1985 (8) TMI 337 - HC - VAT and Sales Tax

Summary

Issues involved:
The liability of a Managing Director for the tax dues of a company under the Kerala General Sales Tax Act and the validity of proceedings initiated against the Managing Director for recovery of tax arrears.

Summary:

Liability of Managing Director:
The second petitioner, a Managing Director, was held liable for the tax arrears of the first petitioner-company under the Kerala General Sales Tax Act. However, the Act does not expressly impose liability on a Director or Managing Director for the company's tax dues. The Court emphasized that in the absence of specific provisions holding a Director liable, recovery proceedings cannot be initiated against them until the assessee is declared a defaulter.

Validity of Recovery Proceedings:
The Revenue initiated proceedings under section 65 of the Revenue Recovery Act against the Managing Director for recovery of tax arrears. The Court analyzed the interplay between section 23(2)(a) of the Sales Tax Act and section 65 of the Recovery Act. It concluded that unless the defaulter status is established under the Sales Tax Act, proceedings under the Recovery Act are not valid. The Court held that the District Collector, acting akin to an executing Court, cannot exceed the scope of the order of assessment.

Legal Interpretation:
The Court highlighted that in interpreting fiscal statutes, any deficiencies should not be rectified by the Court. The Kerala General Sales Tax Act, being a consolidating enactment, governs rights and liabilities exclusively based on its provisions. Without explicit provisions holding a Director accountable for company tax dues, recovery proceedings against the Managing Director were deemed invalid.

Consequential Order:
The Court allowed the original petition, quashed the recovery order, and directed the respondents to release the Managing Director from civil prison immediately. It rejected the argument that only a Bench of two Judges could address the matter post-imprisonment, emphasizing the Court's authority to rectify illegal orders and restore the status quo ante.

In conclusion, the Court ruled in favor of the Managing Director, emphasizing the necessity of explicit statutory provisions to hold Directors liable for company tax dues and invalidating the recovery proceedings initiated against the Managing Director.