Sanjiv Kumar Mittal vs. Deputy Commissioner (Trc), CGST Commissionerate Delhi South & Ors.

Held

The Court held that the impugned attachment order was without jurisdiction and in violation of the principles of natural justice. The Court found that there is no specific provision in the Finance Act, 1994, making directors personally liable for the tax liabilities of a company. The Court emphasized that a company has a separate legal personality, and a former director cannot be held responsible for the company's dues in the absence of a specific statutory provision. The reliance on Section 9AA of the Central Excise Act, 1944, and Section 168(2) of the Companies Act, 2013, was deemed untenable as these provisions deal with offences committed by a company, not civil liability for tax payment. The Court noted that the show cause notice issued to the company did not refer to the petitioner in his personal capacity, and no personal notice was issued to him before the demand notices or the attachment order. The Court also highlighted that the department admitted having no material against the petitioner other than his directorship. Therefore, the demand notices and the attachment order were quashed. The Court also observed that recovery cannot be selectively initiated against one director only.

Facts

The petitioner, a former Director of M/s Unickon Real Estate Pvt. Ltd., challenged the attachment of his personal bank account by the Service Tax Authorities for recovery of dues from the company. The petitioner was an Additional Director from August 22, 2014, to July 8, 2015. The company was under investigation prior to his appointment. A show cause notice was issued to the company, leading to an Order-in-Original dated August 8, 2018, confirming a demand for service tax, interest, and penalties. Demand notices were subsequently issued to the company through the petitioner, followed by an attachment order of his personal bank account under Section 87(b)(i) of the Finance Act, 1994, read with Section 174(1) of the CGST Act, 2017. The petitioner argued he was not involved in the company's affairs during the period of tax evasion and was not issued any personal show cause notice.

Key Issues

1. Whether the attachment of the petitioner's personal bank account under Section 87(b)(i) of the Finance Act, 1994, read with Section 174(1) of the CGST Act, 2017, for recovery of service tax dues from the assessee-company was without jurisdiction and in violation of principles of natural justice, given the petitioner's limited tenure as a director and the absence of personal notice. Petitioner's Arguments: The petitioner contended that Section 87(b)(i) of the Finance Act pertains to garnishee orders for funds due to the assessee from third parties, and there was no basis to attach his personal account as funds therein were not due to or held on behalf of the company. He argued that the Finance Act does not make directors personally liable for company tax liabilities and that no proceedings were initiated against him personally, nor was he given an opportunity to be heard. He relied on an affidavit from the founder director acknowledging the petitioner's limited role and the absence of personal liability. Revenue's Arguments: The revenue argued that the petitioner, as a director during the investigation period, is deemed to have knowledge of the company's affairs and is vicariously liable for service tax evasion. They asserted that Section 87(b)(i) of the Finance Act provides a mode of recovery, and since the Order-in-Original had attained finality, further separate notice to the petitioner was not envisaged. They also relied on Section 174(2)(e) of the CGST Act for saving recovery proceedings under repealed Acts and Section 9AA of the Central Excise Act, 1944, for vicarious liability of directors.