The Andhra Pradesh High Court recently ruled that the Central Goods and Services Tax (CGST) Act, 2017, particularly Section 88, cannot be used to recover dues under the Central Excise Act, 1944, from directors of a company that has been liquidated.
This decision came in response to a series of writ petitions filed by former directors of M/s Kusalava Batteries Private Limited, a company that had undergone liquidation. During the liquidation process, tax and penalty dues imposed under the Central Excise Act remained unpaid.
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The Excise Department issued recovery notices to the directors, citing Section 88 of the CGST Act. This section allows for tax, interest, or penalty determined under the CGST Act to be recovered from company directors when the company is liquidated, under certain conditions.
“This can only mean that tax, penalty or interest which had been determined under the CGST Act, alone can be recovered from the directors of a private company which is under liquidation, subject to the condition set out in Section 88(3) of the CGST Act,” stated the division bench of Justice R. Raghunandan Rao and Dr. Justice K. Manmadha Rao.
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The petitioners challenged the department’s notices, arguing that the dues were assessed under the Central Excise Act, not the CGST Act. Therefore, Section 88 could not be invoked to make them personally liable.
“The recovery under Section 88 can be carried out only for dues under the CGST Act. Any tax dues under the repealed Central Excise Act must be recovered through mechanisms allowed under that specific Act,” the petitioners' counsel argued.
On the other hand, the department maintained that Section 88 could be applied even for dues under the Excise Act.
However, the High Court rejected this argument. It pointed to Section 174(2)(e) of the CGST Act, which deals with the repeal and saving of earlier laws. This section clarifies that any dues or proceedings related to earlier laws, such as the Central Excise Act, must be pursued under the provisions of those repealed laws, not under the CGST Act.
“Section 174 of the CGST Act provides for the continuation of proceedings under repealed laws like the Central Excise Act. Hence, recovery must be pursued through the 1944 Act, not CGST,” the court emphasized.
Importantly, the court also noted that two of the petitioners were issued personal liability orders of ₹1.3 crores each, in addition to the main company dues of ₹39 crores. However, the authorities later withdrew these personal notices during the hearing.
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The court concluded that:
“The respondents may initiate action under the Central Excise Act, 1944, if permissible. However, the CGST Act cannot be used for such recovery.”
As a result, the High Court allowed the petitions and set aside all impugned notices, leaving the Excise Department free to pursue recovery through appropriate channels under the earlier law.
Appearance: Counsel for the Petitioner: Karan Talwar; Counsel for the Respondent(S): Kunuku Durga Prasad
Case title: Ravindra Muthavarapu v. The Superintendent Of Central Tax and Others
Case no.: WRIT PETITION Nos.17995, 17997, 18001, 18018, 18019 & 18024 of 2024
