The Delhi High Court held that the recovery cannot be selectively initiated against one of the Directors only.
The Petitioner, Sanjiv Kumar Mittal is a former Director of assessee-company and is aggrieved by the attachment of his personal bank account by Service Tax Authorities towards recovery of dues from the assessee-company under the Finance Act, 1994.
It has been averred that the petitioner was appointed as an Additional Director of the assessee-company and resigned in less than a year i.e. on 08th July, 2015.
It has further been averred that petitioner had agreed to his appointment as a Director in good faith and that too at the behest of his cousin, who was the founder Director of the assessee-company.
The petitioner submitted that the writ petition even prior to petitioner’s appointment as an Additional Director the assessee-company was under investigation by the anti-Evasion branch of Service Tax, Delhi-I, Commissionerate.
Subsequent to petitioner’s resignation as a Director, a show-cause notice was issued to the assessee-company and the same was decided vide Order whereby the Commissioner, CGST, Delhi South Commissionerate, confirmed the demand and recovery of service tax along with interest and penalties against the assessee-company.
The counsel for petitioner contended that, Mr. Ram Mohan Gupta, the founder Director of the assessee-company had signed an affidavit wherein he had admitted that it was at his request that the petitioner was inducted as an Additional Director and that the petitioner was not responsible for the dues of the assessee-company.
The petitioner submitted that the impugned attachment order was beyond the purview of Section 87(b)(i) of the Finance Act as the said provision provides for a garnishee order i.e. attachment of funds of an assessee lying with third parties.
According to the petitioner, the attachment order was without jurisdiction inasmuch as there was no basis for proceeding against the petitioner personally while acting under Section 87(b)(i) of the Finance Act as there was no material to indicate that the funds in the petitioner’s personal bank account were due and payable to, or held on behalf of, the assessee-company.
The division judge bench of Justice Manmohan and Justice Sanjeev Narula said that any show-cause notices issued to the assessee-company during the adjudication proceedings does not amount to notice to the petitioner in his personal capacity.
The Court had put a pointed question to the Principal Commissioner, CGST, as to whether the respondents would like to give a fresh notice to the petitioner clearly mentioning as to how the petitioner was liable for tax dues of the assessee-company.
However, the Principal Commissioner informed the Court that the department has no material against the petitioner other than the fact that he was a Director of the assessee-company.
“This Court is further of the view that recovery cannot be selectively initiated against one of the Directors only i.e. the petitioner,” the court said.
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