Delay in issuing SCN cannot justify the continuation of the provisional attachmentfor several years

The Madras High Court has ruled that a significant delay in issuing a Show Cause Notice (SCN) cannot justify the continuation of a provisional attachment of assets under Section 83 of the CGST Act. Such attachments are intended to protect revenue while proceedings are finalised promptly, not to be maintained indefinitely. The court emphasised that the Revenue Department must act within a reasonable timeframe.

The Hon'ble Madras High Court in the case of Nitesh Jain Mangal Chand v. The Senior Intelligence Officer [W.P.No.18776 of 2022 dated April 3, 2023] held that, delay in issuing the Show Cause Notice ("SCN") cannot justify the continuation of the attachment under Section 83 of the Central Goods and Services Tax Act, 2017 ("the CGST Act"), which is itself provisional in nature.

Facts

Nitesh Jain Mangal Chand ("the Petitioner") was engaged in the business of manufacturing aluminium frames, UPVC windows/shutters and similar goods. An inspection carried on at business premises of the Petitioner dated January 24, 2019, for alleged bill trading in violation of the provisions of the CGST Act.Subsequently, on the same day the seizure was effected on various documents and electronic devices under mahazar and it was alleged that the total evasion of tax committed by the Petitioner is said to be in the range of nearly INR 98 crores. The Petitioner was also arrested and remanded to judicial custody and thereafter imprisoned in Puzhal Jail. The Petitioner was subsequently granted bail vide Crl.O.P. No. 8528 of 2019 dated March 09, 2019.

The provisional attachment order was passed in January, 2019 under Section 83 of the CGST Act, which resulted in the attachment of several bank accounts in the name of the Petitioner, his father, and other firms which were operated by the Petitioner and his family members.  In January, 2020, the Petitioner died. The attachments were imposed twice and remained valid till January 2023. 

A SCN dated October 8, 2022, ("the Impugned SCN") in respect of an inspection that had transpired in January, 2019.

The legal heirs of the Petitioner filed a Writ Petition before the Madras High Court praying to instruct the Respondent to allow operation of the bank accounts.

Issue

Whether Revenue department can continue attachment of bank accounts for several years under Section 83 of the CGST Act?

Held

The Hon'ble Madras High Court in W.P.No.18776 of 2022 held as under:

• •    Observed that, Section 83 of the CGST Acct cannot be deployed continuously for several years so to protect revenue and it must be resorted only to ensure that the Revenue Department is issuing notice and finalizing proceedings in a time bound fashion.
• •    Held that, the delay of nearly four years in issuing the SCN cannot be a reason to continue attachment under Section 83 of the CGST Act, which itself is provisional in nature.

Relevant Provision

Section 83 of the CGST Act:
"Provisional attachment to protect revenue in certain cases"

(1) Where during the pendency of any proceedings under section 62 or section 63 or section 64 or section 67 or section 73 or section 74, the Commissioner is of the opinion that for the purpose of protecting the interest of the Government revenue, it is necessary so to do, he may, by order in writing attach provisionally any property, including bank account, belonging to the taxable person in such manner as may be prescribed. 

(2) Every such provisional attachment shall cease to have effect after the expiry of a period of one year from the date of the order made under sub-section (1)."