Personal Liability of Directors for Company GST Dues (Section 89)

Facts

The Parties: The Petitioner is a director of M/s Trans Car India Pvt Ltd, a private limited company.
The Dispute: Following an Order-in-Original issued by the DGGI, the GST department sought to recover the company’s tax dues directly from the director.
The Action: The respondents issued Form GST DRC-13, attaching the personal bank account of the director to recover the outstanding dues of the company.
Background: The company’s own legal challenges (Writ and Writ Appeal) against the tax demand had been dismissed. An application for an extension of time to file a statutory appeal was still pending/undecided when the recovery action against the director was initiated.
Petitioner’s Ground: The director challenged the attachment, arguing that the company’s liability cannot be summarily shifted to a director without following the due process of law.

Decision

The Court ruled in favor of the Petitioner (Matter Remanded), quashing the recovery notice based on the following legal reasoning:

Scope of Section 89(1): Under the CGST Act, if tax dues from a private company cannot be recovered, every person who was a director during the relevant period is jointly and severally liable. However, this liability is not absolute.
Burden of Proof: Section 89(1) provides a “safety valve”—a director is not liable if they can prove that the non-recovery was not due to any gross neglect, misfeasance, or breach of duty on their part in relation to the affairs of the company.
Requirement of Adjudication: The Court held that since the law allows a director to prove their innocence (lack of negligence), the department cannot move straight to recovery. There must be a formal adjudication process where the director is given an opportunity to show cause.
Final Verdict: The impugned DRC-13 (bank attachment) was quashed. The matter was remitted back to the authorities to first decide on the director’s personal liability after providing a fair hearing.

Key Takeaways

Not an Automatic Liability: Directors of private companies should be aware that while they are “jointly and severally” liable for company taxes, the department must first establish that the director was personally at fault (gross neglect) before attaching personal assets.
Due Process is Mandatory: Any attempt by the GST department to attach a director’s personal bank account for company dues without first issuing a show-cause notice specifically addressed to the director (under Section 89) is legally unsustainable.
Defense Strategy: Directors facing such recovery actions must be prepared to demonstrate that they exercised due diligence and that the company’s failure to pay tax was due to business circumstances beyond their personal control or “gross neglect.”
Remand Significance: This ruling serves as a procedural shield, ensuring that “corporate veil” protections are only pierced after a specific finding of individual misconduct or negligence.

HIGH COURT OF MADRAS

Khalid Buhari

Assistant Commissioner of CGST and C. Ex, Alandur^*

C. Saravanan, J.

WP No. 50484 of 2025
WMP. Nos. 56526 and 56527 of 2025

FEBRUARY 13, 2026

T.V. Lakshmanan for the Petitioner. Su. Srinivasan, Standing Counsel, C.Mohan, A.Rexy Josephine Mary and King Partridge for the Respondent.

ORDER

1. In this writ petition, the petitioner is against the impugned recovery notice dated 25.11.2025 in Form GST DRC – 13, whereby, the petitioner’s bank account was attached for the tax liability of M/s.Trans Car India Private Limited.

2. The case of the petitioner is that the petitioner is a Director of M/s.Trans Car India Private Limited and the said company suffered an adverse Order- in- Original No.25/2023(DGGI) dated 31.05.2023 bearing reference GEXCOM/ADJN/GST/ADC/569/2022.

3. The aforesaid assessment order was challenged before this Court in Trans Car India (P.) Ltd. v. Additional Commissioner, GST (Mad)/WP.No.27678 of 2023. By an order dated 22.09.2023, the said writ petition was dismissed granting liberty to the petitioner to challenge the said order before the Appellate Authority within a period of 30 days from the date of the receipt of a copy of the said order.

4. Instead of challenging the aforesaid Order-in-Original before the Appellate Authority, the company, wherein the petitioner is a Director, preferred a Trans Car India (P.) Ltd. v. Additional Commissioner GST GST 147/82 GSTL 47 (Mad)/Writ Appeal in W.A.No.3497 of 2023 against order dated 22.09.2023 of this Court before the Hon’ble Division Bench of this Court. The said writ appeal was also dismissed by the Hon’ble Division Bench vide order dated 19.12.2023.

5. It appears that the company thereafter filed an application seeking extension of time to file an appeal before the Appellate Commissioner. However, since no order has been secured by the petitioner against the aforesaid Order-in- Original No. No.25/2023(DGGI) dated 31.05.2023, the respondents proceeded to attach the petitioner’s bank account on 25.11.2025.

6. The learned counsel for the petitioner submits that the impugned proceedings are contrary to Section 89 of the respective GST Enactments.

7. On the other hand, learned Standing counsel for the respondents submits that a huge amount of tax liability is due form the said company, which is the assessee in default. It is further submitted by the learned Standing counsel for the respondents that the petitioner, being a Director of the said company, is liable to discharge the tax liability of the aforesaid company under Section 89 of the respective GST Enactments.

8. I have considered the arguments advanced by the learned counsel for the petitioner and the learned Standing counsel for the respondents.

9. For the sake of clarity, Section 89 of the respective GST Enactments is reproduced below:-

“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 recovered, then, every person who was a director of the private company during such period shall, jointly and severally, be liable for the payment of such tax, interest or penalty 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.

(2) Where a private company is converted into a public company and the tax, interest or penalty in respect of any supply of goods or services or both for any period during which such company was a private company cannot be recovered before such conversion, then, nothing contained in sub-section (1) shall apply to any person who was a director of such private company in relation to any tax, interest or penalty in respect of such supply of goods or services or both of such private company.

Provided that nothing contained in the sub-section shall apply to any personal penalty imposed on such director.”

10. Reading of the above provisions makes it clear that the burden of proof lies on the Director to establish that the non-recovery of tax cannot be attributed to any gross neglect, misfeasance, or breach of duty on his part in relation to the affairs of the company.

11. It is therefore, open for the petitioner to discharge the burden of proof required to be discharged under Section 89 (1) of the respective GST Enactments before the respondents. Therefore, the impugned recovery notice is quashed and the case is remitted back to the first respondent to pass a fresh order on merits, as expeditiously as possible, within a period two weeks from the date of receipt of a copy of this order.

12. Within such time, the petitioner shall also file a proper reply, explaining the case as to why no recovery can be made against the petitioner for the tax liability of the company.

13. In case the Petitioner fails to comply with any of the stipulations, the Respondent is at liberty to proceed against the Petitioner to recover the tax in accordance with law as if this Writ Petition was dismissed in limine today.

14. Needless to state, before passing any such order, the Respondent shall give due notice to the Petitioner.

15. This Writ Petition stands disposed of with the above observations. No costs. Connected Writ Miscellaneous Petitions are closed.