Director not personally liable for company's sales tax arrears, court deems demand notices illegal.

The Court held that the Director could not be personally liable for the company's sales tax arrears as the company was not yet wound up, rendering Section 18 of the Central Sales Tax Act, 1956, inapplicable. The Court found the notices demanding payment from the Director to be illegal, arbitrary, and whimsical, quashing them and ordering the respondents to pay costs of Rs. 10,000 for issuing the notices without statutory provision.

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Issues:
1. Director's personal liability for company's sales tax arrears.

Analysis:
The main issue in this case was whether a Director of a Company could be held personally liable for the arrears of State and Central sales tax due from the Company. The petitioner, a Director of the Company, challenged the notices demanding payment of Central sales tax arrears personally from him. The respondent argued that under Section 18 of the Central Sales Tax Act, 1956, Directors of a private company could be held jointly and severally liable for tax payments if the company is wound up. However, the petitioner contended that the company was not yet wound up, and therefore, the provision did not apply in this case.

The Court considered the arguments presented by both parties. The petitioner relied on previous judgments, including Single Bench and Division Bench decisions, which held that recovery of sales tax arrears could not be made personally from Directors. On the other hand, the respondent cited Section 18 of the Act to support their claim for personal liability of Directors in case of company liquidation. However, the Court noted that the company in question was not yet wound up, making Section 18 inapplicable.

Ultimately, the Court agreed with the petitioner's contentions and held that the notices demanding payment from the Director were illegal, arbitrary, and whimsical. The Court referred to previous judgments that had settled the law on this issue and quashed the notices. The respondents were also directed to pay costs of Rs. 10,000 due to issuing the notices without any statutory provision.

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