2007 (2) TMI 613 - HC - VAT and Sales Tax

Summary

Issues:
1. Validity of notice issued by the respondent for arrears of sales tax against the petitioner.
2. Legality of attaching the property of the petitioner for tax dues of the companies he was previously associated with.
3. Liability of a director for tax payable by a company.
4. Interpretation of the legal entity status of a company in relation to tax liabilities.

Analysis:
1. The petitioner challenged the notice issued by the respondent for arrears of sales tax, arguing that he was not associated with the companies mentioned in the notice at the time the taxes were due. The High Court held that a third party, like the petitioner, cannot be directed to pay taxes owed by a proprietary concern. The court emphasized the need to collect taxes but stated that a person who has resigned from directorship cannot be held liable for the company's tax debts.

2. The court reiterated the principle that a director of a company, even a retired one, cannot be pursued for the tax liabilities of the company. Citing previous judgments, the court highlighted that a company is a separate legal entity and any dues from the company must be recovered only from the company itself. Therefore, attaching the property of the petitioner for the tax dues of the companies he was previously associated with was deemed unlawful.

3. The judgment referenced previous cases to establish that the liability of a director for tax payable by a company has been extensively addressed by the court. It was clarified that a company is a distinct legal entity capable of being sued or suing in its own right. The court emphasized that any dues from the company should be recovered solely from the company and not from its directors, including retired directors, in line with various legal precedents and statutory provisions.

4. In conclusion, the High Court set aside the impugned notices and directed the assessing officer to pursue the recovery of the tax amounts due from the assessee-companies in accordance with the law and statutory provisions. The judgment reaffirmed the legal entity status of a company and the limited liability of its directors for the company's tax obligations. The writ petitions were allowed with no costs awarded.