Other BriefingsBank Account Freeze Under GST: Legal Remedies and Business Continuity Steps
The Goods and Services Tax (GST) has reshaped India’s indirect tax landscape by promoting greater simplicity, transparency, and consistency. However, the framework also introduced robust enforcement mechanisms, one of the most impactful being the provisional freezing of bank accounts.
Understanding the rationale, scope, and process behind this authority is essential for effective compliance and risk management.
India’s GST department has enforcement powers, including the authority to temporarily block bank accounts of registered taxpayers during investigations involving suspected tax evasion or fraudulent activity.
As per the law, the GST Commissioner has the power to provisionally attach a taxpayer’s assets, including bank accounts, during investigations relating to suspected tax evasion or fraud. This authority stems from Section 83 of the CGST Act and Rule 159 of the CGST Rules, 2017, allowing temporary restrictions on the use of property to safeguard revenue interests.
When can GST department freeze a bank account
The GST Department may direct banks to provisionally attach (freeze) a taxpayer’s account when there are indicators of serious non-compliance or potential revenue risk. Such action is typically considered only during ongoing investigations and is meant to prevent loss of government dues.
Common triggers include:
- Suspected fake input tax credit (ITC) claims
- Issuing invoices without actual supply of goods or services
- Collecting GST but failing to remit it to the government
- Identification of shell companies or fictitious entities
- Significant discrepancies detected during audits or anti-evasion proceedings
- Non-cooperation or repeated non-response during departmental inquiries
These red flags usually arise during reviews conducted by jurisdictional GST authorities, the Directorate General of GST Intelligence (DGGI), or anti-evasion units.
Key legal provisions
Section 83 – Provisional attachment (CGST Act, 2017)
Grants the GST Commissioner the authority to provisionally attach a taxpayer’s assets, including bank accounts, during ongoing proceedings such as assessments, inspections, searches, seizures, or anti-evasion investigations.
Rule 159 – Procedure for attachment (CGST Rules, 2017)
Rule 159 outlines the complete process for issuing, contesting, and lifting provisional attachments. The rule specifies the following forms:
- DRC-22 – Order of provisional attachment
- DRC-22A – Filing objections against the attachment
- DRC-23 – Order for withdrawal or release of the attached account
Most taxpayers learn about the freeze either through their bank or when transactions start getting rejected. As per procedure, the department must upload the DRC-22 notice order on the GST portal, notify the authorized signatory via email, and send the same order to the bank, which is required to immediately restrict outward payments.
ALSO READ: Biometric Authentication for GST in India: Everything You Need to Know
How to unblock a frozen bank account
Taxpayers have several options to seek relief in case their bank account has been frozen by the GST authorities.
1. Respond to the notice
Submit a detailed reply via the GST portal with supporting documents—such as reconciliations, invoices, or proof of tax deposits.
If the authority is satisfied, it will issue Form GST DRC-23, instructing the bank to lift the freeze.
2. Offer alternative security
Where full release is not immediately granted, taxpayers may propose:
- A bank guarantee
- An escrow arrangement
- Partial payment of the disputed amount
These safeguards can help secure partial or complete relief.
3. File objections under Rule 159 of CGST Rules, 2017
Within 7 days of the attachment order, taxpayers can submit objections, explaining why the attachment should be withdrawn. This can be done by filing Form GST DRC-22A. Evidence of cooperation, correction of errors, or willingness to provide security strengthens the case.
4. Approach the state high court
If the attachment is excessive, arbitrary, or severely disrupts business operations, taxpayers may file a writ petition. India’s High Courts have frequently intervened when authorities overstep, especially where proportionality is lacking.
GST cancellation can’t justify freezing accounts: High Court
In a recent judgement issued on October 14, 2025, the Rajasthan High Court has held that a bank cannot freeze a taxpayer’s account merely because their GST registration was voluntarily cancelled. The court ordered the account to be immediately unfrozen and directed the bank to issue a clear, reasoned decision if it intends to take any action in the future.
Since the petitioner dealt exclusively in GST-exempt goods (Chapter 10 of the HSN), the cancellation was lawful and did not indicate evasion risk.
Directions issued:
- The petitioner must file a detailed representation within 10 days.
- The bank must reconsider the matter and issue a speaking order within one month.
- Until then, the account must remain fully operational.
The Court clarified that freezing an account without notice violates Articles 14 and 19(1)(g), the rights to equality and to carry on business, in the Indian Constitution.
The petitioner’s GST registration was voluntarily cancelled after confirming that the business dealt in exempt goods. Despite this, the bank marked the account as “high-risk” based on automated GST-related triggers and froze it without prior notice, severely impacting business operations.
The Rajasthan High Court held:
- Voluntary GST cancellation for exempt goods is legally permissible.
- Automated risk classification has no statutory backing.
- Freezing a bank account is a serious interference with the right to trade and requires strong justification.
- Administrative actions must follow natural justice, including prior notice, an opportunity to respond, and a reasoned order.
- The bank’s action was mechanical, disproportionate, and unsupported by law.
This judgment provides valuable guidance to both banks and businesses on the limits of automated risk-based actions linked to GST data and reaffirms the need for fairness, due process, and independent assessment.
Balancing enforcement and business continuity
While GST authorities view provisional bank account attachment as a crucial tool to prevent revenue leakage, legal experts stress the need for fairness, transparency, and proportional action. A freeze can cripple legitimate business operations, making timely communication and due process essential.
For businesses, early response, proper documentation, and proactive engagement with authorities remain the most effective strategies to lift a bank account freeze swiftly.
Prevention mechanisms for businesses
Proactive compliance can significantly reduce the risk of a bank account being provisionally attached. Key steps include:
- Strengthen GST documentation: Maintain clean invoice trails, reconciled ITC records, and timely GSTR filings to avoid discrepancies that trigger scrutiny.
- Conduct periodic internal reviews: Regular GST health checks, vendor due diligence, and reconciliation of purchase data (GSTR-2B vs. books) help identify risks early.
- Monitor high-risk indicators: Flag unusual credit patterns, sudden spikes in ITC claims, or transactions with newly registered or suspicious vendors.
- Ensure prompt response to notices: Timely replies to departmental queries and full cooperation during audits or investigations reduce the likelihood of adverse action.
- Implement governance controls: Deploy compliance standard operating procedures (SOPs), assign responsible personnel, and maintain evidence of tax payments and reconciliations for quick retrieval during inquiries.
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