Court rules directors not personally liable for company debts; recovery of sales tax disallowed.

The court ruled in favor of the petitioners, holding that recovery of sales tax from a former director of a company was not permissible as directors cannot be personally liable for company debts due to the company being a separate legal entity. The court rejected the argument based on section 18 of the CST Act, emphasizing that it applies only when a company has been wound up. All recovery proceedings against the former director were set aside, and the respondents were directed to cease further tax recovery actions. The court awarded costs of Rs. 20,000 to the petitioners, disposing of the writ petition in their favor.

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Issues involved:
Recovery of sales tax from a former director of a company, application of company law principles, liability of directors for tax recovery, interpretation of section 18 of the CST Act.

Analysis:
The judgment addressed the issue of recovery of sales tax from a former director of a company. The petitioners argued that recovery from a former director was not permissible as the company is a separate legal entity. The court considered the principle that a company is a distinct entity and the directors cannot be held personally liable for company debts. The respondents argued that recovery from directors was allowed under section 18 of the CST Act.

The court examined the legal position and past judgments on the matter. It was established that a company is a separate legal entity, and recovery cannot be made from directors for company debts. The court cited previous cases such as Surinder Nath Khosla v. Excise and Taxation Commissioner [1964] 15 STC 838 and Tikam Chand Jain v. State Government of Haryana [1987] 67 STC 388 to support this principle. The court emphasized that directors cannot be substitutes for the company in their individual capacity.

The court also considered the argument regarding section 18 of the CST Act, which allows recovery from directors. However, the court rejected this argument, stating that section 18 applies when a company has been wound up, which was not the case in the present situation. The court highlighted that recovery proceedings against a former director were unwarranted and against established legal principles.

Based on the legal analysis and precedents cited, the court ruled in favor of the petitioners. It set aside all recovery proceedings against the former director and directed the respondents to refrain from issuing any further notices for tax recovery. The court also ordered the respondents to pay costs amounting to Rs. 20,000. The judgment concluded by disposing of the writ petition in favor of the petitioners.

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