GST Attachment Requires Evidence and Respect for Ownership
Provisional attachment allows the GST Department to temporarily restrict dealings with property, including funds in bank accounts, to protect government revenue. However, freezing an account can disrupt a business before its tax liability is finally decided. It may prevent payment of salaries, supplier payments, and statutory dues. The need to protect revenue does not, by itself, justify freezing an account. The conditions under Section 83 of the CGST Act, 2017 must be satisfied, and the attachment must be supported by credible material showing why it is necessary.
A further question arises when the account contains money belonging to others. A payment aggregator collects customer payments and temporarily holds them in an escrow account before transferring them to merchants. Handling that money does not necessarily make it the aggregator’s own property. For example, a customer’s payment awaiting settlement to a merchant does not become the aggregator’s money merely because the aggregator operates the account. Suspected tax evasion by merchants therefore cannot automatically justify treating their settlement funds as the aggregator’s assets.
These issues arose in 1Pay Mobileware Private Limited v. Union of India & Others, 2026-VIL-1197-BOM, decided on 16.10.2026. The Bombay High Court set aside attachments that lacked the necessary supporting material and statutory foundation. It also recognised that the merchant settlement money held in trust did not belong to the petitioner. The decision requires examination of both the evidence supporting the attachment and the ownership of the property attached. Suspicion cannot replace the required material, and control over an account cannot replace proof that its funds belong to the person whose property may lawfully be attached.
A Gaming Investigation Led to the Freezing of Bank Accounts
1Pay Mobileware Private Limited was incorporated on 25.01.2019. The Reserve Bank of India authorised it to operate as an online payment aggregator on 14.05.2024 and as both an online and offline payment aggregator on 23.06.2026. The company processed payments for merchants, including Government departments, statutory bodies, public-sector undertakings and private businesses. It collected payments from customers and temporarily held them in RBI-regulated escrow accounts before transferring them to the intended recipients. Its role was to process and settle payments; the money collected did not necessarily belong to the company.
The Directorate General of GST Intelligence (DGGI), Hyderabad Zonal Unit, investigated alleged GST evasion involving an organised online money-gaming syndicate. The Department alleged that fictitious or non-existent merchants used payment platforms to move funds from gaming activities without paying the applicable GST. It suspected that 1Pay had helped facilitate those transactions. Provisional attachment action began on 10.08.2026, followed by further orders dated 24.08.2026 and 28.08.2026. The resulting restrictions affected the company’s bank accounts, including escrow funds. These were allegations under investigation, not final findings establishing the company’s involvement or liability.
The company challenged the restrictions, arguing that it was only a payment intermediary and that the Department had not identified any specific GST liability attributable to it. According to the company, freezing the accounts prevented ordinary business payments and delayed settlements owed to Government entities and other merchants. The Department later permitted selected settlements, but the remaining funds stayed restricted. The company therefore approached the Bombay High Court under Article 226 of the Constitution, seeking removal of the attachments and the restrictions continued through the later orders.
Section 83 Requires More Than the Mere Existence of an Investigation
Section 83(1) of the CGST Act empowers the Commissioner to provisionally attach property, including bank accounts, after proceedings are initiated under Chapter XII, Chapter XIV or Chapter XV, where the Commissioner forms an opinion that such attachment is necessary to protect Government revenue. The provision permits attachment of property belonging to the taxable person or a person specified in Section 122(1A). Section 83(2) further provides that a provisional attachment ceases to have effect after one year from the date of the attachment order. The power is therefore conditional and temporary; it is not an unrestricted authority to freeze the assets of any person connected with an investigation.
The statutory requirement to form an opinion is particularly significant. The Commissioner must have tangible material establishing a reasonable connection between the circumstances under investigation and the need to protect Government revenue through attachment. The mere existence of an investigation, the possibility of tax evasion, or suspicion concerning a person's business activities does not automatically satisfy this requirement. The Commissioner must examine whether the statutory conditions are fulfilled, whether the property belongs to a person covered by Section 83, and whether attachment is genuinely necessary to safeguard a potential revenue demand.
The Bombay High Court emphasised that the power under Section 83 is extraordinary because it may substantially interfere with business operations before liability has been finally determined. Therefore, its exercise must be supported by cogent and credible material. The formation of an opinion cannot be reduced to a formal statement that attachment is necessary in the interests of revenue. There must be a demonstrable connection between the material available, the person whose property is proposed to be attached, and the necessity of attachment. Without this connection, the statutory safeguard of requiring the Commissioner's opinion would become meaningless.
Suspicion of Tax Evasion Cannot Substitute Tangible Material
The Department alleged that the petitioner failed to cooperate with the investigation. On 10.08.2026, its business premises were locked, relevant documents were unavailable, and its server was empty. Certain directors and key managerial personnel allegedly failed to comply with summons or furnish the required records. These circumstances raised suspicion that the petitioner's activities extended beyond its declared role as a payment aggregator.
The Department further alleged that approximately 88 merchants on the petitioner's platform were non-existent or non-functional and were connected with online money gaming involving suspected GST evasion exceeding ₹1,000 crore. However, the High Court found that the attachment orders did not identify the relevant transactions, merchants, the manner of tax evasion, or the petitioner's specific involvement. Even the affidavit filed before the Court failed to disclose the identities and transaction details of these merchants. The petitioner's GSTR-1 merely reflected commission invoices for its own services, without establishing liability for the merchants' transactions.
The High Court held that mere suspicion of tax evasion by third parties, without cogent material establishing the petitioner's involvement and the necessity of attachment, could not justify freezing its bank accounts. Although suspicious transactions and non-cooperation may warrant investigation, provisional attachment under Section 83 requires independent satisfaction of the prescribed statutory conditions. The power to investigate cannot be equated with the power to attach property.
Escrow Funds Held for Merchants Cannot Be Treated as the Aggregator's Property
A significant issue before the High Court concerned the ownership of funds maintained in escrow accounts. The petitioner, an RBI-authorised payment aggregator, collected customer payments and held them in regulated escrow accounts for settlement with merchants. It earned commission for its services, but the underlying transaction amounts belonged to the respective merchants. Operating an escrow account did not necessarily confer ownership of the funds held in it.
The High Court observed that the escrow funds were held in trust for third-party beneficiaries and did not constitute the petitioner's property. Section 83 permits provisional attachment of property belonging to the taxable person or a person covered by Section 122(1A). Merely operating the escrow account did not make its balance attachable as the petitioner's property, particularly when the Department had failed to establish the petitioner's GST liability in respect of the transactions under investigation.
The judgment has wider implications for payment aggregators and other intermediaries handling third-party funds. However, it does not grant automatic protection to every account described as an escrow account. The actual ownership of funds must be determined from the governing agreements, regulatory framework and nature of transactions.
Revenue Protection Cannot Justify Disrupting Legitimate Third-Party Settlements
The freezing of escrow accounts affected not only the petitioner but also several Government and statutory entities, including IRCTC, ICAI, HDFC Bank and LIC Housing Finance Limited. Approximately ₹13.82 crore was awaiting settlement to five identified entities. The restrictions also disrupted FASTag and other electronic toll settlements, affecting banks, toll operators and other beneficiaries.
HDFC Bank confirmed that it maintained the account under RBI guidelines and that it contained funds payable to merchants. The freeze prevented timely settlements and created operational difficulties, including possible non-compliance with RBI-prescribed timelines. Recognising these concerns, the Department partially permitted payments to certain Government and public-sector entities but continued the attachment over the accounts.
The High Court's decision highlights the importance of examining fund ownership and the necessity of attachment. Although protecting Government revenue is a legitimate objective, freezing money belonging to unrelated third parties may cause serious hardship without satisfying Section 83. Revenue protection cannot justify attaching funds that do not belong to the person under investigation.
The Supreme Court's Safeguards Against Arbitrary Provisional Attachment
The Bombay High Court placed substantial reliance upon the Supreme Court's decision in Radha Krishan Industries v. State of Himachal Pradesh & Ors., (2021) 6 SCC 771; 2021-VIL-50-SC. In that case, the Supreme Court described the power of provisional attachment under Section 83 as draconian and held that the statutory conditions governing its exercise must be strictly fulfilled. The Commissioner must form an opinion on the basis of tangible material that attachment is necessary to protect Government revenue. A live connection must exist between the available material and the necessity of attachment. The power cannot be exercised merely because attachment appears convenient, expedient or advantageous to the Department.
The Supreme Court also emphasised proportionality and the serious consequences of provisional attachment. Referring to the principles governing attachment before judgment under Order XXXVIII Rule 5 of the Code of Civil Procedure, 1908, including the decision in Raman Tech. & Process Engg. Co. v. Solanki Traders, (2008) 2 SCC 302, the Court recognised that such powers are intended to prevent frustration of legitimate recovery and not to impose premature financial hardship. The Bombay High Court applied these principles to examine whether the material the Department relied on established a genuine necessity to freeze the petitioner's accounts.
The Bombay High Court also referred to M/s Armour Security (India) Ltd. v. Commissioner, CGST, 2025 INSC 982; 2025-VIL-63-SC, concerning the meaning of initiation of proceedings under Section 6(2)(b) and the distinction between quasi-judicial proceedings and an inquiry under Section 70. The Court noted the similar language on initiation of proceedings, but ultimately based its decision on the lack of tangible material, the failure to establish the petitioner's statutory connection to the alleged liability, and the nature of the escrow funds. The principal authority governing the validity of attachment remained Radha Krishan Industries v. State of Himachal Pradesh & Ors., (2021) 6 SCC 771; 2021-VIL-50-SC.
Taken together, these decisions emphasise that extraordinary statutory powers must be exercised only upon satisfaction of their specific legal conditions.
Reasons Recorded Later Cannot Cure an Unlawful Attachment
The Department contended that it had recorded the reasons justifying the provisional attachment in the official file and later explained them in the affidavit filed before the High Court. It also relied upon the orders dated 04.09.2026 and 18.09.2026, passed after consideration of the petitioner's objections, to support the continuation of the restrictions. According to the Department, the material gathered during investigation, the alleged failure to furnish documents and the possibility of diversion of funds justified maintaining the attachments in order to protect revenue.
The High Court rejected the attempt to justify the original attachment orders through subsequent explanations. It found that the impugned orders contained only vague allegations and did not disclose the necessary factual foundation for invoking Section 83. The later orders and affidavit did not remedy the lack of cogent material establishing the petitioner's GST liability or the need to attach its accounts. The Court observed that the orders could not be sustained merely by elaborating the Department's suspicions in subsequent proceedings. When exercising such power, the statutory opinion must be based on relevant material.
This aspect of the judgment is particularly important for adjudicating and investigating authorities. The requirement to record reasons is not a procedural formality that can be satisfied with general allegations or retrospective explanations. The authority must examine the relevant facts, identify the statutory basis for attachment and demonstrate why the measure is necessary to protect revenue. The judgment does not establish that every underlying investigative document must necessarily be reproduced in the attachment order. Its essential principle is that a legally sustainable opinion must exist when the attachment is ordered, and subsequent affidavits cannot create a factual foundation that was absent at that stage.
Rule 159 Provides a Remedy but Does Not Validate an Illegal Attachment
Rule 159 of the CGST Rules, 2017 prescribes the procedure for provisional attachment under Section 83. The Commissioner must issue an attachment order in Form GST DRC-22. Under Rule 159(5), the affected person may file objections in Form GST DRC-22A and, after a hearing, seek release of the property. Rule 159(6) also permits release if the Commissioner is satisfied that the attachment is no longer justified. Release is ordered through Form GST DRC-23.
In the present case, the petitioner filed objections and attended a hearing on 28.08.2026. The Department subsequently permitted limited settlements with certain identified entities while continuing the attachment. However, the High Court found that a hearing or partial relief could not cure the failure to satisfy the statutory conditions under Section 83.
The judgment distinguishes procedural compliance from the lawful exercise of statutory power. Although Rule 159 provides safeguards against unjustified attachment, it cannot independently authorise attachment based merely on suspicion. Compliance with Rule 159 cannot validate an attachment that is unlawful under Section 83.
The Department Cannot Secure One Person's Liability Through Another's Property
The Department's allegations primarily concerned online gaming merchants suspected of GST evasion through the petitioner's payment platform. However, the attachment orders neither established any GST liability of the petitioner nor demonstrated that it fell within Section 122(1A). The High Court therefore found no statutory basis to attach the petitioner's bank accounts to secure the suspected liabilities of third parties.
The Court referred to Zhudao Infotech Private Limited v. Principal Additional Director General & Anr., 2023 SCC OnLine Del 3209; 2023-VIL-327-DEL, wherein the Delhi High Court held that a payment aggregator's accounts could not be attached to secure liabilities arising from merchants' transactions when the aggregator itself was not held liable. The Bombay High Court found this principle applicable to the present case.
The judgment does not exempt payment aggregators from GST liability where their own activities attract tax or the conditions of Section 122(1A) are satisfied. However, any such liability must have a proper factual and statutory foundation. Merely facilitating payments for a suspected taxpayer does not justify attaching the intermediary's property to secure that taxpayer's liability.
The Attachments Were Removed, but Lawful Investigation Could Continue
The Bombay High Court set aside the provisional attachment orders because the required opinion was not supported by clear and credible material. The conditions under Section 83 of the CGST Act, 2017, and the safeguards explained in Radha Krishan Industries v. State of Himachal Pradesh, (2021) 6 SCC 771; 2021-VIL-50-SC , had not been satisfied. The later orders permitting partial release were also set aside to the extent that they continued the remaining attachments. No costs were awarded.
The decision did not prevent lawful investigation into the suspected GST evasion. The power to investigate does not automatically include the power to freeze property. Attachment requires its own legal basis and supporting material. Likewise, merchant settlement money held in trust could not be treated as the payment aggregator’s property merely because it operated the escrow account.
The principle is straightforward: before attaching property, the Department must establish why attachment is necessary and whose property it is. Section 83 of the CGST Act, 2017 protects revenue where its conditions are met; it does not permit financial restrictions based merely on suspicion.
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