Allahabad High Court Quashes Provisional Attachment of Bank Accounts | Says It Cannot Be Done Merely on Show Cause Notice Under Section 74 of GST Act
Isabella Mariam
The High Court of Judicature at Allahabad Division Bench of Justice Shekhar B. Saraf and Justice Praveen Kumar Giri held that provisional attachment of bank accounts cannot be ordered merely on the basis of a show cause notice under Section 74 of the Goods and Services Tax Act, 2017. Quashing the attachment of two bank accounts of a taxpayer under Section 83 of the Act for lack of valid reasons and pending proceedings, the Court directed the authorities to release the accounts within 48 hours and to decide on the blocking of the electronic credit ledger after granting a hearing and issuing a reasoned order.
The case arose from a writ petition filed by a registered taxpayer challenging the provisional attachment of its two bank accounts under Section 83 of the Central Goods and Services Tax Act, 2017. The attachment orders were issued on 23 July 2025 by the Commissioner of CGST, Noida, citing that proceedings had been launched under Section 74 of the Act. The petitioner’s electronic credit ledger was also blocked by an order dated 28 July 2025.
The petitioner contended that the attachment orders were arbitrary and without basis since no show cause notice had been issued under Section 74 at the time of the attachment. It was argued that Section 83, being a stringent measure, could be invoked only with valid and recorded reasons demonstrating the necessity to protect government revenue, and not merely upon the assertion that proceedings had been launched. The petitioner claimed that the attachment had halted its business operations and violated its right to conduct lawful trade.
The revenue authorities submitted that a search had been conducted at the petitioner’s premises and an investigation was ongoing. They stated that proceedings under Section 74 would be initiated and that the provisional attachment was necessary to prevent the petitioner from alienating funds in the bank accounts.
The Court examined the attachment letter issued by the Commissioner and noted that it merely stated that proceedings had been launched under Section 74, without recording any specific reasons or formation of opinion justifying the necessity of the attachment. The statutory framework of Section 83 of the CGST Act and the judicial principles laid down by the Supreme Court in Radha Krishan Industries v. State of H.P. were considered to determine whether the preconditions for invoking provisional attachment had been met.
The dispute thus centered on the legality of the provisional attachment and the subsequent blocking of the electronic credit ledger.
The Court observed: “The Supreme Court and this Court in catena of judgments have categorically held that the reasons provided in the attachment notice must be proper. Lack of reasons would result in quashing of the provisional attachment as a valuable right of the petitioner is threatened by the said provisional attachment.”
Referring to Radha Krishan Industries v. State of H.P. (2021) 6 SCC 771, the Court quoted: “The power to levy a provisional attachment is draconian in nature. By the exercise of the power, a property belonging to the taxable person may be attached, including a bank account… The formation of the opinion must bear a proximate and live nexus to the purpose of protecting the interest of the government revenue.”
The Court further noted the Supreme Court’s findings that: “Necessity postulates that the interest of the Revenue can be protected only by a provisional attachment without which the interest of the Revenue would stand defeated. Necessity in other words postulates a more stringent requirement than a mere expediency.”
The Bench also relied on its earlier decision in R.D. Enterprises v. Union of India, 2024: AHC:149247-DB, which had stated that the provision is akin to preventive detention in criminal cases and must be exercised only with cogent reasons.
The Court observed: “There is not a whisper of any specific requirement or ground at the present stage or formation of any reasoned opinion for provisionally attaching the said bank accounts. Secondly, as it appears from the facts, no proceedings have been initiated under Section 74 of the Act.”
The Court stated: “If the reason that provisional attachment is being done as proceedings have been initiated under Section 74 of the Act is allowed to stand, then in all proceedings wherein show cause notice is issued under Section 74, provisional attachment would become valid. The law… makes it patently clear that a proper opinion has to be formed based on adequate reasons for such a draconian action to be taken.”
It concluded that the attachment orders were “absolutely perverse and arbitrary.”
“In light of the same, both the provisional attachment notices are without any basis in law and are required to be quashed and set-aside. We, accordingly, quash and set-aside the provisional attachment notices dated July 23, 2025 with a direction upon the authority concerned to have the same released within a period of 48 hours from date.”
“We make it clear that the order passed in Court today shall not in any way hinder the authorities from issuing a fresh notice under Section 83 of the Act in accordance with law.”
“The authorities are directed to look into the reply of the petitioner, grant a personal hearing, and thereafter, pass a reasoned order in accordance with law. The entire process of passing a reasoned order on the issue of blocking of the electronic credit ledger should be completed within a period of two weeks from date.”
Advocates Representing the Parties
For the Petitioner: Nishant Mishra, Vedika Nath
For the Respondents: A.S.G.I., Dhananjay Awasthi, Krishna Agarawal, Krishna Mohan Asthana, Maneesh Mehrotra, Saumitra Singh
Case Title: M/s Soraza Recycling Private Limited v. Union of India and 4 Others
Neutral Citation: 2025: AHC:170051-DB
Case Number: Writ Tax No. 4630 of 2025
Bench: Justice Shekhar B. Saraf, Justice Praveen Kumar Giri
