2015 (11) TMI 1014 - HC - VAT and Sales Tax

Director not personally liable for sales tax in liquidation

Subhash Goyal Versus State of Haryana and others

The court ruled that recovery of sales tax liability from a director of a company in liquidation was not permissible under the Haryana General Sales Tax ... Recovery of outstanding sales tax dues of respondent which is in liquidation from the directors as an arrears of land revenue - Violation of principle of natural justice - Held that:- recovery proceedings can be initiated in terms of the specific provisions in the statute. There exists no particular provision either under the Act or the VAT Act whereby the liability of the private limited company can be fastened on the directors of the said company and recovered from them. Unlike section 179 of the Income-tax Act, 1961 where a director of a company can be held liable for recovery of tax due from the company on fulfilment of conditions enumerated therein or even under section 18 of the CST Act which provides for recovery from the director of a private limited company which is in liquidation under certain circumstances. - recovery on account of sales tax liability under the Act or VAT Act of M/s. Bhagwati Wooltex Pvt. Ltd. relating to exemption period cannot be recovered from the petitioner. Recovery of CST - In the absence of taking any specific recourse to proceedings under section 18 of the CST Act and passing of any valid order for effecting recovery of CST from the directors of the private limited company in liquidation, the proceedings relating to recovery of arrears of CST from the petitioner are held to be not permissible in law. Further, the respondents have not shown that the amount of tax recoverable under the CST Act cannot be recovered from the company. It is also not shown as to what efforts were made to recover the arrears of CST from the assets of the company. Thus, recovery of CST from the petitioner is unsustainable. However, it shall be open for the respondents to proceed to recover the amount on account of CST after taking proper action under section 18 of the CST Act and considering the notification dated September 4, 1995 (annexure P11) issued under section 8(5) of the CST Act. Recovery of Surety - liability of the petitioner on account of non payment of the amount due from the principal where he had stood surety cannot be doubted. However, in the absence of any notice having been issued before serving annexure P9, the action cannot be legally sustained being violative of principles of natural justice. - Decided in favour of petitioner. Issues involved:1. Sales tax liability recovery from a director of a company in liquidation.2. Liability under the Central Sales Tax Act for the same period.3. Recovery of a specific amount from a director who stood as a surety.Issue 1: Sales tax liability recovery from a director in liquidation:The petitioner sought to quash summons for recovery of sales tax dues from a company in liquidation, contending that liability cannot be imposed on a director. The court noted that unlike the Income-tax Act, there is no provision in the Haryana General Sales Tax Act or VAT Act to hold directors liable for company dues. Citing precedents like Mukesh Gupta v. State of Haryana, it was held that recovery of sales tax liability from the petitioner, a director, is not permissible.Issue 2: Liability under the Central Sales Tax Act:Regarding liability under the CST Act, section 18 imposes joint liability on directors of a private company in liquidation for unpaid taxes unless proven otherwise. However, without specific recourse to section 18 and a valid order for recovery, proceedings against the petitioner were deemed impermissible. The court highlighted the need for proper action under section 18 and consideration of relevant notifications before recovering CST from the petitioner.Issue 3: Recovery of a specific amount from a director as a surety:The petitioner's liability for a specific amount as a surety was acknowledged, but the court found the absence of a prior notice before issuing recovery summons as a violation of natural justice principles. It was ruled that the recovery action must afford the petitioner an opportunity to be heard in accordance with the law.Additional Observations:The court found the summons issued to be legally unsustainable due to jurisdictional issues and violations of natural justice principles. While allowing the writ petition and quashing the summons, the court directed that sales tax liability recovery under the Act or VAT Act should proceed against the company, and CST recovery under section 18 should follow due process. Recovery of the surety amount was permitted after proper notice and hearing.This detailed analysis of the judgment provides a comprehensive understanding of the legal issues involved and the court's reasoning in each aspect of the case.