Karnataka HC: GST Dues of One Entity Cannot be Recovered from Another Solely Based on Common Directorship
In a significant ruling protecting the concept of separate legal personality in corporate taxation, the Karnataka High Court has held that Goods and Services Tax (GST) authorities cannot recover the dues of a defaulting company from a separate, independent entity merely because the two companies share a common director.
The judgment was delivered in the case of Ramms India Private Limited Vs Deputy Commissioner of Commercial Taxes, where the Court quashed an illegal recovery notice issued in Form GST DRC-13. The Court emphasized that unless the specific statutory conditions under Section 79 of the KGST Act are met—specifically regarding garnishee proceedings—the corporate veil cannot be lifted casually to fasten liability on a non-defaulting entity.
The Core Legal Dispute
The fundamental issue before the High Court was whether the revenue department is empowered to initiate recovery proceedings against a private limited company for the tax arrears of another distinct private limited company, solely on the ground that an individual serves as a director in both entities.
Factual Matrix
The petitioner, Ramms India Private Limited, is a company that was incorporated on 12.10.1994. A separate entity, M/s. Xylem Resource Management Private Limited Company (XRMPL), was subsequently incorporated on 28.09.2007. While these are distinct legal entities, it is a matter of record that Mr. Gautam Chowdhury served as a director for both the petitioner-company and XRMPL.
The dispute arose from the following sequence of events:
- The GST authorities issued a show-cause notice under Section 73 of the KGST Act to XRMPL on 01.08.2023 regarding tax discrepancies.
- This proceeding concluded with an adjudication order dated 29.11.2023, confirming a tax demand against XRMPL.
- Crucially, the authorities did not exhaust recovery measures against the defaulting entity, XRMPL.
- Instead, the Deputy Commissioner of Commercial Taxes issued a recovery notice in Form GST DRC-13 dated 14.10.2025.
- This notice was directed at the petitioner’s bank (Canara Bank), resulting in the recovery of Rs. 24,73,000 from the petitioner’s account, despite the petitioner not being the defaulter.