Director liability for tax arrears after winding up requires proof that non-recovery was not due to gross neglect or breach of duty.

Section 18 of the Central Sales Tax Act, 1956 makes a director of a private company liable for unpaid sales tax arrears after winding up unless he proves that the non-recovery was not due to his gross neglect, misfeasance or breach of duty in relation to the company's affairs. A bare claim of being a non-active director was held insufficient where notices had been issued and no material was produced to displace the statutory burden. The recovery action was upheld and the writ petition was dismissed.

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Issues: Whether a director of a private company that had been wound up could be made jointly and severally liable for recovery of central sales tax arrears under the statutory exception for absence of gross neglect, misfeasance or breach of duty.

Analysis: Section 18 of the Central Sales Tax Act, 1956 fastens liability on every person who was a director of the private company during the relevant period when the tax became due, unless he proves 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. The mere assertion that the petitioner was not an active director was insufficient, particularly when notices had been issued to the directors and no material was shown to establish absence of gross neglect, misfeasance or breach of duty. The contention that liability could arise only on proof of misfeasance was rejected in view of the statutory language placing the burden on the director to prove the contrary.

Conclusion: The director remained liable for the tax arrears and the writ petition failed.

Final Conclusion: The impugned recovery action was upheld and the writ petition was dismissed.

Ratio Decidendi: Under Section 18 of the Central Sales Tax Act, 1956, a former director of a wound-up private company is jointly and severally liable for unpaid tax unless he affirmatively proves that non-recovery was not attributable to his gross neglect, misfeasance or breach of duty.

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