Chennai: In a significant ruling impacting the liability of former directors, the Madras High Court has ordered a fresh adjudication process to determine if a former director can be held responsible for Goods and Services Tax (GST) dues incurred by the company during their tenure. The court also ruled that the provisional attachment of the director's bank account should be considered as a show-cause notice (SCN), offering the director an opportunity to present their case.

The case revolves around the question of whether an individual who has previously held a director position within a company can be held personally liable for the company's outstanding tax obligations, particularly GST arrears. The GST Act does have provisions for holding certain individuals accountable in specific circumstances, but the extent of this liability, especially for former directors, has been a subject of legal debate.

The High Court's decision effectively sends the matter back to the relevant tax authorities for a thorough re-evaluation. This means the authorities will need to re-examine the evidence and applicable laws to ascertain whether the former director's actions, or lack thereof, contributed to the company's failure to meet its GST obligations. The adjudication process will likely involve scrutinizing the director's role and responsibilities during the period the GST dues accumulated, as well as examining the company's financial records and relevant business decisions.

A key aspect of the ruling is the court's directive to treat the attachment of the former director's bank account as a show-cause notice. Typically, before authorities can seize assets to recover tax arrears, they must issue a show-cause notice explaining why such action is being taken and giving the individual an opportunity to respond and defend themselves. By treating the existing bank attachment as the SCN, the court ensures that the former director is afforded due process and has the chance to argue against the liability being imposed.

This order offers a crucial opportunity for the former director to present evidence and arguments demonstrating why they should not be held personally liable for the company's GST dues. This could involve showing that they acted in good faith, that they were not involved in any fraudulent activities, or that they took reasonable steps to ensure the company complied with its tax obligations.

The Madras High Court's decision underscores the importance of due process in tax recovery proceedings and clarifies the need for a careful assessment of individual responsibility before imposing liability for corporate tax debts. The outcome of this renewed adjudication process will be closely watched, as it could set a precedent for similar cases