2025 (10) TMI 1125 - HC - VAT / Sales Tax

Attachment and mutation of HUF property leased to company invalid; lease doesn't transfer ownership and VAT liability can't attach

Kantaben Dharamshi Kalariya & Ors. Versus State of Gujarat & Ors.

HC held the attachment and mutation of a Hindu Undivided Family's property, merely leased to a company with tax dues, was invalid. The property remains ... Attachment/Auction of property of the HUF which was leased to the Company from whom tax dues are pending - Seeking directions to lift and withdraw the attachment created by respondent No. 5 - liability of the Company to pay VAT can be fastened on the Directors personally or on the personal properties of the Directors or not - HELD THAT:- This Court in a decision in case of Veer Industries Ltd. v. The Commercial Tax Officer (4), [2019 (7) TMI 319 - GUJARAT HIGH COURT] has decided that 'The writ applicant is the lawful owner of the attached land. The property, which has been attached, might have been given on lease to the respondent No.3, but by virtue of the same, it cannot be said that the property is of the ownership of the respondent No.3. The relationship is just of a lessor and lessee. The land, as on date, belongs to the writ applicant-Company.' Thus, the attachment created by the revenue authority on the property in question which belongs to the HUF could not have been mutated in favour of the State exchequer. Resultantly, the petition succeeds. The objections to the mutation entry is hereby quashed and set-aside. The petition is accordingly disposed of with clarification that the revenue authority cannot recover the dues of the Company from the property of the HUF on the ground that some of the members of the HUF are Directors of the Company. Petition allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether immovable property owned by a Hindu Undivided Family (HUF) and leased to a defaulting dealer can be provisionally attached or made subject to charge for recovery of the dealer's dues under the Gujarat Value Added Tax Act, 2003 (the Act). 2. Whether liability for tax dues of a company can be fastened upon its directors or upon the personal property of directors (including members/Karta of an HUF) in the absence of express statutory provision under the Act. 3. Scope and interplay of Sections 42, 44, 45, 46, 47 and 48 of the Act - in particular, the meaning of 'dealer', 'person', 'other person', provisional attachment under Section 45, special recovery powers under Sections 44 and 46, and charge/void transfers under Sections 47-48. 4. Whether corporate veil may be lifted to make HUF members or directors personally liable where the company is alleged to be managed and controlled by them. ISSUE-WISE DETAILED ANALYSIS - ISSUE 1: ATTACHABILITY OF HUF-OWNED LAND LEASED TO DEFAULTING DEALER Legal framework: Section 45 authorises provisional attachment of 'any property belonging to the dealer' during pendency of proceedings of assessment or reassessment; Section 46 confers land-revenue recovery powers for amounts due from 'any dealer or other person'; Section 2(10) defines 'dealer'; Section 2(15) defines 'person' to include HUF. Precedent Treatment: The Court follows earlier coordinate-bench decisions holding that property belonging to a distinct taxable entity cannot be attached for the dues of another (referenced decisions applying the principle that HUF is a separate taxable entity and that dues of a company cannot be recovered from personal properties of directors or members absent statutory provision). Interpretation and reasoning: The statute authorises provisional attachment only of property 'belonging to the dealer.' Ownership is the decisive test; leasing by an owner to a dealer does not convert ownership. The HUF here is a distinct taxable person; its land remained HUF property though let out to the defaulting company. Therefore Section 45 cannot be lawfully invoked against property that does not belong to the defaulting dealer. The Court also notes that Section 45 provisional attachments lapse after one year unless extended; no extension shown, rendering the attachment ineffective. Ratio vs. Obiter: Ratio - provisional attachment under Section 45 is confined to property of the defaulting dealer; lease to the dealer does not make the lessor's property attachable for the dealer's dues. Obiter - remarks on practical attachability of plant and machinery (owned by dealer) as distinct from land owned by third person. Conclusion: Attachment of HUF-owned land leased to the defaulting dealer was unlawful; mutation of charge in favour of State exchequer quashed and set aside. The attachment Order dated (23.01.2018) had lapsed in any event after one year absent extension. ISSUE-WISE DETAILED ANALYSIS - ISSUE 2: PERSONAL LIABILITY OF DIRECTORS / HUF MEMBERS FOR COMPANY DUES Legal framework: Act contains specific provisions for recovery from a 'dealer' or 'person liable therefor' (Section 42) and special recovery modes (Section 44); Chapter VI deals with liability in certain contingencies but does not expressly fasten company tax liability on directors akin to Section 179 of Income-tax Act. Precedent Treatment: The Court follows decisions holding that the dues of a private limited company cannot be recovered from the personal property of its directors where the relevant tax statute contains no provision to that effect; it also cites authority holding HUF to be a distinct taxable entity vis-à-vis its members/Karta. Interpretation and reasoning: Separation of legal personality between a company and its directors is fundamental; absence of a determinative statutory provision in the VAT statute precludes treating directors or HUF members as personally liable for company VAT/CST dues. The fact that some HUF members were directors does not itself make HUF property available for recovery. The phrase 'other person' in Section 46 must be read in light of Section 44 and limited to persons from whom monies are due to the dealer or who hold monies for or on account of the dealer; it does not extend to third-party owners merely because they have relational links to directors. Ratio vs. Obiter: Ratio - company dues cannot be recovered from personal property of directors/HUF members without explicit statutory provision; the corporate veil is not to be pierced merely because directors are members of an HUF. Obiter - observations on circumstances where lifting the veil may be considered (e.g., actual control/fraud) but not satisfied on facts. Conclusion: Petitioners (HUF/members/Karta) cannot be held personally liable for company dues merely by virtue of directorship; attachment of HUF property for company liability was impermissible. ISSUE-WISE DETAILED ANALYSIS - ISSUE 3: MEANING AND SCOPE OF 'OTHER PERSON' IN SECTIONS 44 AND 46 AND CONSEQUENCES FOR RECOVERY Legal framework: Section 44 permits notices to persons from whom monies are due to a dealer or who hold monies for or on account of the dealer; Section 46 enables recovery as arrears of land revenue from 'any dealer or other person' for amounts due under the Act. Precedent Treatment: The Court adopts the interpretation in earlier decisions that 'other person' is restricted to those falling within the operation of Section 44 (i.e., persons holding monies for or owing monies to the dealer), and does not encompass unrelated owners of property merely because of familial or managerial association. Interpretation and reasoning: Contextual reading required: Section 44's express language confines the special mode of recovery to persons who hold monies for or owe monies to the dealer; thus 'other person' in Section 46 must be construed in that limited sense. Absent a relationship by which monies are due to or held for the dealer, the owner of immovable property (lessor) does not become an 'other person' liable under Section 46. Ratio vs. Obiter: Ratio - 'other person' means those from whom monies are due to, or who hold monies for or on account of, the dealer (Section 44 context); it does not extend to third-party property owners merely because of directorial links. Obiter - general observations distinguishing recoveries from plant/machinery (dealer-owned) versus land (third-party owned). Conclusion: The HUF owner does not fall within 'other person' for purposes of Sections 44/46; recovery from HUF property under those provisions is not permissible on the facts. ISSUE-WISE DETAILED ANALYSIS - ISSUE 4: CORPORATE VEIL, CONTROL, FRAUD AND LIFTING VEIL ON FACTS Legal framework: Common law principle permits lifting corporate veil in appropriate cases (fraud, sham, agency) but requires strong factual foundation; tax statutes may contain specific provisions where veil-lifting is contemplated. Precedent Treatment: The Court refers to submissions proposing lifting the veil where company allegedly managed and controlled by petitioners, but applies established tests in prior authorities requiring clear basis to pierce corporate personality. Interpretation and reasoning: Allegation of indirect management/control by HUF members (some being directors) is not by itself sufficient to pierce the corporate veil; there must be concrete material demonstrating that the company is a mere façade or that transfers were made with intent to defraud revenue (Section 47) or that statutory predicates for personal liability are met. On the record, no such justification to lift veil was shown. Ratio vs. Obiter: Ratio - corporate veil not lifted where only inference is that HUF members were directors; Obiter - if transfers post-dating tax liability are intended to defraud revenue, Section 47 renders them void as against tax claims. Conclusion: No sufficient material to lift corporate veil; therefore HUF members/directors not made personally liable and HUF property could not be attached on that ground. OVERALL CONCLUSION The attachment/charge on the HUF-owned land leased to the defaulting dealer was legally unsustainable; Sections 44-46 do not authorise recovery from third-party owned immovable property merely because HUF members are directors; company tax liabilities cannot be fastened on directors or HUF members in absence of explicit statutory provision and without adequate grounds to lift the corporate veil; the provisional attachment lapsed after one year absent extension. The objections to mutation/charge are quashed and set aside accordingly.