Director liability under VAT recovery law requires proof of unrecoverable company dues and factual basis for gross negligence before attachment.

Section 24(5) of the Andhra Pradesh VAT Act permits recovery from directors of a private company in liquidation only if company dues cannot be recovered and the non-recovery is linked to the directors' gross neglect, misfeasance or breach of duty. The Court explained that impossibility of recovery from the company satisfies the first condition, regardless of why recovery failed, but the authorities must first disclose primary facts supporting personal fault before shifting the burden to the directors. Because the impugned notice and bank attachments did not set out any such foundation, the attachments were contrary to Section 24(5) and were set aside, leaving the authorities free to proceed afresh in accordance with law after hearing objections.

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Issues: Whether attachment of the petitioners' bank accounts under Section 24(5) of the Andhra Pradesh Value Added Tax Act, 2005 was valid without indicating the basis of gross negligence, misfeasance or breach of duty on the part of the directors and without first establishing that the tax dues of the company in liquidation could not be recovered.

Analysis: Section 24(5) permits recovery from directors of a private company in liquidation only when the tax due from the company cannot be recovered and the non-recovery is attributable to the directors' gross neglect, misfeasance or breach of duty. The Court held that the first condition is satisfied only when recovery from the company has become impossible, irrespective of the reason for such non-recovery. As to the second condition, the provision requires the tax authorities to first indicate the primary facts showing gross negligence, misfeasance or breach of duty; only then does the burden shift to the directors to disprove personal fault. The impugned notice did not disclose any such foundation, though the authorities had earlier issued a notice under Section 24(5).

Conclusion: The bank attachments were contrary to Section 24(5) and were set aside. The authorities were left free to proceed afresh in accordance with law after satisfying the statutory requirements and affording an opportunity of objection.

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