Madras HC Directs Re-Adjudication on Ex-Director for GST Liability, Calls Bank Attachment a SCN

The Madras High Court has directed the proper adjudication on whether a former director can be obligated for the tax arrears of the company and considered the bank attachment issued against him as a show cause notice.

A writ petition has been submitted by Subir Ghosh contesting the bank attachment notice dated 29 July 2024 issued by the Deputy Commissioner (ST), Tambaram Zone, under Section 79(1)(c) read with Section 89(1) of the GST Acts.

The attachment was placed on his ICICI Bank account in Bangalore to recover tax arrears owed by EWIE Services India Pvt. Ltd., where he had previously served as a director.

As per the applicant, the company that supplied goods to Ford India had ceased operations in 2019, and he had formally resigned as director in 2023. As per the counsel, he cannot be obligated for the dues of the company u/s 89(1) since there was no finding of neglect, misfeasance, or violation of duty on his part.

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The assessment order has been contested by the company dated 26 April 2024 in a separate writ petition pending before the HC. Applicant, on 17 August 2024, made representations asking to release his bank account, but the same was not considered.

The counsel of the government claimed that under Sections 79 and 89 of the GST Acts, the applicant, as a director in the pertinent tax period, was obligated for the arrears of the company. Bank attachment was issued as per the regulations, and the obligation of the applicant should be decided on the grounds of the provisions of the law.

The single-judge bench that includes Justice C.Saravanan said that the bank attachment issued u/s 79(1)(c) needed a proper adjudication to determine whether the applicant can be obligated for the tax arrears of the company u/s 89 of the GST Act.

The court stated that the representation of the applicant had to be acknowledged, and the department needed to first determine the question of obligation after furnishing him a chance to be heard.

The court asked the authorities to consider the impugned bank attachment notice as a Show Cause Notice (SCN) and allow the applicant to furnish a detailed representation within 30 days. It asked the Deputy Commissioner to pass a final order as per the merits in 2 months, post-furnishing a chance of a personal hearing.

The court ordered that the bank attachment be lifted temporarily, but required the applicant not to make any unusual transfers that could undermine the proceedings. The writ petition was disposed of with these directives, and there was no order regarding costs.