GST authorities cannot freeze a payment aggregator’s accounts over suspected third-party gaming tax evasion without material linking it to tax liability, Bombay High Court rules

The petitioner, an RBI-authorised payment aggregator, challenged provisional attachment orders freezing its current and escrow bank accounts under Section 83 of the CGST Act.

The respondents alleged that the petitioner’s platform was used to route funds through fictitious merchants connected with online money gaming and that the petitioner had failed to cooperate with the investigation.

The petitioner contended that the escrow funds belonged to merchants and other beneficiaries, not to the petitioner.

After the petitioner’s objections resulted in partial permission for settlements to specified government and PSU entities, the petitioner sought judicial review of the attachment orders and the orders continuing the attachment.

The High Court heard the petition finally and allowed it in part.

1. Whether the provisional attachment of the petitioner’s bank accounts satisfied the statutory conditions in Section 83 of the CGST Act, including the requirement for a reasoned opinion based on tangible material that attachment was necessary to protect government revenue.

2. Whether the petitioner’s escrow funds, held for merchant settlements, could be attached as property belonging to the petitioner under Section 83.

Section 83(1) of the CGST Act permits provisional attachment, after initiation of proceedings under the specified chapters, of property belonging to a taxable person or a person specified in Section 122(1A), where the Commissioner forms the opinion that attachment is necessary to protect government revenue.

Rule 159 of the CGST Rules provides for the attachment procedure and permits an affected person to object and seek release of the property.

Under Radha Krishan Industries v. State of Himachal Pradesh, provisional attachment is a draconian power requiring strict compliance: the opinion must rest on tangible material showing that attachment is necessary to protect revenue, and the measure must be proportionate.

The Court also referred to Armour Security (India) Ltd. v. Commissioner, CGST, which held that an inquiry by summons under Section 70 is not, by itself, a “proceeding” for the purposes of Section 6(2)(b) of the CGST Act.

Section 83 is limited to property belonging to a taxable person or a person specified in Section 122(1A).

The Court found that the attachment orders and the respondents’ pleadings alleged suspected money laundering and GST evasion by third parties, but did not identify any GST liability of the petitioner or establish that it was a taxable person or a person specified in Section 122(1A).

The orders did not set out specific transactions, the alleged GST evasion, or the petitioner’s role in it; the allegations concerning unidentified merchants and non-cooperation did not supply the necessary tangible material or demonstrate why attachment was necessary to protect revenue.

Applying Radha Krishan Industries, the Court held that the attachment reflected suspicion rather than a properly formed opinion supported by cogent material.

It also held that the escrow funds were held for beneficiaries and were not the petitioner’s property for purposes of Section 83.

It allowed the petition in terms of prayer clauses (a) and (g), quashing the challenged provisional attachment orders and the partial defreezing orders insofar as they continued the attachment.

The remaining substantive prayers were not granted; there was no order as to costs.