18 December 2024 GST >> Tax Laws  

In a recent ruling, the Bombay High Court addressed a petition challenging the attachment and freezing of Demat accounts of a former director of Vistaar Logistic Pvt. Ltd. The petitioner, who resigned from his position in the company on March 18, 2019, contested the action taken by the respondents in February and June 2024, which was allegedly based on the company's GST default.

Background of the Case:

The petitioner had been appointed as a non-executive director of the company in 2016, resigning in March 2019 due to personal reasons. Following his resignation, the company filed a form DIR-12 with the Ministry of Corporate Affairs to confirm the resignation. Despite this, the respondents proceeded to attach the petitioner’s Demat accounts in 2024, citing defaults in GST payments during his tenure as a director.

The petitioner contended that he was no longer a director at the time of the action, and the attachment was executed without proper legal grounds or adherence to the principles of natural justice. He further argued that the attachment violated established procedural norms and did not follow the provisions of the Maharashtra Goods and Services Tax Act (MGST Act).

Legal Arguments and Relief Sought:

The petitioner sought the quashing of the attachment notices and requested the lifting of the freeze on his Demat accounts. In his submission, the petitioner’s counsel, Mr. Harsh Behany, argued that the action was not supported by any statutory provision under the MGST Act. He also pointed to a similar case, Prasanna Karunakar Shetty vs. State of Maharashtra, where the court ruled in favor of the petitioner under similar circumstances, thus strengthening his argument.

On the other hand, Ms. Chavan, representing the respondents, defended the action based on Section 83 of the MGST Act, arguing that the attachment was provisional and aimed at protecting government revenue. She clarified that the attachment was related to the period during which the petitioner served as a director, and a formal notice under Section 89 of the MGST Act was being prepared to initiate further proceedings.

Court’s Analysis and Conclusion:

The Court, after reviewing the arguments and the material on record, found that the attachment of the petitioner’s Demat accounts under Section 83 of the MGST Act was not justified at this stage. The Court noted that no formal proceedings had been initiated against the petitioner under the relevant chapters of the MGST Act, as required by law. Furthermore, the Court emphasized the importance of complying with the principles of natural justice before any action could be taken against the petitioner.

The Court concluded that the provisional attachment could not stand, especially without providing the petitioner an opportunity to defend himself. The Court also referred to the precedent set in Prasanna Karunakar Shetty’s case, wherein similar actions were deemed illegal due to non-compliance with procedural safeguards.

Withdrawal of Attachment:

Following the Court’s observations, Ms. Chavan, representing the respondents, confirmed that the impugned communications regarding the attachment would be withdrawn, effectively lifting the freeze on the petitioner’s Demat accounts. She also assured that notices under Section 89 of the MGST Act would be issued to the petitioner, ensuring that he was given a fair opportunity to respond before any further action was taken.

Final Order:

The Court directed the respondents to act in compliance with the law, particularly Section 89 of the MGST Act, and follow due process. The petition was allowed in terms of the petitioner’s requests, and the attachment was quashed. However, the Court clarified that this ruling did not prevent the respondents from taking any further action in accordance with the law, provided they followed the necessary legal procedures and principles of natural justice.

In conclusion, the Bombay High Court emphasized the need for transparency, fairness, and adherence to legal principles, ensuring that individuals are not subjected to arbitrary actions without proper notice or opportunity for defense. The case underscores the importance of ensuring that any governmental action, particularly involving financial and property seizures, is conducted in a manner that respects the rights of individuals and complies with statutory requirements.

Key Takeaways:

1. Natural Justice: The Court reiterated the importance of natural justice and the need to provide fair opportunities for defense before taking action against individuals.
2. MGST Act: Provisional attachment under Section 83 of the MGST Act can only be executed after due process and initiation of formal proceedings.
3. Legal Precedents: The ruling cited a relevant precedent where similar attachments were ruled unlawful, emphasizing consistency in judicial reasoning.
4. Government Accountability: The decision ensures that actions by government agencies, especially in matters involving property and financial assets, must be legally grounded and procedurally sound.

This ruling serves as a reminder that legal actions, especially those affecting individuals' financial holdings, must be conducted with care and in full compliance with statutory requirements and established judicial norms.

MAHARASHTRA GOODS AND SERVICES TAX ACT, 2017