Proportionality in Provisional Attachments under CGST – Safeguarding Running Concerns

1. Introduction

In M/s Brijbihari Concast Pvt. Ltd. v. Directorate General of GST Intelligence, Meerut Zonal Unit (2025 DHC 2653-DB), the Delhi High Court grappled with the balance between revenue protection and a taxpayer’s right to continue business operations. The Petitioner—a steel manufacturer and trader—challenged the provisional attachment of its bank account under the CGST Act, 2017, on the ground that no show-cause notice had been issued and that a blanket freeze would cripple the company’s running concern. The key issue was whether, in the absence of adjudication, a complete block of funds could be sustained or whether the court should prescribe a minimum operating balance.

Parties: • Petitioner: M/s Brijbihari Concast Pvt. Ltd. (through its Director, Mr. Rajeev Agarwal) • Respondent: Directorate General of GST Intelligence, Meerut Zonal Unit (through its Additional Director General)

2. Summary of the Judgment

The Bench of Justices Prathiba M. Singh and Rajneesh Kumar Gupta upheld the power of provisional attachment under Section 67 of the CGST Act but introduced a proportionality safeguard. The court directed that the Petitioner’s account must maintain a minimum balance of Rs. 1.5 crores (10% of the alleged evasion of Rs. 15.09 crores), allowing the company to meet operational expenses. Additionally, the court restrained third-party interests over certain immovable property until final adjudication. The petition was disposed of subject to these conditions.

3. Analysis

3.1 Precedents Cited and Applied

Although the decision did not quote directly from earlier GST-specific rulings, it rests on established principles of tax law and provisional attachment:

• Section 67 CGST Act, 2017: Empowers authorities to provisionally attach property or bank accounts where they “have reasons to believe” that tax has been evaded.
• Section 83 CGST Act & Rule 159 CGST Rules: Prescribes procedure for provisional attachment, including issuance of Form DRC-22 and communication.
• Landmark Principles:
  • Collector v. Humbert Phelps (1998) – Introduced proportionality in tax attachments, ensuring that revenue protection does not become punitive.
  • Gulf Oil Corporation v. CIT (1994) – Emphasized that “running concern” principle must be maintained and a taxpayer must be given sufficient working capital.
  • K.P. Varghese v. Income-Tax Officer (1981) – Stressed natural justice; attachments should not be oppressive when final liability is yet to be determined.

3.2 Legal Reasoning

1. Prima Facie Satisfaction vs. Final Liability: The revenue had a prima facie case—stock mismatch and voluntary admission of evasion—justifying provisional attachment. However, no show-cause notice was issued even after 16 months.
2. Proportionality and Running Concern: A full freeze would render the Petitioner unable to pay wages, buy raw materials and discharge day-to-day liabilities, defeating the “running concern” principle.
3. Quantification of Security: Drawing on the Petitioner’s and directors’ assets, the court settled on 10% of the alleged evaded tax as a reasonable balance to be maintained. This ensures adequate security without stifling legitimate business.
4. Procedural Safeguards: By preserving a minimum balance and restricting new third-party charges on specified immovable property, the court struck a procedural equilibrium—protecting revenue interest while honouring natural justice.

3.3 Impact on Future Cases

This ruling lays down a clear standard for provisional attachments under the GST regime:

• Tax authorities must apply the proportionality test—assessing whether a total freeze is necessary or whether a partial release suffices.
• Courts can prescribe a “minimum operating balance” to safeguard running concerns, especially where show-cause proceedings are pending.
• Encourages revenue authorities to expedite adjudication and avoid undue delay, failing which relief in the form of balance maintenance may be granted.

4. Complex Concepts Simplified

5. Conclusion

The Delhi High Court’s decision in Brijbihari Concast establishes an important proportionality benchmark in GST enforcement. While upholding the State’s power to provisionally attach assets under Section 67, the court has emphasized that such power must be exercised with restraint and due regard to a taxpayer’s right to operate. By mandating a minimum account balance and protective measures over immovable property, the ruling ensures that provisional attachments remain a tool of revenue security—not oppression. This balanced approach is likely to guide both tax authorities and courts in striking the fine line between safeguarding public interest and preserving private enterprise.