AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2022 (9) TMI 385
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....al Sales Tax Act, 1956 (the CST Act). Facts in all the three petitions are almost identical save and except the dates on which petitioners joined the Board of Directors of the company and their date of resignation differ. The facts mentioned in this judgment are from Writ Petition (L) No. 2121 of 2022. 3. Petitioner is impugning an order dated 27th September 2021 passed by Respondent No.3, the consequential Notice of Demand dated 27^th September 2021 issued under Section 38 of the BST Act and Final Notice of Assessment dated 27th September 2021 in Form VIII (B) under the CST Act. According to petitioner, the order, consequential notice of demand and final notice of assessment are illegal, violative of the principles of natural justice and contrary to the provisions of the MGST Act, BST Act and CST Act. 4. The company was incorporated as a private limited company on 25th May 1973 and registered with the Registrar of Companies, Mumbai. The Directors of the Company as on 1st January 1990 were one Harbhajan Singh Dhillon, Rajlaxmi Babu, Prakash D. Sanghavi (Petitioner in Writ Petition (L) No. 2133 of 2022) and Satish D. Sanghavi (Petitioner in Writ Petition (L) No. 2129 of 2022).....
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....me in 1991-92 in respect of foreign Letter of Credit (LC) to the extent of 200%, making it impossible for TOPL to function normally as regards imported raw materials. 5.3 Duty on import of raw materials, inter alia, including Turpentine was only 35%, which was subsequently hiked to 85% in 1991-92. This compelled TOPL to go in for backward integration for manufacture of Turpentine from Oleo Pine Resin (OPR). Today the duty on Turpentine has once again come down to 35%. However, since the present duty on OPR (containing Turpentine) is only 12%, the manufacture from imported OPR still works out more remunerative rather than from Turpentine. 5.4 There was a dispute regarding the Excise Duty liabilities arising on account of classification and consequent upon the demands of Excise Authorities, the Bank did not entertain financing of the same. 5.5 The ultimate blow to the TOPL's working was received, when the additionally inducted promoter Shri. Mukesh D. Ramani was allowed to acquire 20% of the Company's Equity and also to bring in additional funds of Rs.60 Lakhs by way of unsecured loans for funding of working capital needs related to backward integration und....
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....d Writ Petition No.6048 of 2019. By an order dated 16th January 2020 this court was pleased to remand the matters to respondents to determine whether, in law, recovery would lie against petitioner in person. 12. On 15th February 2020 petitioner received Show Cause Notice from Respondent No.3 calling upon petitioner to prove that the nonrecovery of Sales Tax dues from the company was not attributed to gross neglect, misfeasance or breach of duty on petitioner's part in relation to the affairs of the company failing which petitioner will be liable to pay a sum of Rs.3,02,01,888/-. (Similar notice was issued to petitioner in Writ Petition (L) No. 2129 of 2022 - S.D. Sanghavi and Writ Petition (L) No. 2133 of 2022 - P. D. Sanghavi). Petitioner replied through his advocate's letters dated 7th November 2020, 9th December 2020, 8th January 2021 and 18th March 2021. Notwithstanding receiving reply, Respondent No.3 passed impugned order dated 27th September 2021. Respondent No.3 has sought to recover the following amounts : S. No. Period BST Dues (in Rs.) CST Dues (in Rs.) Total (in Rs.) 1 1986-87 92,789 5,232 98,021 2 1987-88 12,83,967 9,640 ....
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....gs before BIFR has no relevance for the issue involved in the show cause notice because no records have been produced to substantiate the contentions. The findings in the proceedings are for different purpose and has no relevance in the present proceeding. [This, in our view, is rather strange because Respondent Nos. 2 and 3 were participants in BIFR proceedings and their representatives have also attended meetings with the operative agency - Bank of India.] (c) Conjoint reading of Sections 142(8) and Section 89 of the MGST Act leaves no doubt if recovery cannot be claimed under the earlier law, i.e., BST Act and CST Act, the same can be recovered under the MGST Act and Section 89 will squarely apply. (d) Section 18 of the CST Act and Section 89 of the MGST Act cast burden on the Directors of the company to prove that non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on their part in relation to the affairs of the dealer. The Directors have failed to prove that non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on their part in relation to the affairs of the dealer by producing any mat....
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....ted judgment delivered on 5.5.2009 in the case of Chandrakant Bhalchandra Garware Versus Union of India & Ors. In writ petition no. 4117 of 2009. We are of the opinion that duty demand of the company cannot be recovered from the director in the absence of statutory provisions in the Central Excise Act, 1944. (emphasis supplied) Therefore the dues of the company are not recoverable from petitioner since there is no specific provisions under the BST Act empowering respondents to do so. d. The amounts are not recoverable under the CST Act since the non-recovery of the dues cannot be attributed to any gross neglect, misfeasance or breach of duty on the part of petitioner in relation to the affairs of the company. Section 18 of the CST Act only empowers respondents to recover the dues of company from the Directors if the nonrecovery of the dues from the company is on account of any gross neglect, misfeasance or breach of duty on the directors part in relation to the affairs of the company. This condition is not satisfied because the BIFR, in its sanction of the scheme, has given reasons as to why the company had approached BIFR and subsequently went into liquidation....
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....e MVAT Act, the recovery provisions of the BST Act have been saved, i.e., Section 96 specifically provides that notwithstanding the repeal of the BST Act, all actions of recovery to be conducted post the said repeal would continue to be in terms of the BST Act. If that be the case, the reliance of respondents on the provisions of the MGST Act so as to recover dues from petitioner is misplaced and is liable to be aside. i. As is clear from a plain perusal of the documents annexed to the petition, there is a stark difference in the dues claimed by respondents in the BIFR proceedings, the ex-parte assessment/appeal orders and the impugned order. No rationale or explanation has been provided in the impugned order, nor has there been any working/bifurcation of the demand has been provided. The impugned order is clearly non-speaking and is liable to be set aside. In fact, in 1994-95, the factory of the company was shut down and non-operational. The fact that a demand has been proposed even for 1994-95 clearly evidences non-application of mind. j. Petitioner was only in charge of supply chain management and not in charge of the day to day operations of the company. The o....
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....ST Act and therefore it leaves no doubt that if recovery cannot be made under the earlier law, i.e., the BST Act or the CST Act, the same can be covered under the MGST Act and Section 89 will squarely apply. d. As per Section 142(8) read with Section 89 of the MGST Act, any dues arising out of existing/earlier law can be recovered as arrears under the MGST Act and under Section 89 of the MGST Act the Directors are jointly and severally liable to pay the dues which could not be recovered from the company. However, how it could be recovered where the alleged arrears was under the BST Act was not elaborated upon by Ms. Chavan. As we will see later, BST Act did not have any provision analogous to Section 44(6) of the MVAT Act or Section 89 of the CGST Act. BST Act was repealed and MVAT Act was enacted and brought into force on 1st April 2005. At that time MVAT Act did not contain any provision that empowered the Revenue to claim from Directors. Discussion and Findings : 17. As held by this court in Satish D. Sanghvi (supra) the settled position in law is that liability for duty of the company cannot be fastened upon the Directors of the company unless there is s....
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.... of this Act by the Legislature or any Authority or person having the power to make such law, notification, order, rule or regulation ; The Central Sales Tax Act, 1956 Section 18 : Liability of directors of private company in liquidation.- Notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), when any private company is wound up after the commencement of this Act, and any tax assessed on the company under this Act for any period, whether before or in the course of or after its liquidation, cannot be recovered, then, every person who was a director of the private company at any time during the period for which the tax is due shall be jointly and severally liable for the payment of such tax unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company. Section 2(d) : (d) "goods" means - (i) petroleum crude; (ii) high speed diesel; (iii) motor spirit (commonly known as petrol); (iv) natural gas; (v) aviation turbine fuel; and (vi) alcoholic liquor for human consumption; ....
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....e-assessment, appeal, determination, revision, rectification, reference, limitation, payment and recovery, calculation of cumulative quantum of benefits, exemption from payment of tax and deferment of due date for payment of tax, cancellation of the certificate of entitlement, collection, deduction of tax at source, refund, set-off, withholding of any refund exemption, collection of statistics, the power to make rules, limitation, production and inspection of accounts and documents and search of premises, transfer of proceedings, penalty, interest or forfeiture of any sum relates to any period ending before the appointed day, or for any other purpose whatsoever connected with or incidental to any of the purposes aforesaid and whether or not the tax, penalty, interest, sum forfeited or tax deducted at source, if any, in relation to such proceedings is paid before or after the appointed day; The Bombay Sales Act, 1959 : None Admittedly there exists no provision in the BST Act under which the liabilities/dues of the company recovered/fastened upon from the Directors. 19. The impugned order seeks to recover dues under the BST Actand CST Act by relying upon the provisions of Se....
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....soever, then, every person who was director of the private company during such period shall be jointly and severally liable for the payment of such tax .........." Therefore, it is very clear that only where any tax or other amount was recoverable under the MVAT Act (and not in earlier provisions, i.e., the BST Act), was it recoverable from a director unless he proves otherwise. Moreover, Section 96(1)(a) of the MVAT Act, which is a subsequent provision, provides for saving of recovery under the BST Act to continue past its repeal. It provides that "notwithstanding the repeal by Section 95 of any of the laws referred to therein, those laws .......... and all rules, regulations, .......... issued under those laws and in force immediately before the appointed day shall, subject to other provisions of this Act, in so far as they apply, continue to have effect after the appointed day for the purposes of the levy, .......... payment and recovery .......... the imposition of any penalty, or of any interest .........., payment and recovery ..........". Ms. Chavan had submitted that this enables the Revenue from recovering amounts due under BST Act. We are afraid this does not permit....
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.... recovery of arrears of tax from the petitioner being a director were not permissible in law. 7. In view of the above, the action of the respondents in compelling the petitioner to clear the dues of the company cannot be sustained. The petition is allowed. However, the respondents shall be at liberty to proceed against the company for clearance of its dues in accordance with law. (emphasis supplied) 22. Undoubtedly Section 18 of the CST Act is a statutory provision to the effect that liability for dues of the company can be fastened upon the Directors of the company. Section 18 of the CST Act at the same time provides that when a company has been wound up after the commencement of the Act (which in this case has happened) and any tax assessed on the company under the CST Act for any period, whether before or in the course of or after its liquidation (in this case it is before its liquidation) cannot be recovered, then every person who was the Director of the company, and it should be a private company (which in this case was), at any time during the period for which tax was due shall be jointly and severally liable for the payment of such tax. Section 18 also provide....
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....fting of corporate veil under given set of circumstances. The liability of tax dues which is basically fastened on the company, is permitted to be recovered from its Director in case of private company, provided the conditions set out in said section noted above are fulfilled. xxxxxxxxxx 20. This brings us to the last question namely, whether in facts of the case respondent was justified in ordering recovery against the petitioner. In this respect we have noticed that the petitioner before the authority in response to the notice under section 179 of the Act made a detailed representation and contended that he had taken all the steps within his powers. He had not been negligent in his duties. The GSFC had auctioned the property for realisation of its dues. The tax department had issued attachment order but done nothing thereafter, to prevent the sale by GSFC. The Assistant Commissioner however, in the impugned order rejected all such contentions. He was of the opinion that the petitioner failed to establish that non recovery of arrears cannot be attributed to any gross negligence, misfeasance or breach of duty on part of the petitioner in relation to the affairs of the c....
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....e proposal of recovery of tax from him under section 179 of the Act. In such representation, he had detailed the steps taken by him and the circumstances due to which non recovery of tax cannot be attributed to his gross neglect. It was this representation and the factors which the petitioner had put forth before the Assistant Commissioner which had to be taken into account before the order could be passed. It is not even the case of the department that the petitioner paid the dues of other creditors of the company in preference to the tax dues of the department. It is not the case of the department that the petitioner negligently frittered away the assets of the company due to which the dues of the department could not be recovered. To suggest that the petitioner did not oppose the GSFC's auction sale is begging the question. GSFC had sold the property after several attempts through auction. It is not the case of the department that proper price was not fetched. (emphasis supplied) In Maganbhai Hansrajbhai Patel (supra) the Gujarat High Court held that gross negligence etc., is to be viewed in context of non-recovery of the tax dues of the company and not with respect to the....
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.... the impugned order being inconsistent with the provisions of section 179(1) of the Act, cannot be sustained. (emphasis supplied) 25. Also, in another judgment, the Gujarat High Court in Gul Gopaldas Daryani vs. Income Tax Officer (2014) 46 taxmann.com 35 (Gujarat), in paragraph no.14 held as under : 14. It can thus be seen that once it is established that the taxes of a private company cannot be recovered from the said company, the directors of the company at the relevant time would be jointly and severally liable for payment of such taxes, unless, it is proved that non-recovery cannot be attributed to any gross negligence, misfeasance or breach of duty on their part in relation to the affairs of the company. The burden cast by statute is thus in the negative and is on the director concerned as is observed in case of Maganbhai Hansrajbhai Patel (supra). However, once in defence, the director places necessary facts before the Tax Recovery Officer to establish that non-recovery cannot be attributed to gross negligence, misfeasance or breach of duty on his part, the Tax Recovery Officer is required to apply his mind and come to definite findings. In the present case, t....
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....herefore, there is no question of gross negligence, misfeasance or breach of duty on part of director in nonpayment of tax. c) From para 7 it can be seen that, the company sought revival of the business and accordingly the scheme was approved by the BIFR. This shows that, the company was very much interested in running the business and the directors were also committed for the same. Therefore, the charge of gross negligence, misfeasance or breach of duty on part of director cannot apply to our client. d) Under above circumstances, our client is outside the purview of section 18 of CST Act. In nutshell our client is neither liable under BST Act (because of absence of any provision to that effect in BST Act) and also under CST Act (Section 18 of CST Act being not applicable to our client as stated above). The show cause notice, therefore, be dropped. 27. The impugned order, however, completely fails to consider these submissions. Respondent No.3 in paragraph no. 12 of the impugned order simply brushed aside the explanation of petitioner by saying that reliance on the proceedings with BIFR has no relevance in the issue involved in the show cause notice and no reco....
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..... 31. Moreover, the CST Act is also yet not repealed. When the MGST Act came into force, the CST Act also under went amendment with effect from 1st July 2017 by Act 18 of 2017, Section 13(B). Prior to its substitution, Clause (d) of Section 2 reads as under : (d) "goods" includes all materials, articles, commodities and all other kinds of movable property, but does not include [newspapers] actionable claims, stocks, shares and securities". After substitution Clause (d) of Section 2 reads as under : (d) "goods" means - (i) petroleum crude; (ii) high speed diesel; (iii) motor spirit (commonly known as petrol); (iv) natural gas; (v) aviation turbine fuel; and (vi) alcoholic liquor for human consumption; Then how Respondent No.3 proposes to recover the amounts payable under the CST Act, under the provisions of MGST Act is not discussed. 32. We have to also note that even where no limitation has been prescribed in statue, for any action, courts have repeatedly held that action must be conducted within a reasonable period of time. In the present matter, the dues of the Sales Tax Department post liquidatio....
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....hasis supplied) 33. We would also place reliance on paragraph no. 14 and 16 of the judgment of this court in Sushitex Exports India Ltd. And Ors. vs The Union of India and Another 2022-TIOL-123-HC-MUM-CUS which reads as under : 14. It is not in dispute that after the show-cause notice was issued on 30th April 1997, the petitioners were called upon for a hearing in the year 2006. At least, till 2006, it can be inferred that the issue was live. However, why no final order was passed immediately after the hearing was granted to the petitioners is not disclosed in the affidavit-in-reply. The respondents seem to have slipped into deep slumber thereafter. While the respondents' right in law to initiate proceedings for violation of the provisions of the Act can never be disputed, at the same time they do not have the unfettered right to choose a time for its termination and conclude proceedings as per their convenience. Indeed, the words 'reasonable period' call for a flexible rather than a rigid construction having regard to the facts of each case, but the period in excess of two decades without the respondents sufficiently explaining as to what prevented them to ....