Court censures practice of provisionally attaching bank accounts of firms before full probe into suspected irregularities or tax evasion

Hearing a case related to the Central Goods and Service Tax Act (CGST Act), the Gujarat High Court asked the Union government to take steps to stop provisionally attaching bank accounts of person after the GST department’s raids over suspected tax evasion or other irregularities. The high court issued the order taking note that numerous litigations have been coming before it against the GST department. The HC said the authorities must apply their mind properly before taking action like attaching accounts of firms and individuals.

“We have noticed over a period of time that in each and every matter, in which proceedings under Section 67 of the Act are initiated, an order of provisional attachment of the bank accounts under Section 83 of the Act would follow. This mechanical exercise of the power is not appreciated. The Legislature has thought fit to confer upon the authority the power to provisionally attach the property of the assessee in the hope that such power is not exercised casually but, only after due and proper application of mind,” observed a bench of Justices J B Pardiwala and I J Vora.

“A mechanical or casual exercise of such power will dilute the very efficacy of the provisions of Section 83 of the Act. Every day, there are not less than 10 matters on the subject of Section 83 of the Act in the cause-list. When there are plethora of judgments explaining Section 83 of the Act in details, then why so much of litigation in the High Court. The only reason that can be attributed is the mechanical exercise of power under Section 83 of the Act. This should stop at the earliest. So much judicial time is wasted in all such matters wherein the law is so well settled,” the court noted.

The bench has directed its Registry to forward one copy each of the judgment to the Principal Secretary, Finance Department of the Central government and also to the Chairman of the CBDT at the earliest. The court said, “We request the Union of India as well as the CBDT to read this judgment thoroughly and consider issuing appropriate instructions or guidelines at the earliest with respect to the exercise of power under Section 83 of the Act, 2017.”

The court was hearing an application filed by a city-based firm Chechani Trading Company which is engaged in trading ferrous and non-ferrous metal scrap.

A spot visit was carried out by the flying squad of the department on August 11, 2020 at the premises of the company and later its bank accounts were ordered to be provisionally attached. The firm then challenged the action before the HC. The firm’s counsel submitted in the court that “the orders are very cryptic and those do not reflect any application of mind… In the absence of assessment, the quantum of demand cannot be determined precisely and, therefore, the action of attaching the bank accounts for protecting the interest of the Revenue is absolutely illegal.”