Delhi High Court: Attachment of Bank Accounts is a Draconian Step; Must be Subject to Conditions Specified in Section 83 of CGST Act

Delhi High Court: Attachment of Bank Accounts is a Draconian Step; Must be Subject to Conditions Specified in Section 83 of CGST Act

The Delhi High Court by its division bench comprising of Justices Vibhu Bakhru and Amit Mahajan has observed that, attachment of bank accounts is a draconian step and such action can only be taken in case conditions specified in Section 83 of the Central Goods and Services Act 2017, are fully satisfied.

The petitioners/assessee- SAKSHI BAHL and ANR, challenged an order passed by the respondent, Principal Additional Director General, DGGI, DZU by which the petitioner’s savings bank account was provisionally attached.

The respondent had also directed the Bank Branch Manager, HDFC Bank, not to permit any withdrawal from the bank accounts of the petitioners which were operated under the same PAN numbers, without the permission of the Department.

It was the petitioners’ case that they were neither taxable persons nor persons covered under Section 122(1A) of the Central Goods and Services Tax Act, 2017 (hereinafter ‘the Act’); therefore, the impugned order was ex facie without jurisdiction.

The respondent had attached the petitioners’ bank account in view of the statement made by one, Shri Rajiv Chawla during the course of an investigation relating to fake firms involved in passing off fake Input Tax Credit.

He had stated that he and his wife, Mrs. Pooja Khattar, were partners in M/s Shankar/Shankar Trading Company and were authorized to operate the bank account. However, he used to sign his cheque books in blank and hand over the same to one, Shri Sumit Maggo and Shri Rajiv Chawla, for payment of funds. He would receive a minor commission for the same.

Mr Harpreet Singh, learned Senior Standing Counsel appearing for the respondent, stated that Rajiv Chawla was in judicial custody at the material time and his custodial statement was recorded on 6 February, 2023. In his statement, he had stated that his firm maintains a bank account with South Indian Bank and he and his wife, Shipra Chawla, were partners in the said firm - M/s Hindustan Paper Machinery Industry.

Although the relevant file was not produced, Mr. Harpreet Singh stated that the file noting records that Shri Rajiv Chawla had issued a cheque of Rs. 8.5 crore for voluntary payment of Goods and Service Tax (GST) Challan, however, the funds in the bank account were not sufficient to honor the said cheque. Mr. Chawla examined the messages received from the bank and had found that a sum of Rs. 4.5 crore and Rs. 2.5 crore had been withdrawn from the bank account and the remaining balance in the account was insufficient to honor the cheque of Rs. 8.5 crore.

The funds lying in the account of the petitioners belonged to the partners of M/s Hindustan Paper Machinery Industry and, therefore, had proceeded to attach their bank accounts.

It was also the petitioner’s case that the funds received by them were return of advances and loans that were extended by the petitioners.

The petitioners had annexed the statement of account which indicated that over a period of 9 years, Rs. 12.62 crore had been withdrawn from the account of the petitioner in favor of M/s Hindustan Paper Machinery Industry or Mr. Rajiv Chawla. The statement also indicated that the petitioner had received Rs. 6,05,50,000.

The Court opined that it was not necessary for the Court to examine the nature of the payment made by Rajiv Chawla to the petitioners. Clearly, it cannot be a subject matter of adjudication in the proceedings. However, it was clear that the petitioners were not taxable persons. The power under Section 83 of the Central Goods and Services Act, 2017 to provisionally attach assets or bank accounts is limited to attaching the bank accounts and assets of taxable persons and persons specified under Section 122(1A).

Section 83 of the CGST Act, empowers the Commissioner to provisionally attach the assets of a taxable person. The attachment can be made where, after initiation of any proceedings, the Commissioner is of the opinion that for the purpose of protecting the interest of the Government revenue. The commissioner may, by order in writing, attach provisionally any property, including a bank account, belonging to the taxable person or any person specified in sub-section (1A) of Section 122.

The Court observed that, the impugned order cannot be sustained. It was not open for the respondent to attach the bank accounts of other persons on a mere assumption that the funds therein were owned by any taxable person.

In this regard, the Court observed, “the attachment of bank accounts is a draconian step and such action can only be taken in case conditions specified in Section 83 of the Act, are fully satisfied. The exercise of power under Section 83 of the Act must necessarily be confined within the limits of the aforesaid provision.”