2016 (3) TMI 956 - HC - Service Tax

Recovery of dues said to be payable - Attachment of bank accounts on the ground that another entity has not paid the service tax - Seeking refrainment from taking any coercive recovery proceedings against the company - Engaged in the business of providing erection, commissioning and installations services and provided taxable services to some companies - Department issued a notice for attachment of the bank account of petitioner on the ground that another entity of which the petitioner company was the proprietor has not paid the service tax as demanded - Held that - when the petitioner company is a separate and independent entity, the bank account of the petitioner company cannot be attached for the dues of the proprietorship concern, viz., M/s.Atchaya Enterprises. Therefore, the bank account of the petitioner company, which was attached by the respondents is liable to be raised and accordingly, the attachment in respect of the petitioner company stands raised. - Petition disposed of

Summary

Issues:
Petition for Writ of Mandamus to refrain from coercive recovery proceedings against the company for dues payable by another entity. Attachment of petitioner company's bank account for dues of a different entity.

Analysis:
1. The petitioner sought a Writ of Mandamus to prevent coercive recovery proceedings by respondents 1 to 3 for dues allegedly owed by M/s.Atchaya Enterprises, a separate entity once owned by the petitioner's director. M/s.Atchaya Enterprises was registered with the Service Tax Department and had collected service tax from recipients, remitting it to the authorities. Despite providing evidence of tax payments, the respondents demanded a substantial amount from M/s.Atchaya Enterprises. An appeal was filed, but the respondents proceeded to attach the petitioner company's bank account, alleging it was a mere shell entity to evade payment.

2. The petitioner's counsel argued that attaching the petitioner company's account for another entity's dues was unjust, citing legal precedents. The judgments referenced emphasized the distinct legal personalities of companies and their owners, stating that debts of one entity cannot be recovered from another unless under exceptional circumstances. The counsel contended that the petitioner company, being a separate legal entity, should not be held liable for the debts of M/s.Atchaya Enterprises.

3. The respondents, represented by the Standing Counsel, claimed the petitioner company was formed to avoid settling M/s.Atchaya Enterprises' liabilities. They argued that due to the shared ownership between the director of the petitioner company and M/s.Atchaya Enterprises, attaching the petitioner's bank account was necessary.

4. Notably, the petitioner company was established after the service tax issues arose with M/s.Atchaya Enterprises. Despite the order demanding payment from M/s.Atchaya Enterprises, the respondents targeted the petitioner company for recovery. The court acknowledged the legal principles from the cited judgments, asserting that the petitioner company's bank account should not be attached for another entity's debts.

5. The court found in favor of the petitioner, ruling that the attachment of the petitioner company's bank account by the respondents was unjustified. Emphasizing the separate legal identities of the entities involved, the court ordered the attachment to be lifted, concluding the writ petition without costs.

In conclusion, the judgment highlighted the importance of respecting the distinct legal personalities of different entities and upheld the principle that debts of one entity cannot be arbitrarily imposed on another without valid legal grounds.