Ramms India Private Limited Vs Deputy Commissioner of Commercial Taxes (Karnataka High Court)
GST Recovery Cannot Be Made from a Separate Company Merely Due to Common Director – Illegal Garnishee Action Quashed
The Karnataka High Court held that GST recovery proceedings cannot be extended to a separate and independent company merely because both entities share a common director. In the present case, a show cause notice and adjudication order under Section 73 of the KGST Act were issued against Xylem Resource Management Pvt. Ltd. (XRMPL), confirming GST liability for FY 2022–23. However, instead of recovering dues from XRMPL, the department issued Form GST DRC-13 under Section 79 and attached the bank account of RAMMS India Pvt. Ltd., recovering ₹24.73 lakh, despite RAMMS not being the defaulter.
The Court emphasized that each company is a separate juristic and legal entity, and liability cannot be fastened on one company for the dues of another unless statutory conditions are satisfied. It was specifically noted that the petitioner company was neither a garnishee, nor was any amount due or payable by it to the defaulting company. The attempt to justify recovery by lifting the corporate veil solely on the basis of common directorship was held to be impermissible in law.
Relying on earlier binding precedents, including SJR Prime Corporation Pvt. Ltd. (Karnataka High Court) and the Division Bench judgment of the Bombay High Court in Galaxy International, the Court reiterated that Section 79 recovery proceedings require strict compliance, including issuance of notice to the correct person and an opportunity to establish that no money is held for or on account of the defaulter.
Accordingly, the Court quashed the impugned Form GST DRC-13, granted liberty to the petitioner to seek refund of the illegally recovered amount, and directed the department to decide the refund claim within four weeks, followed by refund with applicable interest within two weeks thereafter, if sanctioned
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
