Second Provisional GST Attachment Without Fresh Reasons Deemed 'Draconian' and Illegal: Allahabad High Court - 2024-09-12

Allahabad High Court Quashes Second GST Provisional Attachment, Citing Lack of Fresh Justification

Allahabad, India - In a significant ruling, the Allahabad High Court has quashed a provisional attachment order issued under Section 83 of the Central Goods and Service Tax Act, 2017 (CGST Act), emphasizing that repeated attachments require fresh and specific justifications from tax authorities. The bench, comprising Justice Shekhar B. Saraf and Justice Manjive Shukla , delivered the judgment in the case of M/S R D Enterprises v. Union Of India And 3 Others .

The petitioner, M/S R D Enterprises, challenged a provisional attachment order dated May 16, 2024, which was issued by authorities under Section 83 of the CGST Act. This order marked the second instance of attachment on the same bank account. The court noted that a prior attachment on the same account, dated February 16, 2023, had been removed following a previous writ petition filed by the petitioner.

Verbatim Re-Attachment Without New Reasons Deemed Arbitrary

The court expressed surprise that a "verbatim notice" for provisional attachment was issued merely ten days after a coordinate bench of the same High Court had ordered the removal of the previous attachment. Critically, the new notice, dated May 16, 2024, failed to provide any fresh reasons for the re-attachment and did not even acknowledge that it was a second such action.

The bench strongly criticized this approach, stating, "This kind of arbitrary action without providing any fresh reasons to the petitioner for provisional attachment is draconian in nature and cannot be sustained in the eyes of law."

Reliance on Supreme Court and Calcutta High Court Precedents

The judgment heavily relied on the Supreme Court's decision in Radha Krishan Industries vs. State of Himanchal Pradesh and Others (2021) 6 SCC 771, which established that while a second attachment is permissible under Section 83, it necessitates the Department providing "fresh reasons." The court highlighted paragraph 75 of the Supreme Court judgment, which underscored the need for a change in circumstances to justify a subsequent attachment.

Furthermore, the Allahabad High Court cited the Calcutta High Court's ruling in Amazonite Steels Pvt. Ltd. vs. Union of India (2020 (36) G.S.T.L. 184 (Cal.)), emphasizing the need for responsible and justified use of drastic measures like provisional attachment within the GST framework. The Calcutta High Court judgment, quoting Kautilya's Arthashastra, stressed that tax collection should be done expertly and without undue disturbance to taxpayers.

Provisional Attachment: A 'Drastic Measure' akin to 'Preventive Detention'

The Allahabad High Court underscored the "drastic" nature of provisional attachment under Section 83, comparing it to "preventive detention in criminal cases." The court reasoned that because this provision allows for action even before the final assessment of tax liability, it is imperative for the Department to "justify the reasons" with specific and compelling grounds. The absence of such justification in the present case rendered the attachment "illegal, arbitrary and non est in law."

Court Orders Immediate Removal of Attachment

Concluding that the re-attachment was without legal basis, the Allahabad High Court decisively quashed the provisional attachment order dated May 16, 2024. The court directed the concerned bank to immediately remove the attachment and restore the petitioner's access to their bank account. While allowing the writ petition, the bench clarified that the Department retains the liberty to proceed against the petitioner "in accordance with law," implying that future actions would need to adhere to due process and provide valid justifications.

This judgment serves as a crucial reminder to tax authorities about the stringent requirements for invoking provisional attachment powers under the GST Act, particularly when considering repeated attachments on the same taxpayer. It reinforces the principle that such measures must be grounded in fresh, tangible reasons to safeguard against arbitrary actions and uphold the rule of law.