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2019 (2) TMI 550 - HC - VAT and Sales TaxValidity of Recovery proceedings - constitutional validity of Section 26C of the Kerala General Sales Tax Act, 1963 - proceedings taken against the Director of a private limited company. Constitutional validity of Section 26C of the Kerala General Sales Tax Act, 1963 - Held that - The issue is decided against the assessee - Section 26C specifically speaks of joint and several liability of every person who was a Director of a private limited company only if the tax or other amounts recoverable under the Act cannot be recovered for any reason from the private company. Hence the proceedings has to be taken first against the company and there should also be sufficient material to show that the recovering authorities were not able to recover the amounts from the assessee company. Proceedings taken against the Director of a private limited company - Held that - This issue is decided against Revenue - In the decision of another Division Bench in Mohammed Harid, v. District Collector 2014 (3) TMI 1137 - KERALA HIGH COURT , this Court had declared that since Section 26C contains a specific clause that it would be subject to the Companies Act, if any statutory right or protection is available to the Director under the Companies Act contravention of the same could be taken as a defense against the recovery. Petition disposed off.
Issues Involved:
Challenging revenue recovery proceedings under Section 26C of the Kerala General Sales Tax Act, 1963 against a Director of a private limited company. Analysis: The petitioner, a Director of a private limited company, challenged the revenue recovery proceedings on two grounds. Firstly, the petitioner argued that Section 26C of the Kerala General Sales Tax Act, 1963 is unconstitutional. Secondly, the petitioner contended that proceedings against a Director of a private limited company should be subject to the provisions of the Companies Act. The Court noted that two Division Benches had previously addressed these issues, with one judgment favoring the assessee on constitutionality and the other favoring the revenue department. In the case of Jose Kurian v. The Deputy Tahsildar, it was established that proceedings against Directors of a private limited company can only be initiated after proceedings against the company itself. Section 26C mandates joint and several liability of Directors only if amounts cannot be recovered from the company. The Court emphasized that recovery proceedings must first be pursued against the company, and there should be evidence that recovery from the company was unsuccessful before targeting the Directors. Furthermore, the Court highlighted that Section 26C is subject to the Companies Act, 1956. If recovery against the company fails, Directors can raise defenses under the Companies Act. This principle was supported by the decision in Mohammed Harid v. District Collector, which emphasized that Directors can utilize statutory rights and protections under the Companies Act to defend against recovery actions. The petitioner also argued that the assessments and demands were no longer valid, and any surviving demands had been satisfied. The Court directed the Department to verify the status of demands, stating that no recovery could be pursued if there were no outstanding demands. The Court upheld the judgments of the Division Benches, setting aside the recovery against the petitioner and allowing the State to proceed lawfully. In conclusion, the Court disposed of the Writ Petition, with no costs imposed, based on the precedents and legal principles discussed in the judgment.
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