2021 (11) TMI 484 - HC - VAT and Sales Tax

Recovery of VAT (Tax) dues - Auction of property - Property was owned by the Directory of the company - Continuation of sale proceedings until tax arrears are paid - default in tax payments - HELD THAT - This Court is of an opinion that the petitioner himself admitted that the Company was registered and he had signed all necessary documents, applications and forms. The two circumstances are to be considered in the present case. Firstly, if the Company belongs to the petitioner is not wound up, then admittedly, the petitioner and his wife are the only two Directors of the Company. In such circumstances, the Directors of the Company are liable to pay the tax. If the petitioner claims that the Company is already wound up, then Section 37 of the Tamil Nadu Value Added Tax Act, 2006 would come into operation and then also they are liable to pay the tax jointly and severally. Thus, in either of the case, the petitioner is liable to pay the tax and he cannot seek any exoneration from the liability of tax. Even the legal representatives under Section 26 of the Tamil Nadu Value Added Tax Act, 2006 is liable for assessment. This being the Scheme of the Act, no person shall be allowed to escape from the clutches of Taxation Law, merely by stating that he is not personally liable to clear the tax as the Company is failed to pay the tax - Though the Company is the legal entity, the Directors of the Company are the actual functionaries in the Company and therefore, the Directors and the Legal Representatives are liable to pay tax and in the event of failure to pay the same, the Taxation Department is entitled to recover the same by following the procedures as contemplated. This being the principles to be followed, the petitioner has not established any acceptable legal ground for the purpose of interfering with the auction notice order impugned - petition dismissed.

Issues Involved:
1. Legality of auction notice dated 05.11.2015.
2. Liability of the petitioner for the tax dues of the Company.
3. Applicability of the Tamil Nadu Value Added Tax Act, 2006 provisions.
4. Validity of the arguments and precedents cited by the petitioner.

Detailed Analysis:

1. Legality of Auction Notice Dated 05.11.2015:
The petitioner challenged the auction notice issued by the respondent for the sale of his property to recover tax dues owed by the Company. The petitioner argued that the property belonged to him personally and not to the Company. However, the court found that the petitioner and his wife were the only shareholders and directors of the Company, which was a family entity. Given that the Company had not filed returns or reported business closure, the court upheld the respondent's right to auction the property to recover dues.

2. Liability of the Petitioner for the Tax Dues of the Company:
The petitioner contended that he should not be personally liable for the Company's tax defaults. He cited judgments from other High Courts to support his claim that directors of a private limited company cannot be held personally liable for the company's dues. However, the court pointed out that the Tamil Nadu Value Added Tax Act, 2006 (VAT Act) provides for the liability of directors in cases where the company is not functioning or is wound up. The court noted that the petitioner had admitted to signing necessary documents for the Company and that the Company had not settled its tax dues despite notices. Thus, the court concluded that the petitioner was liable for the tax dues.

3. Applicability of the Tamil Nadu Value Added Tax Act, 2006 Provisions:
The court referred to multiple sections of the VAT Act to establish the petitioner's liability:
- Section 35: Joint and several liability of partners in a firm.
- Section 36: Liability of dissolved firms and partitioned Hindu families.
- Section 37: Liability of directors of a private company on winding up.
- Section 26: Liability of legal representatives.
The court emphasized that under Section 37, directors are liable for tax dues even after the company is wound up unless they can prove that the non-payment was not due to their neglect or breach of duty. Since the petitioner did not provide such proof, he remained liable.

4. Validity of the Arguments and Precedents Cited by the Petitioner:
The petitioner relied on judgments from the Andhra Pradesh High Court and the Uttarakhand High Court to argue against his liability. However, the court found these judgments distinguishable as they pertained to different state VAT Acts with different provisions. The court noted that the Tamil Nadu VAT Act explicitly provides for the liability of directors and legal representatives, making the petitioner's arguments based on other state laws inapplicable.

Conclusion:
The court dismissed the writ petition, holding that the petitioner was liable for the Company's tax dues under the Tamil Nadu VAT Act. The court directed the respondent to issue a fresh auction notice to recover the dues and emphasized that no person should escape tax liability by claiming personal non-liability when the company defaults. The court concluded that the petitioner's arguments and cited precedents did not provide a valid legal ground to interfere with the auction notice.

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