🚨 Immediate Crisis Management: Your Bank Account is Frozen by the GST Department

 

A freezing order on a bank account is arguably one of the most drastic and crippling actions the Goods and Services Tax (GST) Department can take. It instantly halts a business’s operations, paralyzes cash flow, and can severely impact financial reputation.

As a compliance professional, my first advice is always: Do not panic. This action is governed by strict legal procedures, and a clear, timely, and legally sound response can lead to the swift revocation of the order.

The Legal Basis for the Attachment Order

The GST Department derives its power to provisionally attach assets, including bank accounts, primarily from Section 83 of the CGST Act, 2017.

Section 83 Provisions:

• Purpose: This power is used to protect the interest of the Government revenue. It is typically invoked when the Commissioner believes that the taxpayer might dispose of or alienate their assets to frustrate future tax demands.
• Trigger: Attachment is usually triggered after a detailed audit, search and seizure operation, or inspection has been conducted, and proceedings have been initiated under Section 67 (inspection), Section 73/74 (demand), or Section 122 (penalties), among others.
• Form: The order to provisionally attach a bank account is generally issued in FORM GST DRC-22 to the taxpayer and communicated to the bank manager.

Phase 1: Immediate Steps Upon Receiving the Notice

Speed and accuracy are essential when dealing with a freezing order.

1. Analyze the Order (DRC-22)

• Identify the Basis: Carefully examine FORM GST DRC-22 to understand the exact tax period, the nature of the proceedings, and the estimated revenue loss that necessitated the attachment.
• Verify Validity: Check if the order is signed by the appropriate competent authority (the Commissioner or an officer delegated by the Commissioner). An order by an unauthorized officer can be challenged immediately.

2. Consult Your Advisor

• Do not attempt to communicate with the GST officer or the bank manager without professional guidance. A tax expert can immediately determine the strongest legal ground for filing an objection.

3. Establish Proof of Business Paralysis

• Gather evidence demonstrating the immediate, irreparable harm caused by the attachment. This includes:

ü  List of pending vendor payments (essential for raw material supply).

ü  Pending payroll obligations.

ü  Scheduled loan payments (EMIs).

ü  Pending export/import transactions that require bank clearance.

Phase 2: The Legal Response (Filing an Objection)

The law provides the taxpayer with the right to object to the provisional attachment.

1. Filing the Objection

The taxpayer must submit a detailed representation/objection to the Commissioner who issued the attachment order. This representation must clearly demonstrate why the attachment is legally unsustainable or unduly harsh.

2. Key Grounds for Objection:

• No Risk to Revenue: Argue that there is no genuine or credible risk of the taxpayer disposing of their property. Provide evidence of long-standing business operations, steady tax compliance, and ownership of other unencumbered assets sufficient to cover the potential demand.
• Disproportionate Action: Argue that the provisionally attached amount or asset is grossly disproportionate to the potential tax demand. Request that the attachment be limited only to the extent necessary to cover the estimated demand.
• Violation of Natural Justice: If the attachment order was issued without proper initiation of assessment or demand proceedings (Sections 73/74), challenge the order on grounds of procedural illegality.

3. Requesting Partial De-freezing (If Applicable)

If the account contains funds far exceeding the potential tax demand, request the release of the excess funds necessary to meet essential operational expenses, such as payroll and utility payments.

Phase 3: Judicial Remedy (Writ Petition)

If the Commissioner fails to address the objection promptly, or if the initial attachment itself is clearly illegal or arbitrary, the fastest and most powerful recourse is to file a Writ Petition before the High Court.

• Grounds for Writ: A writ petition challenges the attachment on the grounds that the order is arbitrary, without jurisdiction, or violates the taxpayer's constitutional right to carry on business (Article 19(1)(g)).
• Speed: High Courts often grant interim relief, directing the GST Department to lift the attachment or limit it, given the severe impact on business continuity.

A Professional’s Final Word

A bank attachment is a temporary measure designed to secure future government dues, not a final penalty. By understanding the stringent legal requirements under Section 83 and responding with precise documentation and strong legal arguments, businesses can effectively challenge the attachment and secure the swift de-freezing of their accounts. Do not delay—every day of a frozen account costs your business crucial momentum and reputation.