Provisional Attachment Of Cash Credit Account
Section 83 of the Central Goods and Services Tax Act, 2017 provides for the provisional attachment of the properties of the taxable person in case of nonpayment of tax, in order to protect the interests of the Department. The Section provides that where, after the initiation of any proceeding under Chapter XII – (Assessment), Chapter XIV- (Inspection, search, seizure and arrest) or Chapter XV – (Demands and recovery), 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 or any person specified in sub-section (1A) of section 122, in such manner as may be prescribed. Such provisional attachment is valid for one year. After the expiry of the one year the attached properties by the Department shall be released.
The provision of the law suggests that the followings grounds must exist for resorting to provisional attachment of property under the provisions of section 83 of the Act:
There must be pendency of a proceeding against a taxable person under the sections mentioned in section 83 of the Act.
The Commissioner must have formed the opinion that provisional attachment of the property belonging to the taxable person is necessary for the purpose of protecting the interest of the Government revenue.
For forming an opinion under section 83, it is important that Commissioner must exercise due diligence and duly consider as well as carefully examine all the facts of the case, including the nature of offence, amount of revenue involved, established nature of business and extent of investment in capital assets and reasons to believe that the taxable person, against whom the proceedings referred in section 83 are pending, may dispose of or remove the property, if not attached provisionally.
Cash credit account
A cash credit account is a type of short-term loan, usually offered to businesses by banks, that allows them to withdraw funds up to a pre-approved limit, even if their account balance is zero. It's a revolving credit facility, meaning the business can withdraw, repay, and borrow again within that limit. Interest is typically charged only on the amount utilized, not the full sanctioned limit.
Cash credit is primarily used to meet a business's working capital needs, such as managing day-to-day expenses or bridging temporary cash flow gaps. Unlike traditional loans, cash credit allows for multiple withdrawals and repayments within the set limit, making it flexible for businesses. Banks often require collateral, such as inventory, receivables, or other business assets, to secure the cash credit facility. Interest is calculated only on the amount actually borrowed and withdrawn from the account, not the total sanctioned limit. The borrowers are required to make periodic repayments to reduce the outstanding balance, and the repayment period is generally up to 12 months.
Provisional attachment of cash credit account
The issue to be discussed in this article is as to whether the cash credit account of a taxable person can be attached by a bank for the outstanding dues of the taxable person under Section 83 of the Central Goods and Services Tax Act, 2017 with reference to the deciding case laws.
In ‘Skytech Rolling Mill Private Limited v. Joint Commissioner of State Tax. Nodal 1, Raigad Division’ – 2025 (6) TMI 253 – Bombay High Court, the respondent No. 1, on 08.05.2025, by an order, attached the cash credit account of the petitioner with ICICI bank, under Section 83 of the Maharashtra Goods and Services Tax, 2017. The petitioner challenged the same before the Bombay High Court by filing a writ petition. The petitioner prayed the following from the High Court-
To hold, adjudge and declare that the impugned order dated 08.05.2025 passed by the Respondent No. 1 under Section 83 of the Maharashtra Goods and Services Act, 2017 is wholly without jurisdiction, arbitrary and illegal;
To issue a writ of certiorari or a writ in the nature of certiorari or any other writ, order, or direction, quashing the impugned order dated 08.05.2025 passed by the Respondent No. 1 under Section 83 of the Maharashtra Goods and Services Act, 2017.
The petitioner, in support of his contentions relied on the following judgments-
Manish Scrap Traders Vs Principal Commissioner (2022) 141 taxmann.com 153 (Gujarat)
The Gujarat High Court held that the law is well-settled that a cash credit account of the assessee cannot be provisionally attached in exercise of powers under Section 83 of the CGST Act.
J.L. Enterprises Vs Assistant Commissioner (2023) 152 taxmann.com 278 (Calcutta);
The petitioner was aggrieved by an order of provisional attachment of cash credit account maintained by the appellant with its banker. The legal question involved in the writ petition was whether an order of provisional attachment can be made to a cash credit account. In fact, the Single Bench has noted all the decisions, which were cited by the learned advocate for the appellant and has held that the cash credit facility is not a debt and, therefore, it cannot be made attachable.
Sargam Foods Pvt. Ltd. & Anr. Vs State of Maharashtra & Ors. Writ Petition No. 4313 of 2008 -
In the present case, undisputedly, the NMMC has attached the cash credit account which in other words is a overdraft facility. The un-utilised overdraft account does not render the banker the debtor in any sense and the banker is, therefore, not a person from whom money is due to the customer. Nor is the banker in such case, a person from whom money may become due. Where the banker lends money on an overdraft and the customer is always in debit there is no stage at which the banker is debtor to the customer, nor at any point of time at which he holds any money of the customer or the later's account.
The Department contended that the writ petition is not maintainable and liable to be dismissed since the writ petitioner did not avail the alternative remedy of filing appeal before the First Appellate Authority.
The High Court considered the submissions of the petitioner and the Department. The High Court considered the issue to be decided in the present writ petition is as to whether on a reading of Section 83 of the MGST Act, a ‘cash credit account’ can be provisionally attached by exercising power under the said Section.
The High Court analysed the provisions of Section 83 of Maharashtra Goods and Services Tax Act, 2017, which provides for provisional attachment of ‘any property including bank account belonging to the taxable person. The High Court observed that the cash credit account is a liability which an account holder owes to the bank for availing the loan facility and therefore by no stretch of imagination cash credit account can be construed as a property belonging to the account holder/petitioner. The phrase ‘including bank account’ following the phrase, ‘any property’ would mean a non-cash-credit bank account. Therefore, the High Court held that a ‘cash credit account’ would not be governed by Section 83 of the MGST Act.
The High Court further observed that the Revenue did not produce any judgment in its favour treating the cash credit account as the property of the tax payer. Therefore, the High Court directed the Department to withdraw the letter to the bank for the attachment of the cash credit account of the petitioner immediately. The High Court further held that the Court has jurisdiction to entertain the writ petition since the order is wholly without jurisdiction and unjustifiable. The High Court, however, clarified that the order would not preclude the Department to recover by any other mode from the Petitioner, if any dues are pending, as per law.
Conclusion
The cash credit account with any bank held by the tax payer is not liable to be attached provisionally under section 83 of the Act since the same does not amount to ‘property’ of the tax payer.
Read More: Highway Heist in Alappuzha Uncovers Widespread Gold Trade Tax Evasion Network
