Direct director liability for company sales tax arrears is barred unless winding-up conditions under section 16-B are satisfied

Direct recovery of sales tax arrears from directors of a private company is impermissible unless the statutory conditions in section 16-B are met. The provision fastens joint and several liability on directors only where the company is being wound up and the tax due from it cannot be recovered, subject to the director proving absence of gross neglect, misfeasance or breach of duty. In the absence of liquidation, liability cannot be imposed on directors directly, though recovery against the company itself remains unaffected.

---

---

Issues: Whether arrears of sales tax due from a private limited company could be recovered from its directors without recourse to the procedure under section 16-B of the Andhra Pradesh General Sales Tax Act, 1957.

Analysis: Section 16-B creates a specific liability of directors only when a private company is wound up and the tax due from it cannot be recovered. The provision makes the directors jointly and severally liable in that limited situation, subject to the director showing absence of gross neglect, misfeasance, or breach of duty. In the absence of liquidation, the statutory condition for fastening liability on the directors was not satisfied, and recovery against them directly was impermissible. The Court, however, clarified that this did not prevent recovery of the tax from the company itself.

Conclusion: Recovery from the directors was quashed and restrained; the demand could not be enforced against them outside section 16-B.

---