Akhil Krishan Maggu & Ors. Vs Deputy Director (INT) Directorate General of GST Intelligence & Ors. (Delhi High Court)
Delhi High Court has expressed prima facie doubts regarding the applicability of the “lifting the corporate veil” doctrine to sole proprietorship concerns in a Goods and Services Tax (GST) intelligence investigation. The court has issued an interim stay on further proceedings initiated by a show cause notice (SCN) against Akhil Krishan Maggu and others, who are petitioners in the case.
The petitioners had approached the High Court challenging an SCN issued by the Deputy Director (INT), Directorate General of GST Intelligence. The SCN, in its paragraphs 75.i to 75.xv, extensively cited the concept of “lifting the corporate veil,” a legal principle typically invoked to disregard the separate legal personality of a company and hold its members personally liable, particularly in cases of fraud. The SCN explicitly referenced the landmark judicial precedent of Salomon v. Salomon & Company, which cemented the principles of corporate identity and limited liability, while also acknowledging exceptions where the corporate structure is used as an “engine of fraud.”
However, the Delhi High Court, after an initial review, found itself “prima facie unable to sustain the impugned Show Cause Notice” due to its attempt to apply these principles to sole proprietorships. The court questioned how the doctrine of “lifting the corporate veil” could be attracted to concerns that are not corporate entities but rather sole proprietorships, which inherently lack a separate legal personality from their owners. The court also noted that the petitioner, Akhil Krishan Maggu, was not himself the proprietor of the concerns in question.
