Bank account attachment for another company's dues challenged; veil not lifted despite common directors, recovery order quashed.

Recovery and bank attachment were challenged on the ground that statutory proceedings and adjudication were initiated against a different company, a separate juristic entity, and not against the petitioner. The HC held that, since the show-cause notice and adjudication order were issued only to the other entity, the petitioner could not be fastened with its dues absent any garnishee relationship or liability to pay that entity; common directorship was insufficient to justify lifting the corporate veil, which was impermissible on these facts. Consequently, the impugned recovery/attachment order was quashed, the writ petition was allowed, and the petitioner was directed to appear before the authority on the specified date without further notice.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether recovery through Form GST DRC-13 from a company's bank account is legally sustainable when the underlying tax demand and adjudication are against a different, independent company, and the targeted company is neither the defaulter nor shown to be a garnishee holding money for or on account of the defaulter.

(ii) Whether the tax authority could justify such recovery merely on the basis that a common individual is a director in both companies, by purporting to "lift the corporate veil".

(iii) What consequential relief and directions should follow after quashing the impugned DRC-13, particularly regarding consideration and disposal of the refund claim for the amount already recovered, including timelines and interest.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Recovery from petitioner's bank account for dues of another juristic entity

Legal framework (as discussed by the Court): The Court proceeded on the basis that the recovery action was founded on Form GST DRC-13, and examined its permissibility in a situation where the demand proceedings were admittedly initiated against a different entity under the tax law (show-cause notice leading to an adjudication order against that other entity).

Interpretation and reasoning: The Court treated it as undisputed that the show-cause notice and the adjudication order were issued/passed against the other company and not against the petitioner. The Court emphasized that both companies are "independent, juristic and legal" entities. On that premise, the Court held that the petitioner could not be fastened with liability for dues demanded from the other company. The Court additionally recorded the decisive factual finding that the petitioner was neither a garnishee in relation to the other company nor liable to pay any amount to that other company. Therefore, proceeding against the petitioner's bank account to recover dues of the other company was held impermissible.

Conclusion: The impugned Form GST DRC-13 enabling recovery from the petitioner's bank account for dues of another company was held unsustainable and was quashed.

Issue (ii): Reliance on common directorship and purported lifting of the corporate veil

Legal framework (as discussed by the Court): The Court addressed the contention that the authority sought recovery from the petitioner by relying on the circumstance of a common director and by "purporting to lift the corporate veil".

Interpretation and reasoning: The Court held that merely because the same individual was a director in both companies, that circumstance could not be made the basis to recover the other company's dues from the petitioner. The Court expressly found that the authority's attempt to justify recovery by purportedly lifting the corporate veil was "impermissible in law" in the facts presented, particularly where the petitioner was not the noticee/defaulter and was not shown to hold monies for or on account of the defaulter.

Conclusion: Common directorship, without more, did not permit recovery from the petitioner; the Court rejected the authority's reliance on lifting the corporate veil for this recovery.

Issue (iii): Consequential directions on refund claim, timelines, and interest

Legal framework (as discussed by the Court): The Court considered the need to provide an opportunity to the petitioner to place materials supporting refund of the amount already recovered, and directed adjudication of the refund claim without insisting on separate application or proceedings.

Interpretation and reasoning: Having quashed the recovery instrument, the Court directed the petitioner to appear before the tax authority on a specified date without awaiting further notice and reserved liberty to submit documents and pleadings supporting the refund claim. The Court required the authority to provide sufficient opportunity and to take a decision and pass appropriate orders on the refund claim within a fixed period calculated from the appearance date. The Court further directed that if refund is sanctioned, payment should be made within a further short timeframe together with "applicable interest, if any".

Conclusion: The Court ordered prompt, time-bound consideration of refund by the authority (within four weeks of the scheduled appearance), and if sanctioned, refund with applicable interest within two weeks from the sanction order, without requiring separate refund proceedings.

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