. Provisions such as provisional attachment are necessary to ensure that persons who intend to evade taxes and/or are a part of a mechanism to defraud the Government are nipped in the bud and appropriate taxes can be collected from such persons. The Court quoted Kautilya in Arthashastra: "A tax collector should collect taxes from a taxpayer just like a bee collects honey from a flower in an expert manner without disturbing its petals."

4. CIT v. Kelvinator of India Ltd. [(2010) 2 SCC 723]

Referenced in the Radha Krishan Industries judgment for the principle that the power to reopen an assessment must be conditioned on the existence of "tangible material" and that "reasons must have a live link with the formation of the belief". This principle was adopted in the context of formation of opinion under Section 83 of the GST Act.

5. CIT v. Techspan (India) (P) Ltd. [(2018) 6 SCC 685]

Referenced in the Radha Krishan Industries judgment for following the principle that reasons must have a live link with the formation of belief, which was applied to the formation of opinion under Section 83 of the GST Act.

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