Provisional Attachment Under GST Act Cannot Be Challenged When Due Process is Followed: Allahabad High Court Dismisses Petition

"When Authorities Have Granted a Hearing and Passed a Reasoned Order, Judicial Interference is Unwarranted" – Allahabad High Court, in a significant ruling delivered on February 27, 2025, dismissed a writ petition challenging the provisional attachment of bank accounts under Section 83 of the Uttar Pradesh Goods and Services Tax (UPGST) Act, 2017, filed by M/S Rajat Infra Developers Private Ltd. The Court ruled that when the taxpayer has been given an opportunity to present objections and a reasoned order has been passed, judicial intervention is not warranted.

"When the authorities have followed due process, granted an opportunity for objections, and issued a final order, the provisional attachment cannot be undone merely on the ground of hardship to the taxpayer. The law provides a clear appellate mechanism, which must be exhausted before approaching constitutional courts," the Court observed while dismissing the petition.

Company Collected GST but Failed to Deposit It with the Government

The case arose after the GST department issued an order on July 8, 2024, provisionally attaching the bank accounts of M/S Rajat Infra Developers Pvt. Ltd. on allegations of tax evasion amounting to Rs. 4.47 crores. The department contended that the company collected GST from service recipients between July 2017 and September 2023 but failed to deposit it with the government.

"The petitioner had every opportunity to contest the allegations and present its case. However, the final order under Section 74 confirms that the company knowingly collected but did not deposit GST, making the provisional attachment justified," the Court held.

The company approached the High Court, which on October 15, 2024, directed the GST authorities to consider its objections and pass a reasoned order. The authorities later rejected the objections on October 30, 2024, confirming that the company had indeed withheld tax dues. A show cause notice under Section 74 of the GST Act was also adjudicated, resulting in a final order on December 30, 2024, confirming the tax liability and penalties.

"Attachment of Bank Accounts is Arbitrary and Violates Supreme Court’s Judgment in Radha Krishan Industries" – Petitioner’s Argument Rejected

The petitioner argued that the attachment of its bank accounts was excessive and arbitrary, relying on the Supreme Court’s ruling in M/s Radha Krishan Industries v. State of Himachal Pradesh (2021). It contended that Section 83 should not be used as a tool for harassment and that provisional attachment should be lifted once a show cause notice has been adjudicated. The company further claimed that the attachment had severely impacted its business operations, leading to financial hardship.

The High Court rejected these arguments, distinguishing the present case from Radha Krishan Industries. "In Radha Krishan Industries, the Supreme Court struck down a provisional attachment because the assessee was not granted a hearing before the order was passed. In the present case, the petitioner was not only given an opportunity to object but also participated in proceedings that culminated in a final order. The procedural safeguards were followed, and the attachment was well within legal bounds," the Court held.

"Provisional Attachment Under Section 83 is Justified When Tax Evasion is Proven" – High Court Upholds GST Authorities’ Action

The Court found that the petitioner had failed to show any procedural illegality in the attachment order. "The provisional attachment in this case was imposed under Section 83 in strict compliance with the law. The petitioner was heard, its objections were considered, and a reasoned order was passed. Since a final order under Section 74 has now been issued, the petitioner must avail the appellate remedy instead of challenging the attachment through a writ petition," the Court ruled.

The Court dismissed the claim that the attachment should be lifted merely because the show cause proceedings had been adjudicated, stating that the attachment remains valid for a period of one year and shall continue until July 7, 2025. "Until then, the petitioner must seek relief through the appropriate appellate mechanism rather than invoking writ jurisdiction," the Court stated.

"Alternative Statutory Remedy Exists—Writ Petition Cannot Be Entertained"

Dismissing the petition, the High Court ruled that when a statutory remedy exists, judicial interference under Article 226 is unwarranted. "The petitioner has the right to appeal against the final order under Section 74 of the GST Act. Instead of bypassing the appellate process, the company must approach the appropriate forum for relief," the Court concluded.

The ruling underscores that provisional attachment orders under GST laws cannot be challenged through writ petitions when due process has been followed. By upholding the validity of the attachment despite the financial hardship claimed by the petitioner, the Court reaffirmed that the tax recovery process cannot be obstructed by invoking constitutional remedies without first exhausting statutory appeals.

"When a taxpayer collects GST but does not deposit it with the government, the law must take its course. Provisional attachment is not an arbitrary measure but a necessary tool to safeguard government revenue," the Court concluded.

Date of Decision: 27 February 2025