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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: (i) Whether Section 26C of the Kerala General Sales Tax Act, 1963 was unconstitutional. (ii) Whether revenue recovery could be initiated against a director of a private limited company without first proceeding against the company and whether the director could invoke protections under the Companies Act, 1956.
Issue (i): Whether Section 26C of the Kerala General Sales Tax Act, 1963 was unconstitutional.
Analysis: The challenge to the constitutionality of Section 26C stood covered by earlier Division Bench decisions of the Court. The provision was treated as valid and the challenge was not accepted.
Conclusion: The constitutional challenge failed and was decided against the petitioner.
Issue (ii): Whether revenue recovery could be initiated against a director of a private limited company without first proceeding against the company and whether the director could invoke protections under the Companies Act, 1956.
Analysis: Section 26C was read as imposing joint and several liability on a director only when the amount recoverable from the private company could not be recovered for any reason from the company itself. Recovery against the director therefore required prior proceedings against the company and material showing inability to recover from the company. The provision was also expressly subject to the Companies Act, 1956, so any statutory protection available to the director under that Act could be raised as a defence.
Conclusion: Recovery against the director without first exhausting recovery against the company was impermissible, and the petitioner was entitled to raise protections available under the Companies Act, 1956.
Final Conclusion: The recovery proceedings against the petitioner were set aside, while the State was left free to proceed in accordance with law if any demand remained subsisting.
Ratio Decidendi: A director of a private limited company can be proceeded against under Section 26C only after recovery from the company has failed, and the provision must operate subject to any statutory protection available under the Companies Act, 1956.
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