27.01.2022- Cash Credit account of a taxpayer cannot be provisionally attached by the department

The Hon’ble High Court of Gujarat in the matter of Manish Scrap Traders v. Principal Commissioner vide Order dated 12.01.2022 in R/Special Civil Application No. 76 of 2022 held that the cash credit account of the Assessee cannot be provisionally attached in exercise of power under Section 83 of the CGST Act.

The Writ Application was preferred before the Hon’ble High court by the Petitioner praying for quashing of order dated 29.11.2021 for provisional attachment of its cash credit account issued by Respondent no. 1 and set aside the same. The Petitioner contended that the cash credit account, not being the property of the taxpayers, the attachment of the same is not permissible in law.

The Hon’ble High after considering the submissions made and law in force, observed that the aforesaid cash credit account was opened to enable the Petitioner to borrow money from the bank which would be made available in the nature of loan or Cash Credit facility. The Bank and the Petitioner therefore, do not have the debtor – creditor relationship.

It was further held by the Hon’ble Court that the law on the provisional attachment of cash credit account is no longer res integra and was decided way back in 2016 in the matter of Kaneria Granito Ltd. v.  Assistant Commissioner of Income Tax, Special Civil Application No. 14497 of 2014 decided on 27.06.2016 by the Coordinate bench of this Court only wherein it was held that cash credit account cannot be provisionally attached.

It was held that that the Principal Commissioner have conveniently overlooked the settled position of law when the taxpayer placed reliance on the judgment of this court only in the matter of M/s Formative Tex Fab v. State of Gujarat – MANU/GJ/1121/2020 by holding that in such matter, order was passed by Assistant Commissioner & not by the Principal Commissioner. Basis the above, prima facie, the Principal Commissioner, in this matter, was held to be in contempt.

The Hon’ble High Court with the above findings quashed and set aside the provisional attachment order and held that the law is well-settled in the favor of the Writ applicant and allowed the Writ application.

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