2000 (7) TMI 932 - HC - VAT and Sales Tax

Issues Involved:
1. Personal liability of directors for company's sales tax arrears under Section 13(3)(b) of the Karnataka Sales Tax Act, 1957.
2. Applicability of Sections 29 and 31A of the Karnataka Sales Tax Act, 1957 to directors for recovery of sales tax arrears.
3. Procedure for execution of fine levy warrant under Section 421 of the Criminal Procedure Code.
4. Absence of rules under Section 421(2) of the Criminal Procedure Code for summary determination of third-party claims.

Detailed Analysis:

1. Personal Liability of Directors for Company's Sales Tax Arrears:
The primary question was whether arrears of sales tax due from the company could be recovered from the individual directors personally under Section 13(3)(b) of the Karnataka Sales Tax Act, 1957. The court observed that the company is defined as a "dealer" under Section 2(k) of the Act. The Act does not contain any provision that makes individual directors personally liable for the company's sales tax arrears. Citing precedents, the court referred to Lalita Shivaram Ubhaykar v. Commercial Tax Officer and Ramachandran v. State of Kerala, where it was held that directors are not personally liable for the company's sales tax dues. Consequently, the court concluded that directors cannot be proceeded against personally for recovery of sales tax arrears due from the company.

2. Applicability of Sections 29 and 31A of the Karnataka Sales Tax Act:
The Revenue argued that under Sections 29 and 31A of the Act, individual directors could be held personally liable for fines, equating the tax recoverable under Section 13(3)(b) to a fine. However, the court clarified that the character of the amount recoverable under Section 13(3)(b) is tax assessed or any other amount due under the Act, and not a fine. The procedure for recovery as if it were a fine is only for procedural purposes and does not alter the nature of the amount. Therefore, Sections 29 and 31A, which pertain to fines, do not apply to the recovery of sales tax arrears from directors.

3. Procedure for Execution of Fine Levy Warrant:
The court emphasized that when a Magistrate proceeds to recover sales tax arrears under Section 421(1)(a) of the Criminal Procedure Code by issuing a warrant, the execution must comply with Rule 3 of Chapter IX of the Karnataka Criminal Rules of Practice, 1968. This rule mandates that warrants should be addressed to the District Superintendent of Police or the Commissioner of Police for execution. The court highlighted the importance of this rule to ensure that the execution of warrants is handled by responsible officers.

4. Absence of Rules under Section 421(2) of the Criminal Procedure Code:
The court noted the absence of rules under Section 421(2) of the Criminal Procedure Code for the summary determination of third-party claims regarding attached property. The court referred to past judicial observations and decisions, urging the State Government to frame necessary rules. In the interim, the court provided an alternative procedure: when a third party claims ownership of attached property, the executing officer must abstain from selling the property for seven days and direct the claimant to approach the court. The court will then stay the sale, conduct a summary determination within fifteen days, and communicate its order to the executing officer. This ensures that third-party claims are addressed while upholding the principles of natural justice.

Conclusion:
The court allowed the petition, setting aside the impugned order. It clarified that directors are not personally liable for the company's sales tax arrears and emphasized the need for procedural compliance in executing fine levy warrants. The court also urged the State Government to frame rules under Section 421(2) of the Criminal Procedure Code to address third-party claims effectively.

Final Order:
The petition was allowed, and the impugned order was set aside. The court directed compliance with the interim procedure for third-party claims until the State Government frames the necessary rules.

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