Background: Petitioner (sub-contractor) opened an escrow account with contractor as the first account holder. Proceeds from supply were deposited into the escrow account by the contractor’s customer. Of the funds deposited, bank was directed to transfer 3% to the contractor and 97% to the sub-contractor.

The Revenue provisionally attached the said escrow account while proceeding against the contractor.

Issue: The sub-contractor is not a party to any proceedings by the Revenue. In such situation, can a bank account (held jointly by the contractor and the sub-contractor) be provisionally attached?

Decision: A plain reading of Section 83(1) of CGST Act indicates that property belonging to the taxable person (against whom proceedings are pending) can only be provisionally attached. However, in this case, no proceedings have been initiated by the Revenue against the sub-contractor (who is a joint account holder, entitled to 97% of receipts in the said account). Hence, the rights of the sub-contractor are adversely affected.

Vide Rule 159(5) of CGST Rules, any person whose property is attached under Section 83 ibid can file an objection within seven days of such attachment. Accordingly, the Commissioner should afford an opportunity of being heard. After such hearing, the Commissioner may release the property by an order in Form GST DRC-23.

Accordingly, the sub-contractor had filed objection. Until a decision is taken by the Revenue on such objections filed, the sub-contractor was directed to maintain a balance of Rs.5 lakh. In effect, the provisional attachment on the sub-contractor’s share in the escrow account was lifted. However, the provisional attachment on the contractor’s share remains.

Comments: Section 83 of CGST Act permits provisional attachment of property belonging only to the taxable person. In instances where bank account (jointly held with third party) is attached, the aggrieved (third) party should duly file their objections under Rule 159(5) ibid and may seek judicial remedy if there is no response or belated response on the part of Revenue.