2024 (5) TMI 885 - HC - VAT and Sales Tax

Individual cannot be held liable for tax dues of company under liquidation

The Allahabad HC ruled that a petitioner cannot be held vicariously liable for tax dues of M/S Global Brands Enterprise Solutions Private Limited under ... Recovery of tax dues of the company M/S Global Brands Enterprise Solutions Private Limited - vicarious liability of petitioner to discharge the tax dues of the Company-under-Liquidation - HELD THAT:- Neither on a general principle in law, nor in the facts of the present case that liability may ever be enforced on the present petitioner under the U.P. VAT Act, 2008 and/ or the Central Sales Tax Act, 1956. The Company-under-Liquidation was duly incorporated and was real. It was not a proprietary enterprise of the present petitioner and the petitioner had not conducted himself in any manner vis-a-vis the affairs of the Company-under-Liquidation as may ever have allowed the revenue authorities to reach a conclusion that the petitioner was the real person who had done business in the name of the Company-under-Liquidation. Besides the above, no other special fact has been pleaded in the Counter Affidavit as may lead to an inference that the revenue authorities had lifted the corporate veil and had found the petitioner to be the real person who benefited from the business transactions of the Company-under-Liquidation. The law on the issue has been dealt with by a coordinate bench of this Court in M/S Meekin Transmission Ltd. and others Vs. State of Uttar Pradesh and others [2008 (2) TMI 406 - ALLAHABAD HIGH COURT] where it was held that 'no recovery can be made against the director.' In the case of present petitioner, similar recovery initiated by the Maharashtra VAT authority for the Assessment Years 2009-2010, 2010-11, 2011-12 were withdrawn. Direction is issued to the revenue authorities to restrain them from recovering the disputes tax dues of the Company-under-Liquidation from the personal assests of the petitioner. However, the revenue authorities shall be at liberty to proceed against the assests of the Company-under-Liquidation, without any objection of the petitioner. The writ petition is allowed. Issues Involved:1. Recovery of tax dues from the personal assets of the petitioner.2. Vicarious liability of the petitioner for the tax dues of the Company-under-Liquidation.3. Application of the doctrine of lifting the corporate veil.Summary:1. Recovery of tax dues from the personal assets of the petitioner:The petitioner filed a writ petition to resist the recovery of tax dues of M/S Global Brands Enterprise Solutions Private Limited (Company-under-Liquidation) from his personal assets. The Delhi High Court had appointed the Official Liquidator as the Provisional Liquidator on 09.09.2013, and the Provisional Liquidator took over the assets in October 2013. Subsequent ex-parte assessment orders were passed for A.Ys. 2010-11, 2011-12, 2012-13, creating a total demand of Rs. 12,43,94,434/-. The assessing authority issued recovery citations against the petitioner, alleging he was the director at the relevant time.2. Vicarious liability of the petitioner for the tax dues of the Company-under-Liquidation:The petitioner contended that he never incurred any vicarious liability to discharge the tax dues of the Company-under-Liquidation. The petitioner argued that neither the U.P. VAT Act, 2008 nor the Central Sales Tax Act, 1956 imposed such liability on him. The petitioner maintained that he had conducted himself lawfully concerning the affairs of the Company-under-Liquidation.3. Application of the doctrine of lifting the corporate veil:The court noted that the revenue authorities did not present any special facts in the Counter Affidavit to infer that they had lifted the corporate veil and found the petitioner as the real person benefiting from the business transactions of the Company-under-Liquidation. The court referenced previous judgments, including M/S Meekin Transmission Ltd. and others Vs. State of Uttar Pradesh and others (2013) 58 VST 2001 (All) and A.S. Solanki Vs. State of U.P. and others [Neutral Citation-2023:AHC:130306-DB], which clarified that the doctrine of piercing the corporate veil should not be applied routinely but only in cases of fraud or improper conduct.The court emphasized that the burden of proof lies on the authorities to justify invoking the doctrine of lifting the veil. In the absence of such justification, the petitioner cannot be held personally liable for the dues of the Company-under-Liquidation.Conclusion:The writ petition was allowed, and the revenue authorities were directed to restrain from recovering the disputed tax dues from the personal assets of the petitioner. However, they were permitted to proceed against the assets of the Company-under-Liquidation. No order as to costs was made.