In a recent ruling, the Allahabad High Court addressed the issue of whether the state tax department could impose liens on bank accounts after a best judgment assessment had been deemed withdrawn under the Uttar Pradesh GST Act. The case involved M/s SMM Infratech Pvt. Ltd., which faced recovery proceedings initiated under Section 79 due to delayed filing of returns, leading to best judgment assessments under Section 62(1). However, the company subsequently filed all pending returns and paid the due taxes within the prescribed 60-day period, triggering the statutory withdrawal of the assessments under Section 62(2).
Despite the compliance, the department imposed liens on the company's bank accounts and recovered a significant sum, claiming it related to earlier demands. The petitioner argued that since the best judgment assessments were automatically withdrawn upon filing returns and paying taxes on time, any recovery action was unauthorized. The court agreed, noting that the company's compliance satisfied the conditions for withdrawal of the assessments and that no demand survived for enforcement.
The court found the lien imposed on the bank accounts to be harsh and legally unsustainable, directing the department to revoke the lien and for banks to defreeze the accounts immediately. It clarified that the department could initiate fresh proceedings for any legitimate demands by issuing a proper show-cause notice. The writ petition was disposed of with these directions, with no order as to costs.
Order date: 16 Oct 2025
Parties: M/s SMM Infratech Pvt. Ltd. v. State of Uttar Pradesh & Ors.
Facts –
- The petitioner, a registered dealer under the Uttar Pradesh GST Act, 2017, faced recovery proceedings initiated under Section 79 based on best judgment assessments passed under Section 62(1) due to delay in filing returns.
- After receiving the assessment orders, the petitioner filed all pending GSTR-3B returns and paid the due taxes within the prescribed 60-day period, thereby triggering the deeming withdrawal under Section 62(2).
- Despite compliance, the department, in July–September 2025, created liens on the petitioner’s bank accounts and recovered ₹4,79,811.55, while also instructing banks to mark a lien of ₹2.36 crore, claiming it related to earlier demands.
- The petitioner contended that once returns were filed and dues paid within time, the best judgment assessments stood statutorily withdrawn, and any recovery under Section 79 was without authority of law.
Issue –
- Whether the Department can initiate recovery under Section 79 and create liens on bank accounts when best judgment assessments under Section 62(1) stand deemed withdrawn under Section 62(2) due to timely filing of returns and payment of tax.?
Order –
- The Court noted that the petitioner had filed all due returns and paid taxes within 60 days of the assessment, satisfying the condition under Section 62(2) of the U.P. GST Act.
- Consequently, by operation of law, the best judgment assessments stood automatically withdrawn, and no further demand survived for enforcement.
- The lien created on the petitioner’s bank accounts more than a year later was found to be harsh and legally unsustainable.
- The Bench directed the Department to immediately revoke the lien instructions, and the concerned banks to defreeze the petitioner’s accounts forthwith.
- It clarified that if any further legitimate demand (including interest or penalty) remains, the Department is at liberty to initiate fresh proceedings by issuing a proper show-cause notice under law.
- The writ petition was disposed of with these directions; no order as to costs.
