Zhudao Infotech Pvt. Ltd. v. Principal Additional Director General, DGGI
Delhi High Court | W.P.(C) 3428/2023 | Provisional Attachment – Section 83 CGST Act | Judgment dated 22.05.2023
Category: Provisional Attachment / Power under Section 83 / Payment Aggregators
Facts (Paras 1–16)
The petitioner, Zhudao Infotech Pvt. Ltd. (ZIPL), operated a payment aggregator platform under the brand Onion-Pay, maintaining current accounts and mandatory RBI-regulated Escrow/Nodal accounts (Paras 4–7). Following a search on 06–07.10.2022, the DGGI provisionally attached three bank accounts, including the Nodal Account, under Section 83 CGST Act (Paras 1–3, 9). ZIPL filed objections under Rule 159(5), which were initially rejected for format issues and later decided through an order dated 01.02.2023 (Paras 10–12).
ZIPL submitted full merchant-wise details of ₹314.46 crores lying in the Nodal Account, out of which ₹244.54 crores belonged to 106 merchants (Paras 13–14). Respondent No. 1 allowed limited release, imposed conditions requiring NOCs/acknowledgements from recipient banks, and withheld amounts relating to allegedly non-existent merchants (Paras 14–16).
Questions/Issues Before the Court
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Whether provisional attachment under Section 83 CGST Act can be invoked against a payment aggregator when no GST demand exists against it? (Paras 19–24)
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Whether the petitioner’s Escrow/Nodal accounts—containing monies belonging largely to third-party merchants—could lawfully be attached? (Paras 21–24)
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Whether DGGI could impose extra-statutory conditions such as demanding NOCs from recipient merchants’ banks? (Paras 25–26)
Court’s Observations (Paras 17–27)
The Court noted the allegations that some merchants using the platform were fake or linked to illegal gaming, and that an RBI direction had been issued returning ZIPL’s payment aggregator application (Paras 17–18). However, it held that these issues were outside the scope of proceedings under Section 83 (Para 19).
The Court recorded the respondent’s admission that there was no GST demand or liability against ZIPL (Para 23). The attachment had been imposed solely to secure estimated tax liabilities of some merchants (Para 23). The Court held that Section 83 permits attachment only of assets belonging to the taxable person or persons covered under Section 122(1A) (Para 24).
A Nodal account is governed by RBI Guidelines, and the funds mostly belonged to merchants. Therefore, ZIPL’s bank accounts could not be attached to secure revenue due from other taxable persons (Paras 21–24).
The Court further rejected the respondent’s direction requiring ZIPL to obtain NOCs and acknowledgements from recipient banks, holding that such a requirement had no statutory foundation (Para 25).
ZIPL agreed to transfer merchant-wise amounts only to the specified bank accounts, and the respondents did not oppose lifting attachment subject to this safeguard (Paras 26–27).
Judgment / Final Directions (Paras 28–31)
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All provisional attachment orders dated 06.10.2022 and 10.10.2022 were set aside.
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ZIPL must disburse merchant dues directly into the specified bank accounts as recorded in the 01.02.2023 order (Para 28).
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The remaining ₹69.92 crores (belonging to ZIPL) shall be transferred to ZIPL’s current account (Para 28).
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Authorities may proceed against merchants independently if required (Para 29).
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Authorities may proceed against ZIPL in future if any liability arises, but not otherwise (Para 30).
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The writ petition was disposed of (Para 31).
Case Law References (with Summary Table)
(No external case law cited in judgment; only statutory construction applied.)
| Case Referred | Court’s Summary / Relevance | Verdict Applied |
|---|---|---|
| No judicial precedents explicitly cited | The Court relied on statutory interpretation of Section 83, Rule 159(5), and Section 122(1A). | Attachment can apply only to assets of the taxable person whose revenue is at risk—not third parties. |
Between the Fine Lines (Trade/Industry Takeaways)
Payment aggregators holding Nodal/Escrow accounts are not liable for GST dues of merchants, and their accounts cannot be frozen merely because merchants are suspected to be fake. Section 83 must be used sparingly and only against assets of the person against whom the revenue risk exists. The judgment protects digital payment intermediaries from overbroad attachment actions that could paralyze operations, while ensuring that authorities may still proceed against actual evaders.
Disclaimer – “The above summary is for academic purpose only; not formal legal opinion. Seek professional opinion before application. Author or publisher or website shall not be responsible for any usage in any form.”
