Facts of the Case

  • The petitioner, a former director of the assessee company, challenged the attachment of his personal bank account by service tax authorities for recovery of dues of the company.
  • He was appointed as an Additional Director on 22 August 2014 and resigned on 08 July 2015.
  • The company was already under investigation prior to his appointment.
  • A show cause notice (2017) and subsequent Order-in-Original (2018) confirmed service tax liability against the company.
  • Recovery proceedings were initiated, and the petitioner’s personal bank account was attached via order dated 08 June 2020.

Issues Involved

  1. Whether a director/ex-director can be held personally liable for service tax dues of a company under the Finance Act, 1994.
  2. Whether Section 87(b)(i) permits attachment of a director’s personal bank account.
  3. Whether recovery proceedings violated principles of natural justice.

Petitioner’s Arguments

  • Section 87(b)(i) only allows garnishee proceedings against third parties, not personal attachment.
  • No provision in the Finance Act imposes personal liability on directors.
  • The petitioner had resigned before adjudication proceedings.
  • No show cause notice or hearing was given in his personal capacity.
  • No evidence that his personal funds belonged to or were held for the company.

Respondent’s Arguments

  • Directors are vicariously liable for company’s tax dues.
  • Petitioner was a director during investigation and deemed to have knowledge.
  • Recovery provisions under Section 87 of Finance Act read with Section 174 CGST Act were valid.
  • Relied on provisions like:
    • Section 9AA, Central Excise Act
    • Section 89, CGST Act
    • Section 168(2), Companies Act, 2013

Court’s Findings / Judgment

  • A company is a separate legal entity distinct from its directors.
  • There is no provision in the Finance Act making directors personally liable for service tax dues.
  • Section 87(b)(i) only permits garnishee orders, not attachment of personal assets of directors.
  • CGST provisions cannot be applied retrospectively to impose liability.
  • Proceedings violated principles of natural justice due to lack of notice.

Final Order

  • Demand notices and attachment order quashed.
  • Recovery proceedings against petitioner declared without jurisdiction.

Important Clarifications by Court

  • Directors are not automatically liable for company tax dues unless statute expressly provides.
  • Corporate veil cannot be lifted without legal basis.
  • Section 87(b)(i) is limited strictly to third-party garnishee situations.
  • Civil tax liability is distinct from penal liability under other statutes.
  • Recovery cannot be selectively enforced against one director.

Sections Involved

  • Section 87(b)(i), Finance Act, 1994
  • Section 174, CGST Act, 2017
  • Section 9AA, Central Excise Act, 1944
  • Section 168(2), Companies Act, 2013
  • Article 265, Constitution of India

Link to download the order -  https://delhihighcourt.nic.in/app/case_number_pdf/2020:DHC:3185-DB/MMH06112020CW55902020_193254.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.