2015 (12) TMI 1104 - HC - Central Excise

Recovery of dues of the company from the Director - Duty demand - Clandestine removal of goods - Held that - It is well settled that in the absence of any specific provision in the statute, the duty/penalty liability of the company cannot be recovered from the assets of its director. The Director is not personally liable towards liability of the company. This court while delving into an identical issue in Subhash Goyal vs. State of Haryana and others, held that in the absence of taking any specific recourse to proceedings under Section 18 of the Central Sales Tax Act, 1956 and any valid order for effecting recovery of arrears of sales tax from the directors of a private limited company in liquidation, the proceedings relating to recovery of arrears of tax from the petitioner being a director were not permissible in law. - Thus, the action of the respondents in compelling the petitioner to clear the dues of the company cannot be sustained. However, the respondents shall be at liberty to proceed against the company for clearance of its dues in accordance with law. - Petition disposed of.

Summary

Issues:
1. Whether the petitioner can be compelled to clear the dues of the company as a director.

Analysis:
The judgment pertains to a case where the petitioner, a non-working director of a company engaged in manufacturing roofing sheets, sought relief from coercive recovery measures by the tax department. The company faced allegations of clandestine removal and undervaluation of goods, leading to a demand of Rs. 33.5 lakhs with penalties. Despite appeals and orders for depositing penalties and duties, the company failed to comply, prompting the tax department to pursue recovery from the petitioner as a director.

The court examined the legality of recovering company dues from a director's assets. It referenced a previous case to establish that in the absence of specific provisions, a director is not personally liable for the company's obligations. Citing the precedent, the court highlighted that recovery from directors is permissible only under certain circumstances, such as when the company is in liquidation and specific legal steps are taken. The court emphasized that unless such provisions are invoked, compelling a director to clear company dues is not legally sustainable.

Ultimately, the court held that the tax department's actions compelling the petitioner to settle the company's dues were unjustified. The judgment clarified that while the company remains liable for its obligations, the director cannot be forced to bear the company's financial burdens unless specific legal criteria are met. The court directed the tax authorities to pursue recovery from the company in accordance with the law, thereby disposing of the writ petition in favor of the petitioner.