Bank Account Freeze by GST Department

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Hemkumar (Querist)
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28 February 2024 Circumtances in which GST department can freeze the bank account? What process need to be followed by department?

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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06 July 2024 The GST department can freeze a bank account under certain circumstances where there are suspected tax defaults or non-compliance issues. Here are the circumstances and the process typically followed by the department:

### Circumstances for Freezing Bank Account:

1. **Non-Payment of GST Dues:**
- If a taxpayer has outstanding GST dues (tax, interest, penalty, etc.) that remain unpaid beyond the specified timelines, the GST department may initiate action to freeze the bank account.

2. **Non-Filing of Returns:**
- Continuous non-filing of GST returns despite reminders or notices from the department can lead to freezing of bank accounts.

3. **Tax Evasion Suspicions:**
- If there are suspicions of tax evasion or fraudulent activities, including input tax credit (ITC) fraud, the department may freeze bank accounts during the investigation.

4. **Non-Compliance with GST Provisions:**
- Failure to comply with GST provisions, such as issuing proper invoices, maintaining records, or other regulatory requirements, may also result in account freezing.

### Process Followed by the GST Department:

1. **Notice:**
- The GST department typically issues a notice to the taxpayer informing them of the intention to freeze the bank account. The notice specifies the outstanding dues or non-compliance issues and provides a deadline for compliance.

2. **Verification:**
- Before freezing the bank account, the department verifies the authenticity and extent of the non-compliance. This may involve scrutinizing GST returns, invoices, payment records, and other relevant documents.

3. **Order for Freezing:**
- Upon satisfaction that the taxpayer has not complied despite the notice, the GST officer issues an order for freezing the bank account. This order specifies the bank account(s) to be frozen and the duration of freezing.

4. **Intimation to Bank:**
- The GST department informs the concerned bank(s) about the order to freeze the account(s). The bank is required to freeze the specified account(s) and prevent any transactions until further notice from the department.

5. **Opportunity for Hearing:**
- In some cases, taxpayers may be provided with an opportunity for a hearing before the account freezing order is executed. This allows the taxpayer to present their case and address any misunderstandings or discrepancies.

6. **Release of Freeze:**
- Once the taxpayer clears the outstanding dues or addresses the compliance issues to the satisfaction of the GST department, a release order is issued. This instructs the bank to unfreeze the account(s) and allow normal banking operations to resume.

### Legal Considerations:

- The GST department is bound by legal provisions and procedural requirements when freezing bank accounts. It must adhere to principles of natural justice and provide adequate opportunity for the taxpayer to present their case before taking such drastic actions.

- Taxpayers have the right to appeal against freezing orders and can approach higher authorities or judicial forums if they believe the action taken by the GST department is unjustified or illegal.

In summary, the freezing of a bank account by the GST department is a serious measure aimed at ensuring compliance with GST laws. It is important for taxpayers to maintain timely and accurate records, file returns promptly, and settle dues to avoid such situations.