2016 (3) TMI 956 - HC - Service Tax

Court rules against unjust bank account attachment, upholding separate legal identities of companies.

M/s. Atchaya Engineering Pvt. Limited Versus The Additional Commissioner Large Taxpayer Unit, Chennai and Others

M/s. Atchaya Engineering Pvt. Limited Versus The Additional Commissioner Large Taxpayer Unit, Chennai and Others - TMI 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.