Director liability for tax dues cannot be imposed without express statutory basis and a reasoned finding of gross neglect or misfeasance.

Former directors could not be fastened with company sales tax dues under the Bombay Sales Tax Act, 1959 through Section 142(8) of the Maharashtra GST Act, because transitional recovery under that provision presupposes that recovery was already legally available under the earlier statute; the old Act created no personal liability for directors, so indirect imposition was impermissible. Recovery was also unsustainable under Section 18 of the Central Sales Tax Act, 1956 and the pari materia Section 89 of the Maharashtra GST Act, since the authority failed to record a reasoned finding that non-recovery from the company was due to the directors' gross neglect, misfeasance or breach of duty, and acted after inordinate delay without adequate justification.

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Issues: (i) Whether sales tax dues arising under the Bombay Sales Tax Act, 1959 could be fastened on former directors by invoking the transitional machinery under Section 142(8) of the Maharashtra Goods and Services Tax Act, 2017 and the director-liability provision under Section 89 thereof. (ii) Whether recovery under Section 18 of the Central Sales Tax Act, 1956 could be sustained against former directors in the absence of a reasoned finding that the non-recovery was attributable to their gross neglect, misfeasance or breach of duty, and despite the long delay in initiating recovery.

Issue (i): Whether sales tax dues arising under the Bombay Sales Tax Act, 1959 could be fastened on former directors by invoking the transitional machinery under Section 142(8) of the Maharashtra Goods and Services Tax Act, 2017 and the director-liability provision under Section 89 thereof.

Analysis: Section 142(8) operates only as a transitional recovery mechanism where an amount has already become recoverable under the existing law. The Court held that the proper first inquiry is whether recovery was legally permissible under the earlier statute itself. The Bombay Sales Tax Act, 1959 contained no provision making former directors personally liable for company dues, and the repeal-saving provisions of the Maharashtra Value Added Tax Act, 2002 could not create such liability where none existed in the repealed law. A statutory liability to recover company dues from directors cannot be imposed indirectly by resort to a later enactment when the earlier statute had no corresponding provision.

Conclusion: The attempt to recover Bombay Sales Tax dues from the petitioners as former directors was held unsustainable and was struck down in their favour.

Issue (ii): Whether recovery under Section 18 of the Central Sales Tax Act, 1956 could be sustained against former directors in the absence of a reasoned finding that the non-recovery was attributable to their gross neglect, misfeasance or breach of duty, and despite the long delay in initiating recovery.

Analysis: Section 18 creates a limited vicarious liability of directors of a private company in liquidation, but only if the tax cannot be recovered from the company and the director fails to show that such non-recovery was not due to gross neglect, misfeasance or breach of duty on his part. The Court held that the authority had not examined the petitioners' explanation, including the BIFR proceedings and the reasons for the company's sickness, and had instead proceeded on a bare assertion that the burden had not been discharged. The order was also found to suffer from non-application of mind because the recovery steps were taken after an inordinate delay of more than a decade without a satisfactory explanation. The same reasoning applied to the corresponding reliance on Section 89 of the Maharashtra Goods and Services Tax Act, 2017, as the provision is pari materia with Section 18 of the Central Sales Tax Act, 1956.

Conclusion: Recovery from the petitioners as former directors under the Central Sales Tax Act, 1956 and the pari materia GST provision was held impermissible and was decided in their favour.

Final Conclusion: The Court quashed the impugned recovery action and declared that the company's sales tax dues could not be recovered from the petitioners in their capacity as former directors.

Ratio Decidendi: A former director can be made personally liable for company tax dues only where the governing statute expressly creates such liability and the authority records a reasoned finding that non-recovery from the company was attributable to the director's gross neglect, misfeasance or breach of duty; a later transitional provision cannot create director liability where the earlier taxing statute contained none.

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