1998 (11) TMI 643 - AT - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of notices issued to the directors of the company under the Bengal Public Demand Recovery Act, 1913.
2. Liability of directors for the company's tax dues under the Bengal Finance (Sales Tax) Act, 1941.
3. Legal provisions for serving notices on a company and its directors under the Companies Act, 1956.
4. Potential criminal liability of directors for the company's tax defaults.

Issue-wise Detailed Analysis:

1. Validity of Notices Issued to Directors:
The applicants challenged the validity of the notices issued by the Certificate Officer to the directors of the company under the Bengal Public Demand Recovery Act, 1913. The company argued that it, as a legal entity, should be proceeded against under the law, and not its directors. The Tribunal found that Section 51 of the Companies Act, 1956, read with Sections 2(15) and 2(30), allows for notices to be served on a company or its officers, including directors. Therefore, the notices issued to the directors were deemed valid.

2. Liability of Directors for Company's Tax Dues:
The company contended that the directors should not be held responsible for the company's tax liabilities. The Tribunal referred to Section 22A of the Bengal Finance (Sales Tax) Act, 1941, which provides that directors can be held liable if the company's tax default is due to their consent, connivance, or neglect. The Tribunal noted that the directors could present their case to the Certificate Officer, but without participating in the proceedings, they could not seek relief from the Tribunal.

3. Legal Provisions for Serving Notices:
The Tribunal analyzed the legal provisions under the Companies Act, 1956, and concluded that notices meant for the company could be served on its directors. The impugned notices were found to be legally compliant, as they were either issued in the name of the company or addressed to its directors, who are considered officers of the company under the Act.

4. Potential Criminal Liability of Directors:
The Tribunal addressed the company's concern about the threat of criminal proceedings and arrest of the directors. It clarified that under Section 22A of the Bengal Finance (Sales Tax) Act, 1941, directors could face criminal liability if the tax default was due to their actions. The notices in question mentioned the possibility of lodging an FIR and issuing a warrant, which could include a warrant of attachment of movable property. The Tribunal emphasized that directors could defend themselves in the certificate proceedings and, if necessary, challenge any adverse decisions in higher forums.

Conclusion:
The Tribunal dismissed the application, finding no illegality in the notices issued to the directors. It held that the notices were valid under the law and that the directors could be held liable for the company's tax dues if their actions fell within the scope of Section 22A of the Bengal Finance (Sales Tax) Act, 1941. The Tribunal also noted that the directors could present their defenses in the certificate proceedings and seek relief if warranted.

Application Dismissed:
The application was dismissed without any order as to costs.