2011 (7) TMI 1078 - HC - VAT and Sales Tax

Auctioning the personal property of the petitioner for satisfying the recovery of the sales tax dues relating to M/s. Mahesh Niranjan Jute Pvt. Ltd. a company incorporated and registered under the Companies Act 1956 Held that - In the present case the person who is to be taxed is a dealer and the company in question is registered as a dealer with the Sales Tax Department and therefore any tax keeping in view the taxing statute has to be recovered from director of the company. There is no such provision under the M. P. Sales Tax Act which empowers the respondents to recover the outstanding dues of sales tax from the personal property of the director and in absence of any specific statutory provision the petitioner cannot be held to be a person liable to pay the tax and therefore the proclamation of sale in respect of the property belonging to the petitioner has to pave the path of extinction. The impugned proclamation dated August 2 2005 panchnama dated August 29 2005 and the consequential orders are set aside. It is pertinent to note that the property in question was sold by the petitioner during the pendency of the present writ petition and vide order dated April 7 2011 the sale proceeds in the form of FDR have been deposited with the principal registrar of this court. Resultantly as this court has allowed the writ petition the principal registrar of this court is directed to release the FDR in question.Writ petition is allowed

Issues Involved:
1. Legality of auctioning the personal property of a director to recover sales tax dues of a company.
2. Applicability of the M. P. Commercial Tax Act and other statutes in recovering dues from a director's personal assets.
3. Definition and liability of a "dealer" under the M. P. Commercial Tax Act.
4. Validity of recovery proceedings initiated under the M. P. Land Revenue Code and Companies Act.

Issue-wise Detailed Analysis:

1. Legality of Auctioning Personal Property of a Director:
The petitioner challenged the auction of his personal property to satisfy the sales tax dues of M/s. Mahesh Niranjan Jute Pvt. Ltd., arguing that his property was self-acquired and not related to the company. He contended that the M. P. Commercial Tax Act does not authorize the recovery of a company's dues from the personal assets of its directors. The court agreed, citing that the company is a distinct legal entity and there is no statutory provision under the M. P. Commercial Tax Act allowing such recovery from directors' personal properties.

2. Applicability of M. P. Commercial Tax Act and Other Statutes:
The respondents invoked the M. P. Land Revenue Code and the Companies Act, 1956, arguing that the petitioner, as a director, was an officer in default and liable for the company's dues. However, the court found that the M. P. Commercial Tax Act did not provide for such recovery from directors' personal assets. The court emphasized that tax recovery must adhere strictly to the statutory provisions of the taxing statute, and any ambiguity should be resolved in favor of the taxpayer.

3. Definition and Liability of a "Dealer":
The court examined the definition of "dealer" under Section 2(h) of the M. P. Commercial Tax Act, 1994, which includes companies but not individual directors unless they are personally carrying on the business. The petitioner, being a director and not a dealer himself, was not liable for the company's tax dues. The court highlighted that the statutory provisions did not extend the liability of the company to its directors' personal assets.

4. Validity of Recovery Proceedings:
The respondents argued that recovery could be pursued under other statutes, including the Constitution of India and the Central Sales Tax Act. However, the court held that the specific provisions of the M. P. Commercial Tax Act govern the recovery process, and in the absence of explicit provisions allowing recovery from directors' personal assets, such actions were invalid. The court also noted that Section 24A of the M. P. Commercial Tax Act, introduced in 2003, required personal guarantees from promoters for tax realization but was not applicable retroactively to the petitioner's case.

Conclusion:
The court concluded that the auction of the petitioner's personal property was unlawful as it lacked statutory backing under the M. P. Commercial Tax Act. The impugned auction proceedings and related orders were set aside. The court ordered the release of the sale proceeds deposited with the principal registrar, thereby allowing the writ petition without costs.

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