Liability for tax dues separate from partnership entity only if legally established.

IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated :07.04.2025 CORAM THE HON'BLE Mr. JUSTICE KRISHNAN RAMASAMY W.P.No.37771 of 2024 &

W.M.P.Nos.40843 and 40844 of 2024 YESAN INDUSTRIAL SERVICES LLP Represented by its Partner Sathyanarayanan P S/o Sivasankara Menon No.4-243-1, Judge Road, Kannankurichi Post, Salem, Tamil Nadu-636008. ... Petitioner Vs.

1. Assistant Commissioner (ST), Mettur Assessment Circle, Raman Nagar, Mettur-636403.

2. The Branch Manager, Indian Bank, Dharmapuri Main Road, Chemrajpet, Mecheri, Mechery-636 451. ... Respondents Prayer: Writ Petition filed under Article 226 of the Constitution of India praying to issue a Writ of Certiorarified Mandamus to call for the records of the respondent in Impugned Notice and order bearing Reference GSTIN:33AAMCS3255L1Z1/2023/A3/ dated 19.11.2024 and quash the same and consequently direct the 1^st respondent to refund a sum of Rs.94,52,175/- to the petitioner's bank account No.6905186891, Indian Bank, Mecheri Bank.

For Petitioner : Mr.S.Karthikei Balan For Respondents : Ms.Amirtha PoonkodiDinakaran (R1)

Government Advocate (Taxes)

ORDER

Ms.Amirthapoonkodi Dinakaran, learned Government Advocate (Taxes) takes notice on behalf of the 1^st respondent.

2. The challenge in this writ petition is to the order dated 19.11.2024 passed by the 1^st respondent, demanding tax dues from the petitioner to the extent of Rs.88,56,127/-.

3.The learned counsel for the petitioner would submit that petitioner and his wife are the partners of the Petitioner-Firm which is a Limited Liability Partnership (LLP) and they are also the Directors of SMIS Industrial Consultancy Services Pvt. Ltd.,. The impugned order is challenged on the ground that the 1^st respondent by invoking Section 79(1)(c)(i) of Central Goods and Services Tax, 2017 (in short 'the Act') seeks to recover the tax dues from a separate entity i.e,SMIS Industrial Consultancy Services Pvt. Ltd. in which the petitioner and his wife were merely Directors with no financial obligations linking the Petitioner Firm to the Company. That apart the 1^st Respondent, without jurisdiction issued a garnishee order and directed the freezing of the Petitioner's bank account, disrupting its operations and preventing payment of salary to around 800 employees and this action was taken without giving an opportunity of hearing to the petitioner.

3.1. It is also submitted by the learned counsel for the petitioner that Section 79(1)(c)(i) of the Act applies only when a third party holds funds due to the assessee in default. Since neither the petitioner nor its partners owe any money to M/s. SMIS Industrial Consultancy Services Pvt. Ltd, invoking this provision is unjustified. If the respondent wants to recover the tax dues from the Directors of the Company, they ought to have invoked Section 89 of the Act. But without doing so, the 1^st respondent has erroneously attached the bank account of the petitioner firm and recovered the tax dues from the same. He therefore prays to set aside the impugned order.

4. The learned Government Advocate (Taxes) for the 1^st respondent submitted that in this case the partners of the Petitioner Firm are also the Directors of M/s. SMIS Industrial Consultancy Services Pvt. Ltd. and the Directors are liable to pay the tax dues as per Section 89 of the Act. Therefore, impugned notice came to be issued. Since the Directors have not paid the tax dues, the same was recovered from the bank account of the Petitioner-Firm.

5. Heard both sides. Perused the records.

6. In this context, it would be apposite to extract Section 89 (1) of the Act and the same is extracted hereunder:

“89. Liability of directors of private company (1) Notwithstanding anything contained in the Companies Act, 2013(18 of 2013), where any tax, interest or penalty due from a private company in respect of any supply of goods or services or both for any period cannot be recovere