Withholding of amount in bank account without any assessment Order

Case Title: Rayan Traders v. Principal Chief Commissioner of GST Central Excise

Court: High Court of Madras

Petition Number: W.P. No.33 of 2020 with W.M.P. Nos. 39 & 40 of 2020 and 8435 of 2021

Date of Judgement: November 18, 2022

Category of Dispute: Provisional Attachment without Assessment

Relevant Section: Section 79(1)(c)(i), Section 70, Section 42, CGST Act, 2017

Facts of the Case

[Para 1–2]: The petitioner, M/s Rayan Traders (Proprietor: Shri Mohammed Samsudeen), was subjected to a notice in Form GST DRC-13 dated 27.12.2019 under Section 79(1)(c)(i) of the CGST Act, directing HDFC Bank to pay ₹74,52,943/- to the Government towards tax dues.

[Para 3]: No adjudication or assessment order under Sections 73 or 74 of the CGST Act was passed to establish such liability.

[Para 5]: The department contended that the petitioner self-admitted liability in GSTR-1 and GSTR-3B but set it off against ITC, which the department claims was not eligible.

[Para 6]: However, no matching, reversal, or revalidation procedure under Section 42 was undertaken by the department before initiating coercive recovery.

Question(s) in Consideration

[Para 4–6]:

• Whether a recovery under Section 79(1)(c)(i) through attachment can be initiated without a prior adjudication or assessment order?
• Whether statements made under Section 70 or GSTR filings can substitute for determination of liability under Section 73/74 or similar provisions?

Observation of the Court

[Para 4]: The Court held that mere statements or returns without an adjudication do not establish liability, and hence cannot justify coercive recovery actions.
[Para 6]: It emphasized that the procedure for mismatch and reversal under Section 42 must precede any conclusion that ITC was ineligible.
[Para 7]: Relied on the judgment in V.N. Mehta & Company v. Assistant Commissioner [2019] 112 taxmann.com 376 (Mad.), where similar proceedings were quashed for lack of statutory authority.

Judgement of the Court

[Para 7–8]:

• The impugned notice dated 27.12.2019 issued under Form DRC-13 is quashed.
• The writ petition is allowed, and no costs are awarded.
• Coercive recovery without adjudication is unsustainable.

Between Fine Lines

• Recovery proceedings under Section 79 without prior adjudication are invalid.
• Statements made during enquiry cannot replace formal assessment orders.
• Filing of GSTR returns does not by itself amount to admitting tax dues if credit is claimed.
• The department must follow Section 42 for mismatched ITC before rejecting it.
• Provisional attachment demands must be legally sanctioned and cannot be arbitrarily enforced.

Summary of Referred Cases

Takeaway:

“No Tax Recovery Without Adjudication: The Fall of Preemptive Attachments”