Director liability for company tax dues requires specific statutory authority, prescribed procedure, and notice before recovery can be enforced.
Company tax liability could not be fastened on a director merely because of his office: recovery under the Haryana sales tax laws required specific statutory authority, which was absent for the exemption-period demand. Central Sales Tax dues likewise could not be recovered directly from the director without proceeding under section 18 of the Central Sales Tax Act and following the prescribed procedure; direct recovery was therefore unsustainable. A surety-based demand could not be enforced without prior notice and hearing, as natural justice had not been complied with. The impugned summons were quashed, while fresh action in accordance with law was left open.
Issues: (i) Whether the sales tax liability relating to the exemption period under the Haryana General Sales Tax regime could be recovered from the petitioner-director; (ii) Whether recovery of Central Sales Tax dues could be made from the petitioner without taking recourse to section 18 of the Central Sales Tax Act, 1956 and without following due procedure; (iii) Whether the amount of Rs. 1,40,000 recoverable on account of surety could be demanded without notice and hearing.
Issue (i): Whether the sales tax liability relating to the exemption period under the Haryana General Sales Tax regime could be recovered from the petitioner-director.
Analysis: Recovery can be made only where the statute specifically authorises it. The Haryana General Sales Tax Act, 1973 and the Haryana Value Added Tax Act, 2003 did not contain any provision fastening the company's tax liability on its directors. The Court noted that such personal recovery was not supported merely because the petitioner had been a director of the company in liquidation.
Conclusion: The sales tax liability relating to the exemption period could not be recovered from the petitioner.
Issue (ii): Whether recovery of Central Sales Tax dues could be made from the petitioner without taking recourse to section 18 of the Central Sales Tax Act, 1956 and without following due procedure.
Analysis: Section 18 of the Central Sales Tax Act, 1956 permits recovery from directors of a private company in liquidation only under the conditions specified therein and after proper recourse to that provision. No valid order or due proceeding under that section had been taken against the petitioner, nor was it shown that recovery from the company's assets had been exhausted. In these circumstances, direct recovery from the petitioner was unsustainable.
Conclusion: Recovery of Central Sales Tax dues from the petitioner was impermissible unless action was taken in accordance with section 18 of the Central Sales Tax Act, 1956 and the relevant exemption notification was considered.
Issue (iii): Whether the amount of Rs. 1,40,000 recoverable on account of surety could be demanded without notice and hearing.
Analysis: Liability as surety could arise, but the demand could not be enforced without prior notice and an opportunity of hearing. The absence of such notice offended the principles of natural justice.
Conclusion: The recovery demand for Rs. 1,40,000 could not be sustained without compliance with natural justice, though fresh action after notice remained open.
Final Conclusion: The impugned summons were quashed, while the respondents were left free to proceed afresh in accordance with law for any permissible recovery against the company or the petitioner after following the required statutory procedure.
Ratio Decidendi: A company's tax liability cannot be recovered from its director unless a specific statutory provision authorises such recovery and the prescribed procedure, including notice and hearing where required, is strictly followed.