Madras High Court Clarifies Burden of Proof on Directors Under Section 89 of GST for Company Tax Recovery

In a significant ruling, the Madras High Court addressed the scope and application of Section 89 of the GST enactments concerning the liability of directors for unrecovered tax dues of private companies. The court clarified that the statutory burden of proof rests squarely on the director to demonstrate that the non-recovery of tax cannot be attributed to any gross neglect, misfeasance, or breach of duty on their part in relation to the affairs of the company.

The petitioner, a director of M/s. Trans Car India Private Limited, challenged a recovery notice dated 25 November 2025, which resulted in the attachment of his bank account for the company’s outstanding tax liability. The company had previously suffered an adverse assessment order, which was unsuccessfully challenged through writ proceedings and a writ appeal. Subsequently, the authorities proceeded to recover the dues from the petitioner as a director, invoking Section 89 of the GST enactments.

The petitioner contended that the recovery proceedings were contrary to Section 89, arguing that he should not be held personally liable. The respondents, representing the tax authorities, maintained that the director was jointly and severally liable for the company’s tax dues under the statutory provision.

Justice C. Saravanan, after considering the submissions, reproduced Section 89 in full and emphasized its legal effect. The court noted that the provision imposes liability on directors for unrecovered tax, interest, or penalty due from a private company, unless the director can prove that such non-recovery is not attributable to their gross neglect, misfeasance, or breach of duty. The court expressly stated: “the burden of proof lies on the Director to establish that the non-recovery of tax cannot be attributed to any gross neglect, misfeasance, or breach of duty on his part in relation to the affairs of the company.”

On this basis, the court quashed the impugned recovery notice and remitted the matter to the first respondent for a fresh decision on merits. The petitioner was directed to file a detailed reply within two weeks, explaining why recovery should not be made against him. The court further clarified that if the petitioner fails to comply with these directions, the authorities are at liberty to proceed with recovery in accordance with law, after giving due notice.

This decision reinforces the statutory framework under Section 89 of the GST enactments, underscoring that directors of private companies bear the onus of disproving personal liability for company tax dues by establishing the absence of gross neglect, misfeasance, or breach of duty. The judgment provides clear procedural guidance for both tax authorities and directors facing similar proceedings.