Directors' liability for tax arrears of a liquidating company must follow the statutory recovery mechanism under section 16B.

Arrears of sales tax due from a private company in liquidation could be recovered from its directors only through the statutory mechanism in section 16B of the Andhra Pradesh General Sales Tax Act, 1957. The provision makes directors jointly and severally liable where company tax cannot be recovered, but also allows a director to avoid liability by showing that non-recovery was not due to gross neglect, misfeasance or breach of duty on his part. A demand raised against the directors without following that framework was not sustainable, and the recovery action was quashed.

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Issues: Whether arrears of sales tax due from a private company in liquidation could be recovered from its directors otherwise than in accordance with section 16B of the Andhra Pradesh General Sales Tax Act, 1957.

Analysis: Section 16B specifically governs liability of directors of a private company in liquidation where tax assessed on the company cannot be recovered. The provision makes directors jointly and severally liable, but only within the framework created by the statute and subject to the statutory exception where the director proves that non-recovery was not due to gross neglect, misfeasance, or breach of duty on his part. A demand forwarded against the directors without resort to the statutory mechanism was therefore not sustainable.

Conclusion: Recovery of the company's tax arrears from the directors could not be pursued except in the manner provided by section 16B, and the impugned recovery action against the directors was quashed.

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