2001 (12) TMI 887 - HC - VAT and Sales Tax

Summary

Issues Involved:
Recovery of sales tax arrears from a director who had resigned from a company.

Analysis:

1. Jurisdiction to Recover Sales Tax Arrears:
The petitioner, a former Director of a company, was issued a notice to recover sales tax arrears from the company. The petitioner argued that since he had resigned from the Directorship and had no connection with the company, the recovery proceedings against him were not legally sustainable. The Government Advocate acknowledged the lack of provision enabling such recovery from a resigned director. The court examined Section 19-B of the Tamil Nadu General Sales Tax Act, which imposes liability on directors only in cases of winding up, which was not applicable here. Similarly, Section 18 of the Central Sales Tax Act holds directors liable only after the company is wound up, making the recovery proceedings against the petitioner unjustified.

2. Comparison with Andhra Pradesh Sales Tax Act:
The court referred to a Division Bench judgment from Andhra Pradesh regarding the liability of directors of a private limited company under Section 16-B of the Andhra Pradesh Sales Tax Act. The judgment emphasized that directors become liable for tax arrears only during liquidation proceedings, which was not the scenario in the present case. The court highlighted that the conditions for invoking such provisions were absent, and recovery proceedings against directors were only permissible under specific circumstances, such as during liquidation.

3. Legal Principles and Precedents:
The court relied on legal principles and precedents to conclude that recovery proceedings against a director who had resigned from a company were not supported by law. Citing the applicability of Section 18 of the CST Act and aligning with the Andhra Pradesh judgment, the court held that the recovery actions against the petitioner lacked jurisdiction, authority, and legal basis. Consequently, the court set aside the proceedings and allowed the writ petition without imposing any costs.

In summary, the judgment clarified that recovery of sales tax arrears from a director who had resigned from a company was not legally permissible under the relevant statutes. The court emphasized the necessity for specific conditions, such as company winding up, to hold directors liable for tax dues. By analyzing the provisions of the Acts and referring to relevant judgments, the court established that the recovery proceedings against the petitioner lacked legal foundation and jurisdiction, leading to the decision to set aside the actions taken by the respondents.