2010 (10) TMI 1192 - HC - VAT and Sales Tax

Summary

Issues involved: Interpretation of liability of directors of a private company u/s 26C of the Kerala General Sales Tax Act for tax dues of the company.

Summary:
The judgment by the High Court of Kerala involved two writ appeals arising from a common judgment in two writ petitions. The appellants were directors of a private limited company, and the company was found liable to pay tax for certain assessment years. Demand notices were issued under Section 7 of the Kerala Revenue Recovery Act for the recovery of the tax amounts. The appellants challenged these notices, arguing that the liability of shareholders and directors is limited under the Companies Act, and the tax liability of the company cannot be passed on to them.

The learned Judge rejected the challenge, stating that the petitioners/appellants are the exclusive beneficiaries of the company's business. The respondents sought to justify the notices based on Section 26C of the Kerala General Sales Tax Act, which makes directors jointly and severally liable for tax dues of a private company if the tax cannot be recovered from the company. The Court noted that the liability of directors arises only if the Revenue cannot recover the tax from the company itself.

The Court held that the impugned notices under Section 26C for recovering tax dues from the directors were not sustainable as it was not clear whether efforts were made to recover the tax from the company first. The writ appeals were allowed, quashing the notices, but the respondents were given the option to recover the tax arrears of the company in accordance with the law.