2016 (10) TMI 260 - HC - VAT and Sales Tax

Principle of lifting of the corporate veil - recovery of duty - discharge of duties and functions as a Director of the Company - management of affairs of the company - whether the recovery of duty from the revisionist justified on the strength of the principles of lifting of corporate veil and after going through the facts and circumstances of the case? - Held that - the said doctrine is liable to be invoked in a case where it is found that the corporate personality or structure itself is used as a camouflage or a vehicle to evade payment of tax and perpetrate fraud upon the revenue. It is only an allegation that, the revisionist had failed to faithfully and dutifully discharge his duties and functions as a Director and that his conduct of the business of the Company was irresponsible. He had failed to obtain requisite forms as a result of which the dues of the company continued to mount. - This does not in the opinion of this Court satisfy the test of fraudulent conduct, so as to attract the principle of lifting of corporate veil While no recoveries for the dues of the assessee can be executed against the revisionist, it shall be open to the department to move against the assets, moveable or immoveable, of the assessee in accordance with law - revision allowed - decided in favor of revisionist.

Issues involved:
1. Application for recovery proceedings against company assets or directors personally.
2. Principle of 'lifting of corporate veil' for recovering dues.
3. Interpretation of legal principles regarding corporate veil lifting.
4. Comparison of judgments in similar cases.
5. Assessment of fraudulent conduct in director's duties.
6. Setting aside orders of assessing authority, appellate authority, and Tribunal.

Detailed Analysis:

1. The primary issue in this case was whether recovery proceedings should be initiated against the assets of the company or personally against the directors. The Tribunal affirmed the rejection of the application by the first appellate authority, leading to the revisionist challenging this order.

2. The department's claim was based on the principle of 'lifting of the corporate veil' due to alleged failure by the revisionist director to fulfill duties responsibly. The Tribunal upheld this view, citing the need to protect revenue interests through this doctrine.

3. The Tribunal's findings emphasized that the corporate veil can be lifted when the corporate structure is used to evade tax or commit fraud. Legal principles dictate that the corporate veil should not be lifted routinely but only when the corporate personality is a facade for fraudulent activities.

4. Reference was made to previous judgments to support both sides of the argument. The revisionist's counsel highlighted a Division Bench judgment that emphasized the need for specific allegations of fraudulent conduct to lift the corporate veil, while the respondent relied on a different case where directors were found to have defrauded creditors and evaded statutory dues.

5. The court assessed the allegations against the revisionist director and concluded that the conduct did not meet the threshold for fraudulent behavior required to lift the corporate veil. The court differentiated this case from instances where directors were found to have defrauded creditors and evaded statutory dues.

6. Ultimately, the court allowed the revision, setting aside the orders of the assessing authority, first appellate authority, and the Tribunal. The court ruled that no recoveries could be executed against the revisionist personally, but the department could pursue assets of the company in accordance with the law.

This detailed analysis provides a comprehensive overview of the legal judgment, covering all the issues involved and the court's reasoning in each aspect of the case.

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