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AI Drafter - (New and Powerful) ✕ Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter.
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Issues: Whether the directors of a private company could be proceeded against under Section 26C of the Kerala General Sales Tax Act, 1963 for recovery of the company's tax arrears without first establishing that recovery from the company had failed.
Analysis: Section 26C makes directors jointly and severally liable only where the tax or other amount recoverable from the private company cannot be recovered for any reason. The liability of the directors is therefore conditional and secondary to the primary liability of the company. The record did not show that the Revenue had first taken effective steps to recover the arrears from the company itself. In the absence of such material, invocation of revenue recovery proceedings against the directors in their individual capacity was not sustainable.
Conclusion: The notices issued against the directors were held illegal and unsustainable, and the challenge succeeded.
Final Conclusion: The tax arrears could not be recovered from the directors without compliance with the statutory precondition of failed recovery from the company, though recovery from the company in accordance with law remained open.
Ratio Decidendi: Directors of a private company can be made jointly and severally liable for the company's tax arrears only after it is shown that recovery from the company has failed or is otherwise not possible.
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