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TMI Blog2020 (11) TMI 241X X X X Extracts X X X X X X X X Extracts X X X X ..... r than the fact that he was a Director of the assessee-company. The impugned order is in violation of principles of natural justice - writ petition is allowed without costs. - W.P. (C) 5590/2020 & CM APPL.20200/2020 - - - Dated:- 6-11-2020 - HON'BLE MR. JUSTICE MANMOHAN AND HON'BLE MR. JUSTICE SANJEEV NARULA Petitioner Through: Ms. Pritha Srikumar Iyer, Advocate with Ms. Nikita Garg, Advocate. Respondents Through: Mr. Harpreet Singh, senior standing counsel with Ms. Suhani Mathur, Advocate for R-1 to 4. Ms.Rashmi, Advocate for R-5. J U D G M E N T MANMOHAN, J: 1. Petitioner, who is a former Director of respondent no.6-company (hereinafter referred to as assessee-company ), is aggrieved by the attachment of his personal bank account by respondent-Service Tax Authorities towards recovery of dues from the assessee-company under the Finance Act, 1994 (hereinafter referred to as the Finance Act ). 2. In the writ petition, it has been averred that the petitioner was appointed as an Additional Director of the assessee-company on 22nd August, 2014 and resigned in less than a year i.e. on 08th July, 2015. 3. It has further been averred that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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. 9. She also submitted that there was no provision in the Finance Act making Directors personally liable for the tax liabilities of a company or empowering the respondent-authorities to recover such liabilities of the company from the personal assets of its Directors. 10. She emphasised that under the statutory scheme relating to Service Tax as provided under the Finance Act, no proceeding was ever initiated against the petitioner by issuing a show cause notice or otherwise and he was not even granted an opportunity to be heard before the impugned demand notices dated 21st May, 2019 and 08th November, 2019 or attachment order dated 08th June, 2020 were issued. She pointed out that even the show cause notice issued to the assessee-company had no reference to the petitioner in his personal capacity. ARGUMENTS ON BEHALF OF RESPONDENT 11. Mr. Harpreet Singh, learned senior ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or more of the modes mentioned below:- (a) (b)(i) the Central Excise Officer may, by notice in writing, require any other person from whom money is due or may become due to such person, or who holds or may subsequently hold money for or on account of such person, to pay to the credit of the Central Government either forthwith upon the money becoming due or being held or at or within the time specified in the notice, not being before the money becomes due or is held, so much of the money as is sufficient to pay the amount due from such person or the whole of the money when it is equal to or less than that amount; 17. Mr. Harpreet Singh repeatedly and vehemently emphasised that the Directors of a company and other persons in management are vicariously liable to pay/deposit service tax. In support of his submission, he relied upon Section 9AA of the Central Excise Act, 1944 [as made applicable to like matters of service tax under Section 83 of Finance Act], Section 89 of the current CGST Act and Section 168(2) of the Companies Act, 2013 which stipulate that a Director who has resigned shall be liable, even after his resignation, for the offences committed by the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision to the contrary or till a case for lifting of the corporate veil is made out. SECTION 87(b)(i) OF THE FINANCE ACT PROVIDES FOR A GARNISHEE ORDER ONLY i.e. PROVIDES FOR ATTACHMENT OF FUNDS OF AN ASSESSEE LYING WITH THIRD PARTIES. THERE IS NO PROVISION IN THE FINANCE ACT MAKING AN EX-DIRECTOR, EVEN IF HAVING KNOWLEDGE OF AFFAIRS OF THE COMPANY, VICARIOUSLY OR JOINTLY LIABLE FOR THE DUES OF THE COMPANY 22. Though Section 174(2) of CGST Act saves any duty or tax that is due or may become due under the repealed Act including Chapter V of the Finance Act, yet there is no provision in the Finance Act making the Directors personally liable for service tax liabilities of a company. 23. It is clarified that Section 89 of the current CGST Act is confined only to liabilities assessed under the CGST Act and cannot be used to fasten personal liability on Directors for company dues determined under the Finance Act. After all, no new liability can be fastened under the CGST Act for a period prior to its enactment as it does not have retrospective operation. 24. This Court is in agreement with the submission of learned counsel for petitioner that the impugned attachment or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of directors of private company in liquidation.- Notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), when any private company is wound up after the commencement of this Act, and any tax assessed on the company under this Act for any period, whether before or in the course of or after its liquidation, cannot be recovered, then, every person who was a director of the private company at any time during the period for which the tax is due shall be jointly and severally liable for the payment of such tax unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company. The aforenoted provisions firstly pertain to companies in liquidation and pertinently begin with a non-obstante clause. The said provisions specifically render a Director jointly and severally liable for tax dues assessed against private companies unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company. However, there is no such provision viz-a-viz Service Tax and the absence there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eclare that petitioners herein cannot be held liable to pay outstanding dues of the central excise duty sought to be demanded from them. We, therefore, quash and set aside the impugned last demand notice dated 1st October, 2003 holding it to be without jurisdiction and without authority of law and make the rule absolutely in terms prayer clause (a) and (b) with no order as to costs. Order accordingly. (emphasis supplied) 27. Consequently, in the absence of a specific provision and given a company s separate legal personality, the petitioner/ex-Director, even if having knowledge of affairs of the company, is not vicariously or jointly liable for the dues of the company. The onus of proof shall remain on the department/respondents to show that a Director is personally liable for the dues of the company at the stage of issuing show-cause notice under Section 73 of the Finance Act. SECTION 9AA OF THE CENTRAL EXCISE ACT, 1944 AND SECTION 168(2) OF THE COMPANIES ACT, 2013 DEAL WITH OFFENCES COMMITTED BY A COMPANY, WHICH IS DISTINCT FROM CIVIL LIABILITY TO PAY TAX 28. The reliance upon Section 9AA of the Central Excise Act, 1944 and Section 168(2) of the Compani ..... X X X X Extracts X X X X X X X X Extracts X X X X
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