Acts of CA Bind Taxpayer Despite Alleged Fund Misappropriation: P&H HC Explains Principal-Agent Relationship [Read Order]

In a recent ruling, the Punjab and Haryana High Court explained the principal-agent relationship and held that the acts of a Chartered Accountant bind the taxpayer despite alleged fund misappropriation and such a ground cannot be used to invoke writ jurisdiction.

The case arose after GST demand orders were passed under Section 73 of the CGSTAct, 2017 alleging non-payment of tax and irregular availment of input tax credit. Knight Fly Boyz (petitioner) a manpower supply firm, claimed that all GST compliance and payments were handled by its Chartered Accountant and it believed taxes were being regularly deposited.

The petitioner’s counsel argued that the Chartered Accountant had misappropriated funds transferred for payment of GST and had manipulated GST returns by using fake input tax credit. They stated that this came to notice only after receipt of the demand orders, following which a complaint was filed before the Economic Offences Wing.

The State’s counsel argued that the petitioner had an effective statutory remedy of appeal under Section 107 of the CGST Act, which was not availed. It was also argued that show cause notices were issued and opportunities of personal hearing were granted.

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The Division Bench comprising Justice Lisa Gill and Justice Ramesh Chander Dimri observed that the impugned orders themselves recorded issuance of notices and fixing of personal hearings, but no response was made. The Court observed that the Chartered Accountant was acting on behalf of the petitioner and, in law, acts of an agent bind the principal.

The High Court explained that the petitioner was not disputing the tax liability but was blaming its agent for misappropriation, which raised disputed questions of fact. It was pointed out that such disputes cannot be decided in writ proceedings and do not constitute extraordinary circumstances.

The Court observed that the statutory appellate remedy was bypassed and held that the writ petition was not maintainable. The petition was accordingly dismissed.

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