The Madras High Court has granted an interim stay on a GST recovery notice issued under Section 79(1)(c) of the applicable GST enactments, after finding that the petitioners had made out a strong prima facie case challenging the invocation of the provision against them.

The bench of Justice Senthilkumar Ramamoorthy has observed that “on both the grounds canvassed” by the petitioners, a strong prima facie case was made out. On that basis, the Court ordered an interim stay of the impugned notice until the next date of hearing.

The petitioners questioned the legality of proceeding against them personally in respect of GST liabilities pertaining to the company. Their challenge principally rested on two grounds.

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First, they relied upon documents concerning their appointment as Directors and contended that both of them were appointed only on December 31, 2020, falling within the financial year 2020-21. In contrast, the tax assessments in question related to the earlier financial years 2018-19 and 2019-20.

According to the petitioners, this chronology was significant because the assessments related to periods preceding their appointment as Directors.

The second and more substantive contention concerned the statutory provision invoked by the tax authorities.

The petitioners argued that Section 79(1)(c) could not have been invoked against them in the circumstances of the case. They contended that the appropriate provision was Section 89, under which they would have additional defences available to them.

Thus, the litigation raises an important question concerning the correct statutory route for fastening or recovering GST liabilities from persons associated with a company, particularly where the individuals concerned dispute their liability and their tenure as directors does not correspond with the period to which the tax assessments relate.

Appearing for the tax department, Government Advocate (Tax) R. Sethu Prabakaran accepted notice on behalf of the first respondent. However, he sought time to obtain instructions in the matter.
The Court, at this interim stage, did not finally determine whether Section 79(1)(c) was legally applicable or whether Section 89 was the appropriate provision. Instead, it examined whether the petitioners had demonstrated sufficient grounds to warrant interim protection pending further consideration.

After considering the submissions, the Madras High Court recorded a significant prima facie finding.

The order therefore provides immediate protection to the petitioners from the consequences of the challenged GST notice while the Court proceeds to examine the matter further.

One of the notable aspects of the case is the emphasis placed on the date on which the petitioners became Directors.

According to the petitioners’ submissions recorded by the Court, their appointment took place on December 31, 2020, whereas the tax assessments concerned financial years 2018-19 and 2019-20.

The issue therefore goes beyond a mere procedural objection to the GST notice. The petitioners have questioned whether they can be proceeded against in relation to tax liabilities arising from periods preceding their appointment, and whether the particular statutory provision relied upon by the department is legally sustainable in their circumstances.

The High Court’s observation that a strong prima facie case exists on this ground indicates that the chronology of directorship and the period of the underlying tax liability will be material in the further adjudication of the dispute.

The case also brings into focus the distinction between the provisions invoked by the parties.

The petitioners specifically argued that Section 79(1)(c) was not the appropriate provision and that the matter should instead be considered under Section 89, which, according to their counsel, would provide them with additional defences.

The Court has not, at this stage, given a final ruling interpreting the two provisions or determining the ultimate liability of the petitioners. The interim order is confined to recording the existence of a strong prima facie case and staying the impugned notice pending the next hearing.

The High Court has listed the writ petition for further hearing on September 21, 2026. Until then, the impugned notice remains stayed pursuant to the interim order dated August 20, 2026.

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