BRIEF FACTS OF THE CASE
- The Appellant, a sole proprietorship, is inter alia engaged in the business of trading mobile phones. Based on intelligence input, the State Tax Department initiated a search under Section 67 at its premises. It was alleged that the Appellant was involved in bogus billing and circular trading transactions, wherein actual transactions of low-end mobile phones were suppressed, while invoices of high-end phones were issued to wrongly pass on input tax credit (ITC) and claim refunds.
- Consequent to the search, the Department provisionally attached four bank accounts and immovable properties of the petitioner under Section 83 of the CGST/GGST Act by orders dated 17th October 2023 and 26th October 2023. The appellant objected to these attachments by filing a representation on 1st May 2024 under Rule 159(5), but the authorities did not decide the objections. By virtue of Section 83(2), both these attachment orders automatically ceased to have effect upon expiry of one year, i.e., on 18th October 2024 and 27th October 2024, respectively.
- After the lapse of one year, the appellant requested the authorities to lift the attachments. Instead, the Department issued fresh provisional attachment orders on 13th November 2024 and 18th December 2024, covering the same bank accounts, treating them as a continuation/renewal of earlier attachments. The Department justified this by recording fresh "satisfaction notes" and pointing out that it had issued a Form GST DRC-01A estimating tax liability of about ₹12.33 crore for 2021–22 and projecting total liability, including penalty and interest, at around ₹18.97 crore for the period 2021–24.
- The appellant challenged these renewed attachments before the Gujarat High Court, contending that Section 83(2) clearly restricts the life of an attachment to one year, with no provision for renewal, re-issuance, or extension.
- The Gujarat High Court, by judgment dated 29th January 2025, dismissed the writ petition. It held that though the earlier attachments lapsed by operation of Section 83(2), there was no legal bar on the authorities issuing fresh attachments if fresh satisfaction was recorded. Considering the magnitude of the alleged fraud and the estimated dues, the High Court upheld the renewal in order to protect the government's revenue.
- The Petitioner filed appeal before the Hon'ble Supreme Court and the issue under consideration was whether Section 83 of the CGST Act permits the issuance of a fresh or renewed provisional attachment order after the expiry of one year, when the earlier order had already lapsed by operation of law.
KEY OBSERVATIONS OF THE HON'BLE MADRAS HIGH COURT
- The Supreme Court categorically held that renewal or re-issuance of a provisional attachment order under Section 83 of the CGST Act is impermissible in law. Section 83(2) clearly stipulates that a provisional attachment ceases to have effect after the expiry of one year from the date of the order, and there is no statutory provision permitting its extension or renewal. If the legislature had intended to allow continuation, it would have expressly provided for such an extension, as is done in statutes like the Central Excise Act (Section 11DDA) and the Customs Act (Section 28BA). The absence of such a provision in the CGST Act is deliberate and conclusive.
- The Court further observed that allowing fresh attachments after expiry of the statutory one-year period would render Section 83(2) redundant and would give authorities an unbridled power to indefinitely freeze bank accounts or properties, which is contrary to legislative intent. It emphasized that the power under Section 83 is a draconian power, purely pre-emptive, and not a recovery mechanism. Once a one-year period ends, the provisional attachment automatically lapses, and if liability is crystallized, recovery must proceed under the dedicated recovery provisions of the Act, not through repeated provisional attachments.
- The Supreme Court also noted that the GST Council, in its 53rd meeting, had recognized that provisional attachments lapse after one year and recommended amendments to the Rules to align with Section 83. This reinforced that renewal was not contemplated under the existing law.
- The Supreme Court expressly disapproved the view earlier adopted by the Gujarat High Court, which had permitted the issuance of successive provisional attachment orders. It held that such an interpretation amounted to permitting an executive extension of a statutorily time-barred order, a course of action that is impermissible in law unless the statute explicitly provides for such continuation or renewal. Consequently, the Court quashed the impugned provisional attachment orders, declaring them illegal and without jurisdiction.
AURTUS COMMENTS
- The Court clarified that the powers of provisional attachment, being an extraordinary power intended only as a preventive safeguard, cannot be transformed into a recovery mechanism. Once the statutory one-year period lapses, the attachment automatically ceases, and if any liability crystallizes, the authorities must proceed under the regular recovery provisions. In doing so, the Court reinforced safeguards against the arbitrary exercise of power and aligned its reasoning with earlier precedents such as Radha Krishan Industries vs State of HimachalPradesh1,which had stressed proportionality and caution in invoking Section 83.
- The Court distinguished between acceptable additions that aid the law and prohibited overriding of clear legislative directions. Section 83(2) clearly states that a provisional attachment automatically ends after one year. Trying to extend or renew it would go against this rule. The Court applied the principle that laws should be read in a way that makes them effective, not meaningless. It also emphasized that government actions must always follow the law made by Parliament and cannot weaken or bypass the safeguards written into it.
- The CBIC itself, through Circular No. CBEC-20/16/05/2021-GST/359 dated 23.02.2021, expressly clarified that "every provisional attachment shall cease to have effect after the expiry of a period of one year from the date of the order of attachment". Thus, both the statute and the Board's own instructions leave no ambiguity that provisional attachment is a time-bound protective measure, incapable of renewal or continuation beyond one year.
- The decision provides significant relief to taxpayers, ensuring that provisional attachment cannot be misused as a tool of indefinite coercion. For revenue authorities, the judgment imposes discipline by requiring investigations and protective measures to be completed within the statutory timeframe, after which, in order to enforce recovery, the authorities must follow the prescribed legal mechanisms under sections 73 and 74 of the CGST Act. While this may limit departmental flexibility in complex fraud cases, it restores balance between protecting government revenue and safeguarding taxpayer rights.
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