Court dismisses petitions challenging bank account attachment for tax recovery; highlights directors' liability under GST Act
In a significant ruling, the Madras High Court has dismissed a series of writ petitions challenging the attachment of bank accounts for the recovery of Goods and Services Tax (GST) dues from a company under liquidation. The judgment, delivered by Justice C. Saravanan, underscores the liability of directors for the tax arrears of a company, especially when it undergoes liquidation.
The case revolved around CBIGS Advertising Private Limited, a company that had accumulated substantial GST liabilities amounting to Rs. 3,66,42,318 for the tax period of 2017-2018. The company, having failed to file its GSTR-3B returns, opted for voluntary liquidation under the Companies Act, 2013. The National Company Law Tribunal (NCLT) had appointed a liquidator to oversee the winding up.
The petitioners, including CBIGS Apparels and Jewels, N. Seetha, and Yantur Manufacturing Private Limited, contested the attachment of their bank accounts by the GST authorities. They argued that the recovery actions were unjust and that the companies and individuals involved were separate entities.
However, the court found that N. Seetha, a director of the defaulting company during the period of tax default, was liable under Section 88(3) of the GST Act. The provision holds directors jointly and severally responsible for a company’s tax dues if recovery from the company is not possible, unless they can prove that the non-recovery was not due to their gross neglect, misfeasance, or breach of duty.
The judgment further highlighted that the burden of proof rested with the directors to demonstrate their non-liability. The court also noted that the incorporation of various entities and the swapping of directorships among family members suggested a prima facie case for lifting the corporate veil to prevent tax evasion.
In the case of CBIGS Apparels and Jewels, where N. Seetha was initially a partner, the court ruled that the tax arrears could be recovered from the partnership firm. Similarly, in the case of Yantur Manufacturing Private Limited, the court observed potential indications of tax evasion and suggested the possibility of lifting the corporate veil.
The court dismissed all petitions, stating that the petitioners could seek remedies within the statutory framework of the GST Act. This decision reinforces the accountability of directors and associated entities in tax recovery processes under the GST regime.
Bottom line:-
Section 79(1)(c) of the GST Act permits attachment of bank accounts to recover tax liabilities of a defaulting company. Directors during the period of default are jointly and severally liable under Section 88(3) of the GST Act unless proven otherwise.
Statutory provision(s): Section 79(1)(c) of the GST Act, Section 88(3) of the GST Act, Sections 271 and 272 of the Companies Act, 2013.
CBIGS Apparels and Jewels v. Joint Commissioner, (Madras) : Law Finder Doc id # 2948873
