2016 (7) TMI 774 - HC - VAT and Sales Tax

Attachment of personal property of the employee / nominal director of the company - recovery of dues - GVAT - With persuation of Mr.Sunil Kakkad, had agreed to become nominal director of the company in the year 2007. However, it is the case of the petitioner at no point of time, the petitioner had any share holding in the company nor even was drawing salary from the company. The petitioner had also stated that he was not even in charge of day to day affairs of the company. As per the say of the petitioner he ceased to be Director of the company with effect from 8.7.2011 and necessary formalities of filling up form no.32 before ROC had also been completed. Held that - it emerges that under the provisions of the VAT Act, personal property of the director is not permissible to be attached. In view of section 10(2) of the VAT Act, a director of the company is not to be presumed as a dealer who can be proceeded with by the authority. Resignation has also been reflected in form no.32 which would indicate that the petitioner has remained no longer as a director of the company and cannot be held responsible and therefore, could not be proceeded with by way of attachment of property. It emerges that the challenge in the petition appears to be just and proper. No material is brought on record to permit lifting of corporate veil. In fact no such case has been put forth before us by the respondents. The petitioner s personal property could not have been attached by the impugned order.

Summary

Issues:
1. Attachment of property for VAT dues recovery
2. Liability of director for company's tax dues

Issue 1: Attachment of property for VAT dues recovery
The petitioner, a nominal director of a company, challenged an order attaching his property for VAT dues recovery. The petitioner argued that he was not involved in the company's affairs and had resigned as a director in 2011. The High Court noted that under the VAT Act, personal property of a director cannot be attached. The court highlighted that the petitioner's resignation was reflected in form no.32, indicating he was no longer a director. The court also referred to a previous judgment emphasizing that a company and its directors are separate legal entities, and the liability of the company cannot be imposed on the directors personally. The court concluded that the order attaching the petitioner's property was unjust and lacked legal authority, quashing it.

Issue 2: Liability of director for company's tax dues
The Assistant Government Pleader argued that the petitioner was actively associated with the company as a director and had signed documents related to bank transactions, making him liable for the tax dues. However, the court held that the petitioner's association with the company did not automatically make him personally liable for the company's tax dues. The court cited previous judgments emphasizing the separation of legal entities between a company and its directors. The court highlighted that there was no provision in the VAT Act empowering authorities to fix liability on a director personally for the company's tax dues. The court allowed the petition, quashing the order attaching the petitioner's property and emphasizing that the petitioner's personal property could not have been attached based on the impugned order.

In conclusion, the High Court ruled in favor of the petitioner, stating that the order attaching his property for VAT dues recovery was not legally sustainable. The court emphasized the separation of legal entities between a company and its directors, highlighting that personal property of a director cannot be attached for the company's tax dues. The court allowed the petition, quashing the order and setting aside the attachment of the petitioner's property.