Assessees Accounts Not To Be Attached If There Seems To Be Default On The Part Of Another Taxable Person 

Facts of the Case: –

• That the petitioner (ZIPL) operates a payment aggregator platform under the name ‘Onion-Pay’. It has onboarded various merchants on the said platform, which is used by merchants and their customers to pay for goods and services. Its role is limited to processing payments and it is not concerned with the supply of any services by any of the merchants using its online platform. 
• However, the petitioner sing its platform but has no control over the activities of merchants in relation to the supply of goods and services, which may be chargeable to GST. 
• That the payments were received in the Escrow / Nodal accounts, which are maintained in terms of the guidelines issued by the Reserve Bank of India and the petitioner is entitled to only part of the payments under the Escrow / Nodal accounts and the balance amounts are required to be paid to the merchants and suppliers who have used the services of ZIPL for facilitating receipt of payments from their customers.
• That a search was conducted on the premises of ZIPL as well as its directors on 06.10.2022 and 07.10.2022, resulting in passing of the impugned orders 06.10.2022 and 10.10.2022 attaching ZIPL’s bank accounts.
• The Petitioner being aggrieved, filed objections under Rule 159(5) of the CGST Rules, requesting to defreeze its accounts. The respondents did not consider the said objections and sent a letter dated 04.01.2023, informing petitioner (ZIPL) that its objections were not in the correct / prescribed format.
• Challenging the aforesaid order, the petitioner filed a writ petition (W.P. (C) No. 492/2023) before this Court, praying to set aside the impugned orders. It was argued on the behalf of the respondents that there was a serious apprehension that the merchants onboarded and transacting through ZIPL’s online platform, Onion-Pay, were not genuine. This Court disposed of the said writ petition by an order dated 16.01.2023, directing the respondents to pass a speaking order in respect of the objections raised by the petitioner within a period of two weeks from the said date.
• Thereafter, respondent no. 1 scheduled a personal hearing and provided an opportunity to ZIPL to submit relevant documents. Though later, the ZIPL’s objections under Rule 159(5) of the CGST Rules was rejected by an order dated 01.02.2023, which is under challenge in the present petition.
• In the aforesaid impugned order dated 01.02.2023, it was observed by the Respondent no. 1 that during the course of proceedings relating to the objections preferred by the petitioner, respondent no. 1 had called upon ZIPL to furnish details showing the names, bank account numbers and IFSC codes of third-party merchants and users to whom the funds were required to be paid from the Escrow / Nodal account. In compliance with the same, ZIPL provided details of all merchants and break-up of the outstanding amount payable to them from the funds available in the Escrow/Nodal accounts.
• It was also noted by Respondent no. 1 that that approximately ₹314.46 crores were available in the Escrow / Nodal Account No. 017261100000041 with Yes Bank Ltd. and out of the aforesaid amount, ZIPL had furnished a breakdown of the amounts due to 106 merchants aggregating to ₹244.54 crores. That out of the amount of Rs. 244.54 crores belonging to 106 merchants, ₹152.25 crores pertained to merchants whose bank accounts had been provisionally attached. He accordingly allowed release of the said amount, subject to the condition that the amounts be paid to the said merchants directly in the bank accounts as mentioned in the said impugned order, that is, the accounts that had already been attached by the respondents.
• It was also directed by respondent no. 1 that ZIPL and Yes Bank Ltd. would submit an affidavit to the Deputy Director of DGGI to the effect that branches of the banks maintaining the accounts of the recipients are informed that the bank account of the concerned payee is attached and the same is acknowledged by the concerned banks.
• With respect to the balance amount of Rs. 92.29 crores (₹244.54 crores – ₹152.25 crores), respondent no. 1 noted that it pertained to 18 other merchants, some of which were found to be non-existent, and bank accounts of some of the merchants were attached but the bank account numbers furnished by ZIPL in respect of those merchants were different from those that were attached.
• It was found by Respondent no. 1 that the amount of Rs. 28,67,90,503/- pertaining to specified merchants would be permitted to be released after their bank accounts have been attached. Further, in respect of Rs. 49,19,44,031/-, respondent no. 1 noted that the same was required to be remitted to three merchants whose details were not shared by ZIPL at the time of search but had been provided later by a letter dated 24.11.2022.
• It was observed by Respondent No. 1 that the bona fides of those merchants would require to be verified and held that the said amount could not be released before the bona fides of those merchants were verified. Though, the balance amount of ₹75,96,407/- is concerned, the same related to the eleven merchants and ZIPL was permitted to release the same.

Petitioner’s Submissions: –

• It was submitted on the behalf of the petitioner that the orders passed under Section 83 of the CGST Act are illegal as there is no ground for the respondents to believe that it was necessary to attach ZIPL’s bank accounts in the interest of the Revenue.
• That the petitioner operates a payment aggregator platform under the name ‘Onion-Pay’. It has onboarded various merchants on the said platform, which is used by merchants and their customers to pay for goods and services. Its role is limited to processing payments and it is not concerned with the supply of any services by any of the merchants using its online platform.
• That the petitioner has complied with the ‘Know Your Customer’ (KYC) requirements in respect of the merchants using its platform but has no control over their activities in relation to the supply of goods and services, which may be chargeable to GST. ZIPL charges a transaction fee and claims that it has duly discharged the GST on the amounts charged from merchants for use of its online payment platform.
• That the petitioner (ZIPL) is entitled to only part of the payments under the Escrow / Nodal accounts and the balance amounts are required to be paid to the merchants and suppliers who have used the services of ZIPL for facilitating receipt of payments from their customers.
• There is no doubt that the attachment of accounts of ZIPL’s Escrow / Nodal account would result in effectively shutting down its business as it would no longer be able to operate the online platform.

Submissions on the behalf of Respondents: –

• It was argued on the behalf of the respondents that that information was received indicating that ZIPL was indulging in evasion of GST while providing an online payment gateway (Aggregator Services) under the trade name ‘Onion-Pay and was supporting illegal gambling products such as ‘Teen Patti’, ‘Roulette’, ‘Ludo’, ‘Matrix 5’ and all merchants associated with the payment gateway were suspected to be fake and shell companies.
• The petitioner had created a web of fake gaming merchant entities, which were operated and managed by ZIPL. It was claimed that a Chinese national named Jian Li was the Director of ZIPL and the mastermind in running the entire online gaming / gambling business.
• With the emerging of new facts during investigation, it was found that the application made by ZIPL to operate a payment gateway / payment aggregator has been returned by the RBI on 06.01.2023. The RBI had further advised ZIPL to stop the payment aggregation activity and directed it to close the Nodal account within one hundred and eighty days from 06.01.2023 and it is prohibited from submitting any further application or operating any payment system under the Payment & Settlement Systems Act, 2007 for the period of one year.
• Further, it was submitted that the petitioner was operating the Nodal / Escrow accounts and providing payment aggregator / payment gateway services in violation of regulatory requirements stipulated by the RBI.
• It was also submitted that an investigation is underway and that ZIPL’s bank accounts had been attached in view of the information that some of the merchants onboarded on ZIPL’s platform were non-existent and it was suspected that the money was being paid to fake and non-existent merchants operated by Chinese nationals, who would then transfer the funds out of India by illegal channels.
• However, it was accepted that there were no tangible materials as yet to form any view in this regard, and also there was no allegation that the petitioner had not discharged its liability under GST.
• The petitioner (ZIPL) had provided the details as well as the bank accounts of all merchants to whom payments are due from Nodal / Escrow account. According to ZIPL, a sum of ₹244.54 crores (out of the sum of ₹314.46 crores) is required to be paid to 106 separate merchants, and the balance amount of ₹69.92 crores belongs to it.
• Lastly, it was submitted that the impugned order attaching the petitioner’s bank account, centres around the theme that some of the merchants using ZIPL’s platform are fake.

Held: –

• The Hon’ble Court after considering the submissions made, facts of the case and from perusal of relevant provisions & rules, found that the scope of the present proceedings is confined to determining whether the impugned orders are in accordance with Section 83 of the CGST Act. Thus, this court is not required to examine the action taken by the RBI. Though it is Obvious that the petitioner (ZIPL) will have to comply with the directions issued by the RBI, unless the same are set aside by a competent court or authority. But the directions issued by the RBI is not the subject matter of the present petition.
• The Hon’ble Court found that as already accepted on the behalf of the respondents that there is neither any demand nor any issue regarding petitioner’s (ZIPL) liability under the CGST Act. ZIPL’s bank accounts were attached mainly for attaching the assets of some of the merchants who were using ZIPL’s platform. Further, the relevant file produced in Court also indicated that the respondents had sought to create a lien on ZIPL’s account for a sum of ₹643 crores on the basis of estimate of the tax liability owed by some of the large merchants.
• Therefore, it was found by the Hon’ble Court that the petitioner’s bank accounts could not be attached for any amount due and payable to the merchants using the (petitioner’s) ZIPL’s platform. The provisions of Section 83 of the CGST Act can be invoked for attaching the assets and bank accounts of a taxable person or a person specified under Section 122(1A) of the CGST Act, if in the opinion of the Commissioner it is necessary to do so for the purpose of protecting the interest of government revenue.  Thus, the bank accounts of ZIPL cannot be attached for securing the revenue of another taxable person.
• It was found by the Hon’ble Court that it is implied that the bank accounts and assets of only those taxable person or persons specified in Section 122(1A) of the CGST Act can be attached who may be liable for payment of any government revenue and the Commissioner is of the opinion that it is necessary to attach their assets in the interest of government revenue. A debt owed by any person to the taxable person, whose assets or bank accounts are liable to be attached under Section 83 of the CGST Act, can be attached being an asset of such a person. But the bank account of the person owing such debt cannot be subject to a provisional attachment order under Section 83 of the CGST Act.
• Moreover, the Hon’ble Court was unable to find any basis for the various directions issued by respondent no. 1 in the impugned order dated 01.02.2023 requiring ZIPL to obtain NOCs or acknowledgments from the bank accounts of the recipient merchants.
• It was taken note of by the Hon’ble Court that the petitioner had accepted the respondents’ condition that the payments to various merchants be made only in the specified bank accounts as communicated to the respondents and as recorded in the impugned order dated 01.02.2023, and also the petitioner has no objection in undertaking that that the amounts payable to the merchants and as recorded in the impugned order dated 01.02.2023 will be paid without holding back any amount. In response, on the behalf of the respondents’, it was submitted that the attachment of the assets of ZIPL may be lifted subject to the condition that the money due to various merchants would be remitted to the specified bank accounts as disclosed by ZIPL.

The Hon’ble Court with the above observations and findings, disposed of the writ petition by setting aside the impugned orders attaching ZIPL’s bank accounts though, with the further direction that ZIPL shall make payments due to various merchants directly in their respective bank accounts as disclosed by ZIPL to the respondents and as recorded in the impugned order dated 01.02.2023.  The remaining amount of ₹69.92 crores is concerned, ZIPL shall transfer the same to its current account.  Further, the respondents are not precluded from taking any effective steps, in accordance with law, in respect of various merchants if they are of the opinion that it is necessary to do so in the interest of protecting the government revenues.  It was clarified that the respondents are not precluded from taking any action against the petitioner in accordance with law, if it is found that any amount is due and payable by petitioner. The concerned Commissioner is also not precluded from taking protective action, in accordance with law, in respect of any liability of ZIPL, if in his opinion the interest of protecting the government revenue requires such action.

To read the complete judgment 2023 Taxo.online 578