2010 (7) TMI 914 - HC - VAT and Sales Tax

Whether interference is called for at this stage before any final order is passed by the District Collector? Held that - If the proceedings before the Collector are without jurisdiction I do not think that the petitioner should undergo the ordeal of contesting the proceedings and if the order goes against him to challenge the order. If there is an absolute lack of jurisdiction in the matter of initiating proceedings under section 65 of the Kerala Revenue Recovery Act a writ can be issued under article 226 of the Constitution of India to quash the proceedings. Thus in view of the settled legal position and in view of the admitted facts it is not necessary to insist that the petitioner should appear before the District Collector and show cause as to why he should not be arrested. Exhibit P2 notice under section 65 of the Kerala Revenue Recovery Act issued by the District Collector Ernakulam is quashed. All proceedings initiated by the District Collector against the petitioner under section 65 of the Revenue Recovery Act shall stand quashed. Appeal allowed.

Summary

Issues:
1. Jurisdiction of the District Collector to issue a show-cause notice under section 65 of the Kerala Revenue Recovery Act.
2. Liability of a director of a company for the tax dues of the company.
3. Validity of the notice issued to the petitioner under section 65 of the Revenue Recovery Act.

Analysis:
1. The petitioner, a director of a company registered in Tamil Nadu, received a show-cause notice under section 65 of the Kerala Revenue Recovery Act for sales tax arrears owed by the company. The notice was challenged on the grounds of jurisdiction. The court referred to previous judgments emphasizing that the District Collector cannot initiate proceedings against a director unless the person is a defaulter within the Sales Tax Act. The court held that the proceedings were without jurisdiction and quashed the notice and all related proceedings.

2. The petitioner argued that as a director, he cannot be held personally liable for the company's dues. Citing legal precedents, the court reiterated that a director cannot be held responsible for the company's debts unless there is a specific provision making them liable. The court highlighted that the company is a separate legal entity, distinct from its directors, and no recovery proceedings can be taken against directors for the company's dues. The court upheld the settled law and ruled in favor of the petitioner.

3. The court considered the apprehension of the petitioner regarding arrest and detention upon appearance before the District Collector. Despite the show-cause notice being a preliminary step, the court intervened due to the lack of jurisdiction in initiating proceedings under section 65 of the Revenue Recovery Act. Referring to constitutional provisions and legal precedents, the court quashed the notice and all related proceedings against the petitioner. The court allowed the writ petition, providing relief to the petitioner based on the established legal principles and factual circumstances presented in the case.