Court dismisses petition, allows arrest in service tax evasion case despite director's resignation. Deed of Settlement not exempt.

The court dismissed the writ petition, ruling that the petitioner could be arrested in connection with the investigation of service tax evasion as per the provisions of the Finance Act. The court held that the petitioner's resignation from directorship did not absolve him of liability for the company's service tax dues accrued during his tenure. Additionally, the court found that a "Deed of Settlement" with co-directors could not exempt the petitioner from statutory obligations. The petition was dismissed, and any interim order was vacated.

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Issues Involved:
1. Legality of the petitioner’s arrest in connection with the investigation of service tax evasion.
2. Petitioner's liability for service tax dues post-resignation from the directorship.
3. Validity of the "Deed of Settlement" in exonerating the petitioner from statutory liabilities.

Issue-wise Detailed Analysis:

1. Legality of the petitioner’s arrest in connection with the investigation of service tax evasion:
The petitioner sought a mandamus directing the respondent not to arrest him during the investigation of service tax evasion by M/s Proplarity Infratech Private Limited. The petitioner argued that his arrest would be arbitrary and illegal, referencing the Supreme Court's rulings in Joginder Singh Vs. State of U.P. and Arnesh Kumar Vs. State of Bihar, which emphasize that arrests in cases punishable with imprisonment up to 7 years should only occur under exceptional conditions as specified in Section 41 of Cr.P.C. The respondents countered that the petitioner avoided appearing before the investigating officer despite being summoned and had not shown any intention to cooperate or deposit the due service tax. The court found that the petitioner had been issued a notice under Section 14 of the Central Excise Act, 1944, and that an offence under Section 89 of the Finance Act is cognizable, giving the authorities the power to arrest. The court concluded that no case was made out to prohibit the petitioner's arrest if conducted per the Finance Act's provisions.

2. Petitioner's liability for service tax dues post-resignation from the directorship:
The petitioner claimed he had resigned from the directorship of M/s Proplarity Infratech Private Limited in 2016 and thus had no liability for the company's service tax dues. The respondents argued that as per Section 9AA of the Central Excise Act, 1944, and Section 168 of the Companies Act, 2013, directors are liable for offences committed during their tenure, and resignation does not absolve them of statutory liabilities. The court noted that the petitioner was a director during the period when the service tax dues were accrued and thus could not evade liability by resigning. The court emphasized that statutory duties must be cleared regardless of the petitioner's resignation.

3. Validity of the "Deed of Settlement" in exonerating the petitioner from statutory liabilities:
The petitioner referenced a "Deed of Settlement" executed with his co-directors, which purportedly allocated responsibilities for company liabilities. The respondents contended that statutory liabilities, such as service tax dues, cannot be overridden by a private contractual agreement. The court concurred, stating that the "Deed of Settlement" does not stand scrutiny of law concerning statutory obligations. The court held that the petitioner could not use the settlement deed to escape liability for service tax dues accrued during his tenure as a director.

Conclusion:
The court dismissed the writ petition, concluding that the petitioner had no grounds to seek protection from arrest if conducted according to the Finance Act's provisions. The interim order, if any, was vacated, and the petition was dismissed.

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