2018 (3) TMI 975 - HC - VAT and Sales Tax

Sale of property for recovery of sales tax arrears - by virtue of the impugned notice, the first respondent seeks to proceed against the immovable property owned by the defaulting Company for recovery of the sales tax dues - Held that - The property, having been sold by the Official Liquidator pursuant to the order passed in Winding Up proceedings and the sale, having been held pursuant to the orders by this Court, proper remedy available for the respondent/Department is to approach the Official Liquidator, by way of a Claim Petition, and the respondent/Department is not justified in proceedings against the petitioner, who is a bona fide purchaser, for valuable consideration. It may not be necessary for this Court to set aside the impugned proceedings, but, it would suffice to hold that the impugned proceedings cannot be enforced against the petitioner or the property purchased by them, leaving it open to the Commissioner of Sales Tax Department to proceed against the defaulting Company - petition disposed off.

Summary

Issues:
Challenge to communication for sale of property for recovery of sales tax arrears.

Analysis:
The petitioner challenged a communication from the first respondent proposing to sell a property for recovery of sales tax arrears owed by a defunct company. The petitioner, a subsequent purchaser of part of the property, was concerned about potential adverse effects on their interest. The property was originally owned by the defaulting company, which went into liquidation. The Official Liquidator sold the property under court supervision to different individuals before the petitioner acquired it. The petitioner argued that the Department should approach the Official Liquidator for the dues, not the petitioner.

The High Court cited precedents emphasizing that a company is a separate legal entity, and recovery of dues should be from the company itself, not its directors or shareholders. Various High Court decisions were referenced to support the principle that directors cannot be held personally liable for a company's tax debts. The Court held that the impugned order seeking to recover sales tax dues from the petitioner was unjustified and set it aside. The Court directed the Sales Tax Department to pursue the defunct company through the Official Liquidator for recovery.

In conclusion, the Court ruled that the impugned proceedings could not be enforced against the petitioner or the purchased properties. The Department was granted liberty to file a Claim Petition before the Official Liquidator within a specified timeframe for adjudication. The judgment highlighted the legal principle of corporate entity separation and the need for the Department to pursue defunct companies through appropriate channels, not against innocent purchasers.