High Court protects petitioner from sales tax recovery, upholds corporate entity separation principle. Sales Tax Department to pursue defunct company.

The High Court ruled in favor of the petitioner, setting aside the communication seeking to recover sales tax arrears from the petitioner. The Court emphasized the principle of corporate entity separation, stating that the recovery of dues should be from the defunct company itself, not its directors or shareholders. The Sales Tax Department was directed to pursue the defunct company through the Official Liquidator for recovery, granting liberty to file a Claim Petition within a specified timeframe. The judgment protected the petitioner and innocent purchasers from enforcement of the impugned proceedings.

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Issues:
Challenge to communication for sale of property for recovery of sales tax arrears.

Analysis:
The petitioner challenged a communication from the first respondent proposing to sell a property for recovery of sales tax arrears owed by a defunct company. The petitioner, a subsequent purchaser of part of the property, was concerned about potential adverse effects on their interest. The property was originally owned by the defaulting company, which went into liquidation. The Official Liquidator sold the property under court supervision to different individuals before the petitioner acquired it. The petitioner argued that the Department should approach the Official Liquidator for the dues, not the petitioner.

The High Court cited precedents emphasizing that a company is a separate legal entity, and recovery of dues should be from the company itself, not its directors or shareholders. Various High Court decisions were referenced to support the principle that directors cannot be held personally liable for a company's tax debts. The Court held that the impugned order seeking to recover sales tax dues from the petitioner was unjustified and set it aside. The Court directed the Sales Tax Department to pursue the defunct company through the Official Liquidator for recovery.

In conclusion, the Court ruled that the impugned proceedings could not be enforced against the petitioner or the purchased properties. The Department was granted liberty to file a Claim Petition before the Official Liquidator within a specified timeframe for adjudication. The judgment highlighted the legal principle of corporate entity separation and the need for the Department to pursue defunct companies through appropriate channels, not against innocent purchasers.

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