Director liability for unrecovered GST dues extends to connected entities where corporate structures may shield tax recovery.

Section 88(3) of the GST enactments makes every person who was a director of a private company during the period of tax default jointly and severally liable where dues cannot be recovered from the company in liquidation. The director must establish before the Commissioner that non-recovery was not caused by her gross neglect, misfeasance or breach of duty. Resignation from a partnership does not displace recovery action based on that liability. Recovery may also extend to a connected subsequently incorporated company where common family and directorial links provide a prima facie basis to examine whether its corporate form was used to evade tax recovery by lifting the corporate veil.

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Issues: (i) Whether bank accounts of a former director and a partnership firm in which she was a partner could be attached to recover GST arrears of a private company in liquidation; (ii) Whether recovery proceedings against the bank account of a subsequently incorporated company connected with the directors of the defaulting company warranted interference.

Issue (i): Whether bank accounts of a former director and a partnership firm in which she was a partner could be attached to recover GST arrears of a private company in liquidation.

Analysis: Section 88(3) of the respective GST enactments imposes joint and several liability upon every person who was a director of a private company during the period for which its tax dues arose, where such dues cannot be recovered from the company in liquidation. The director concerned held office throughout the relevant default period. The statutory defence that non-recovery was not attributable to her gross neglect, misfeasance or breach of duty is to be established before the Commissioner. Her subsequent resignation from the partnership firm did not displace the basis on which the recovery communication was issued.

Conclusion: The attachment of the former director's bank account and the partnership firm's accounts for recovery of the defaulting company's arrears was valid and is against the assessee.

Issue (ii): Whether recovery proceedings against the bank account of a subsequently incorporated company connected with the directors of the defaulting company warranted interference.

Analysis: The subsequent company was formed by close family members associated with the defaulting company, and the same persons had occupied directorial positions in the concerned entities. These circumstances provided prima facie basis to consider that the entities may have been structured to avoid tax recovery and that the corporate veil could be lifted, notwithstanding the company's separate legal identity.

Conclusion: The recovery action against the subsequently incorporated company's bank account did not warrant interference and is against the assessee.

Final Conclusion: The statutory recovery mechanism remains available against directors of the company in liquidation and against connected entities where the facts justify examination through the corporate veil.

Ratio Decidendi: Where tax dues of a private company in liquidation are unrecoverable, a director serving during the default period bears joint and several statutory liability unless the prescribed defence is established before the Commissioner; separate corporate form may be examined where prima facie facts indicate its use to evade recovery.

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