Court holds freezing of bank accounts under Section 83 of CGST Act unjustified without tangible material showing GST liability; escrow funds protected as trust property.
In a significant judgment delivered on October 16, 2026, the Bombay High Court (Division Bench comprising Justices M.S. Karnik and Sandesh D. Patil) quashed the provisional attachment orders freezing the bank accounts of 1Pay Mobileware Private Limited, an RBI-authorized payment aggregator, under the Central Goods and Services Tax Act, 2017 (CGST Act). The court observed that the exercise of draconian powers under Section 83 of the CGST Act requires strict adherence to statutory conditions, including the formation of an opinion based on tangible material indicating necessity to protect government revenue.
The petitioner, 1Pay Mobileware Pvt. Ltd., challenged the attachment of its current and escrow accounts by the Directorate General of GST Intelligence (DGGI) on suspicion of involvement in an online money gaming syndicate allegedly evading GST. The respondents contended that the petitioner was allegedly facilitating routing and layering of funds for fictitious or non-existent merchants linked to online gaming operations, thereby causing substantial GST evasion estimated to be over Rs. 1000 crore. The investigation revealed non-cooperation by the petitioner, locked business premises, empty servers, and non-submission of crucial documents, which formed the basis for the provisional attachment.
However, the High Court found that the impugned orders contained only vague assertions without specifying any GST liability of the petitioner, details of transactions, or the petitioner's precise role in any evasion. Importantly, the Court noted that the escrow accounts held monies on behalf of third-party merchants, including government and statutory entities, and therefore, these funds were impressed with a trust and did not belong to the petitioner. Such escrow funds, the Court held, could not be attached under Section 83.
Relying heavily on the Supreme Court's precedent in Radha Krishan Industries v. State of Himachal Pradesh (2021) 6 SCC 771, the Court emphasized that provisional attachment orders must be preceded by a clear opinion that attachment is necessary to protect revenue and not merely expedient or convenient. The Court observed a complete non-application of mind by the Commissioner, with reasons to believe recorded only in official files and affidavits, which cannot cure defective orders.
Further, the Court distinguished the facts of the present case from those in Radha Krishan Industries and other judgments cited by respondents, highlighting that ongoing summons and investigations under Sections 67 and 70 of the CGST Act do not substitute the statutory requirement of valid formation of opinion under Section 83.
The Court also referred to a Delhi High Court ruling in Zhudao Infotech Pvt. Ltd. v. Principal Additional Director General (2023) SCC Online Del 3209, which held that payment aggregators' accounts cannot be attached to recover liabilities of third parties when the aggregator itself is not liable.
Consequently, the Court allowed the writ petition, quashing the provisional attachment orders insofar as they related to the petitioner's property. It allowed partial defreezing of escrow accounts to enable settlements with genuine government and PSU entities, recognizing the operational difficulties caused by freezing such funds.
This judgment reaffirms the legal safeguards against arbitrary or unjustified use of provisional attachment powers under the GST law and underscores the need for concrete and credible material before depriving taxpayers of their property.
Bottom Line:
GST - Provisional attachment under Section 83 of the CGST Act is a draconian power and can be exercised only on the basis of tangible material showing necessity to protect revenue - Bank accounts of RBI-authorised payment aggregator could not be frozen merely on suspicion of involvement in online gaming syndicate, when no GST liability of petitioner was shown and escrow funds did not belong to petitioner.
Statutory provision(s): Central Goods and Services Tax Act, 2017 Section 83, Section 70, Rule 159 of CGST Rules, 2017
1Pay Mobileware Private Limited v. Union of India, (Bombay)(DB) : Law Finder Doc Id # 2999462
