The Delhi High Court recently set aside a provisional attachment of the assessee’s bank account after noting that the taxpayer had already filed a statutory appeal and deposited the mandated pre-deposit under Section 107 of the CGST Act. The Court held that once an assessee complies with the pre-deposit requirement for filing an appeal, all recovery proceedings — including coercive measures such as provisional attachment under Section 83 — stand automatically stayed by virtue of Section 107(7).
In this case, despite the assessee having made the required deposit, the department continued with the attachment of the taxpayer’s bank account, severely restricting business operations. The High Court found such action unsustainable in law and emphasized that provisional attachment is an extraordinary, draconian measure that cannot continue once statutory protections come into effect. The ruling reaffirms judicial scrutiny over misuse of attachment powers and strengthens the safeguard intended for taxpayers who pursue appellate remedies in compliance with statutory conditions.
Facts & Background
- The case involved a writ petition before the Delhi High Court (HC) challenging provisional attachment of bank accounts under Central Goods and Services Tax Act, 2017 (CGST Act), more specifically under Section 83 (power to provisionally attach property, including bank accounts, where proceedings under certain sections are pending).
- The provisional attachment was ordered by the revenue authorities presumably in the course of GST proceedings — likely arising from alleged incorrect Input Tax Credit (ITC) claims or wrongful availment, giving rise to tax demand.
- The taxpayer (assessee) filed a statutory appeal under Section 107 of the CGST Act against the adjudication order — and made the requisite “pre-deposit” (as mandated under Section 107(6) of the CGST Act).
Decision: What the Delhi HC Held
- The Court held that once an appeal is filed under Section 107 and the statutory pre-deposit is made, the recovery proceedings for the disputed demand — including all consequential coercive or enforcement actions such as provisional attachment of bank accounts — stand automatically stayed.
- Accordingly, provisional attachment under Section 83 cannot be legally sustained thereafter, and the bank-account freeze must be lifted. The Court set aside the attachment order and directed banks to restore operations for the taxpayer.
- The Court rejected the revenue’s contention that the seriousness of alleged fraud or wrongful ITC claims could override the statutory stay. The fact of appeal + pre-deposit was sufficient; any allegations of fraud have to be adjudicated in the appeal proceedings, but cannot justify continuing a coercive measure like bank-account attachment.
Legal/Statutory Basis & Broader Context
- Section 107(6) of the CGST Act requires that an appeal against an adjudication order cannot be filed unless the appellant deposits (a) the admitted tax/amount; and (b) 10% of the remaining disputed tax (subject to cap).
- Section 107(7) deems that once the pre-deposit is made, “recovery proceedings for the balance amount shall be stayed.”
- The provisional attachment power under Section 83 was intended as a protection for revenue during pending investigations or adjudications.
- But the HC’s decision emphasises that once the statutory stay under Section 107(7) comes into play, continuation of coercive recovery or enforcement measures — including bank-account attachment — becomes impermissible. That interpretation aligns with previous rulings and reinforces that statutory appeal + pre-deposit must afford the assessee relief from immediate coercive action.
- The decision also echoes a broader trend: courts (both High Courts and the Supreme Court of India (SC)) have recently looked askance at prolonged or repeated use of provisional attachment, especially where statutory safeguards (appeal + pre-deposit) are complied with. For instance, in a 2025 ruling the SC invalidated renewal of lapsed provisional attachments under Section 83 — holding that once the one-year statutory period lapses, the attachment cannot be simply renewed without fresh order.
- In another recent development, SC held that once the 10% pre-deposit is made, the department cannot attach bank accounts or restrain funds; reinforcing the logic the Delhi HC applied.
Significance and Implications
- Protects taxpayer rights: The ruling is significant because it prevents the revenue authorities from continuing harsh coercive actions (freezing bank accounts) once the taxpayer has availed statutory remedy and complied with pre-deposit requirement. It reaffirms the balancing of revenue interest and taxpayer’s right to carry on business operations.
- Reinforces automatic stay under Section 107: The case underscores that stay under Section 107(7) is not merely procedural but has substantive effect — it suspends recovery/enforcement until appeal adjudication.
- Encourages compliance with appeal mechanics: For taxpayers, the decision shows clarity — timely appeal + deposit will likely safeguard against immediate enforcement, even in sensitive ITC/fraud-allegation cases.
- Limits on provisional attachment abuse: For tax authorities, the decision is a signal that provisional attachment must be used with caution; once the statutory conditions for appeal are met, continuing attachment may be contrary to law. Also, repeated or renewed attachments (especially post expiry of one-year limit under Section 83(2)) may not survive judicial scrutiny.
- Precedential weight for future litigations: Given that this sits around 2025, with increasingly pro-taxpayer rulings (HC + SC), this case may serve as a key precedent for GST litigations involving freezing of bank accounts, especially in ITC/ fraud-allegation matters.
Analysis — What to Watch Out For
- The decision does not mean automatic immunity: the stay and unfreezing arise because of statutory appeal + pre-deposit. In absence of appeal or pre-deposit (or if pre-deposit not sufficient), attachment may still be sustained.
- The Court did not decide correctness of the underlying demand or allegations — only the validity of attachment. Thus, in appeal proceedings, if demand is upheld, enforcement (including fresh attachment) may resume.
- The ruling tries to respect both interests: revenue protection and business continuity. But it leaves open the question — in egregious fraud cases, can department argue that stay should not apply or pre-deposit alone is insufficient? The Court’s approach suggests not, but factual matrix will matter.
- For practitioners, the case highlights the importance of timing: appeal + deposit early is critical. Delays may expose taxpayer to risk of attachment being upheld.
Conclusion
The Delhi High Court’s ruling reinforces the statutory protection afforded to taxpayers who pursue appellate remedies in compliance with the CGST Act. Once an assessee files an appeal under Section 107 and deposits the required pre-deposit, recovery proceedings for the disputed amount are deemed to be stayed. Consequently, coercive measures such as provisional attachment of bank accounts cannot continue.
By setting aside the attachment, the Court reiterated that Section 83 powers are extraordinary and must be exercised sparingly, only to safeguard revenue during ongoing proceedings—not after statutory conditions for stay are fulfilled. The judgment strengthens the jurisprudence that revenue authorities cannot bypass or dilute the statutory scheme by continuing harsh enforcement once an assessee has complied with the law. It serves as an important reminder that taxpayers’ rights and business continuity must be protected when they act within the framework of the GST appellate mechanism.