2013 (5) TMI 620 - HC - VAT and Sales Tax

Liability of sales/trade tax dues - Recovery certificate against the petitioner, Director in the Private Limited Company, for the dues of the Company which has been wound up by the order passed by the Delhi High Court - proprietorship concern was converted into Private Limited Company - application under Section 4-A(2-B) of the U.P. Trade Tax Act for claiming exemption from payment of trade/sales tax for remaining period rejected - Held that - Here appears to be no pleading of fraud in the counter affidavit. So far the dues under the U.P. Trade Tax/Sales Tax are concerned, in the absence of proper pleading, it is not appropriate to examine the plea of fraud. Contention of the petitioner that the outstanding trade tax dues/sales tax of the Private Limited Company cannot be recovered personally from the petitioner is well founded in view of decision in M/s Meekin Transmission Ltd. (2008 (2) TMI 406 - ALLAHABAD HIGH COURT). Thus for the assessment years 1990-91, 1991-92 and 1992-93, the trade tax/sales tax dues under the U.P. Trade Tax Act/Sales Tax Act cannot be recovered from the personal assets of the petitioner. Recovery of CST - A bare perusal of the Section 18 it can be concluded that the liability of the petitioner to pay central sales tax dues of the Private Limited Company is on him as a director of Private Limited Company in Liquidation is jointly and severally liable to pay central sales dues of a Company in Liquidation. To this extent, his plea that he is not liable to pay outstanding central sales tax of the company has got no force and the same is hereby, rejected.

Summary

Issues Involved:
1. Legality and validity of assessment orders and recovery certificates.
2. Liability of a director for the trade tax/sales tax dues of a Private Limited Company.
3. Applicability of Section 18 of the Central Sales Tax Act concerning the director's liability.

Detailed Analysis:

Issue 1: Legality and Validity of Assessment Orders and Recovery Certificates

The petitioner challenged the recovery certificates dated 28th November 2006, issued for the assessment years 1990-91, 1991-92, and 1992-93, arguing that the eligibility certificate initially granted to the proprietorship concern should extend to the successor Private Limited Company. The petitioner contended that the assessment orders creating the liability were illegal and void since the company was entitled to the benefit of the eligibility certificate for the remaining unexpired period.

However, the court noted that the petitioner did not challenge the legality and validity of the assessment orders themselves, only the recovery certificates. The court emphasized that the assessment orders were not annexed with the writ petition, making it difficult to entertain the plea. The respondents denied the receipt of any application under Section 4-A(2-B) of the U.P. Trade Tax Act for exemption, and the court found the petitioner's claims highly disputed and unsupported by corroborative material. The court concluded that the petitioner did not pursue the matter diligently and did not challenge the assessment orders through the appropriate appellate channels.

Issue 2: Liability of a Director for the Trade Tax/Sales Tax Dues of a Private Limited Company

The petitioner argued that the outstanding liability of the Private Limited Company could not be recovered from his personal assets as he was merely a director with a 95% shareholding. The court referenced the Division Bench decision in M/s Meekin Transmission Ltd., which supported the petitioner's contention that the sales/trade tax dues of a Private Limited Company could not be recovered from the personal assets of its director.

The court held that the outstanding trade tax/sales tax dues under the U.P. Trade Tax Act/Sales Tax Act for the assessment years 1990-91, 1991-92, and 1992-93 could not be recovered from the petitioner's personal assets.

Issue 3: Applicability of Section 18 of the Central Sales Tax Act

The court examined Section 18 of the Central Sales Tax Act, which imposes joint and several liability on directors of a private company in liquidation for the company's tax dues unless the director proves that the non-recovery was not due to any gross neglect, misfeasance, or breach of duty on his part.

The court found that the petitioner, as a director, was liable to pay the central sales tax dues of the Private Limited Company under Section 18. The petitioner failed to demonstrate that the non-recovery of the tax was not attributable to his gross neglect, misfeasance, or breach of duty. Consequently, the court held that the petitioner was personally liable for the central sales tax dues for the assessment years 1990-91, 1991-92, and 1992-93.

Conclusion:

The court allowed the writ petition in part, holding that the petitioner was not personally liable for the outstanding dues under the U.P. Trade Tax/Sales Tax Act. However, the court dismissed the writ petition concerning the recovery of central sales tax dues, affirming the petitioner's liability under Section 18 of the Central Sales Tax Act. The recovery proceedings for central sales tax dues were deemed valid, and the petitioner was held liable to pay the dues along with any applicable interest. No order as to costs was made.