2017 (10) TMI 113 - HC - VAT and Sales Tax

Recovery of tax arrears - company in liquidation - whether the respondent can proceed against erstwhile Director of a Public Limited Company for recovery of tax payable by the Company? - Held that - the proceedings against the company for recovery of the arrears can be done in accordance with law - Section 19 A of the TNGST Act cannot be taken assistance of the respondent for sustaining the order, which provides for the liability to tax of a partitioned Hindu family or dissolved firm. It is further pointed out that Section 19B of the TNGST Act, which provides for liability to tax of a Private Company, on winding up as in the said case, cannot be invoked, as the defaulter was a public limited company. It has clearly stipulated that as against the petitioner who was the erstwhile director of public limited company, proceeding under Section 19B which has been invoked by the respondent for issuing impugned recovery notice, could not have been invoked against the petitioner - recovery notice issued against the respondent invoking Section 19B of the Act, is without jurisdiction - petition allowed. Recovery from petitioner in his individual capacity - Held that - the impugned assessment orders cannot be given effect to, against the petitioner nor any recovery can be made from him. The petitioner is not required to challenge the impugned assessment orders, as admittedly the defaulting assessee is a Public Limited Company M/s.Union Motors Service Limited - it is made clear that the respondent can proceed against the defaulting company and it is reported that the Company has now been wound up, the respondent is given liberty to file an appropriate claim petition before the Official Liquidator who has been appointed as a provisional liquidator for winding up the said company - petition closed. Petition allowed - decided in favor of petitioner.

Summary

Issues:
1. Recovery of tax arrears from erstwhile Director of a Public Limited Company under TNGST Act and CST Act.
2. Interpretation of Section 19B of TNGST Act regarding liability of Directors for tax arrears.
3. Legal implications of recovery proceedings against Directors of a Public Limited Company.
4. Applicability of Section 179 of the Income Tax Act, 1961 on recovery from Directors.
5. Authority to recover tax dues from a company and not from Directors.

Analysis:
1. The petitioner, an erstwhile Director of a Public Limited Company, challenged assessment orders under the TNGST Act and CST Act for the years 1999-2000, 2000-2001, and 2001-2002. The issue revolved around a notice directing Directors to pay tax arrears even if the company is in liquidation.

2. The legal question addressed was whether the respondent could proceed against former Directors for tax recovery. The Supreme Court precedent in M.Rajamoni amma's case clarified that recovery from Directors for company tax dues cannot be pursued under Section 179 of the Income Tax Act, emphasizing the need for recovery under the authority of law.

3. The Court referenced the Chamundeeswari case, highlighting that recovery from an erstwhile Director of a Public Limited Company is impermissible without statutory provisions. It emphasized that a company is a separate legal entity, and recovery should be sought solely from the company, not its Directors.

4. Section 19A and 19B of the TNGST Act were analyzed. It was concluded that Section 19B, pertaining to Private Companies in winding up, was inapplicable to the petitioner, a Director of a public limited company. The recovery notice under Section 19B against the petitioner was deemed without jurisdiction.

5. The judgment allowed the writ petition challenging the recovery notice against the petitioner and closed other petitions related to assessment orders against the Public Limited Company. The respondent was granted the liberty to pursue recovery from the company through the Official Liquidator, respecting the legal distinction between the company and its Directors.