M/S.Kmc Constructions Limited And Another vs. Principal Commissioner Of Central Tax And 4 Others

Held

The Court held that the provisional attachment order dated June 7, 2019, issued by the Deputy Commissioner (AE) could not continue after June 6, 2020, i.e., after the expiry of one year from its date of issue. This was in direct contravention of Sub-Section (2) of Section 83 of the CGST Act, 2017, which imposes a "sunset clause" limiting the duration of such attachments. The Court found that any continuation beyond this period would be violative of Articles 14, 19(1)(g), and 300A of the Constitution of India and would be wholly without jurisdiction. The Court did not dispute the revenue's contention that a fresh order could be issued, but focused on the illegality of the *continued* existence of the impugned order. The ratio decidendi is that a provisional attachment under Section 83 of the CGST Act, 2017, automatically lapses after one year from its issuance unless extended by a subsequent order, and its continuation beyond this period is illegal. The Court allowed the writ petition, directing the 5th respondent (Axis Bank) to allow the petitioner to operate its bank account forthwith.

Facts

The petitioners, M/s KVC Constructions Limited and its shareholder Sri M. Pruthvi Kumar Reddy, challenged a provisional attachment order dated June 7, 2019, issued by the Deputy Commissioner (AE), Hyderabad GST Commissionerate, attaching the company's current bank account with Axis Bank. The petitioners argued that the continuation of this attachment beyond one year from its issuance was illegal and arbitrary, violating constitutional rights. The attachment was made under Section 83 of the CGST Act, 2017. The bank was impleaded as the 5th respondent. The petitioners sought a writ of Mandamus to declare the order illegal and to direct the bank to allow them to operate their account.

Key Issues

1. Whether the provisional attachment order dated June 7, 2019, issued under Section 83(1) of the CGST Act, 2017, and its continuance beyond one year from its date of issue is contrary to Section 83(2) of the CGST Act, 2017, and Rule 159 of the CGST Rules, 2017, and therefore illegal and arbitrary? Petitioner's Arguments: The petitioners contended that the continuation of the provisional attachment order beyond one year from its issuance was wholly illegal, arbitrary, and violated Articles 14, 19(1)(g), 21, 265, and 300A of the Constitution of India. They relied on decisions of the Karnataka High Court in M/s A.P. Steels and Gujarat High Court in Namaskar Enterprise, which held that provisional attachment cannot continue beyond one year as per Section 83(2) of the Act. Revenue's Arguments: The counsel for the revenue did not dispute the legal position that a provisional attachment ceases to have effect after one year. However, they contended that the matter was at the show-cause notice stage and suggested that the Court could make an observation allowing the respondents to issue a fresh provisional order of attachment under Section 83 of the Act.