2018 (1) TMI 908 - HC - VAT and Sales Tax

Recovery of dues of the Company from the Directors - The case of the petitioners, in a nutshell, is that the directors of the company are not liable and the amount can be recovered only from the assets of the company - Held that - In the present case, respondent no.2 has not placed on record any material that the petitioners have played any fraud or misrepresentation - The notices, in the present case, have been issued mechanically. Petitioners cannot be held automatically responsible for outstanding dues unless the responsibility of the director was fixed after lifting the veil. Further, the company is not under liquidation. A distinct juristic personality and the properties of a Director cannot be attached for the recovery of the dues of the Company. Petition allowed - decided in favor of petitioner.

Summary

Issues Involved:
1. Liability of directors for company’s tax dues.
2. Applicability of Section 12 of the Uttarakhand VAT Act, 2005.
3. Validity of recovery notices issued to directors.

Analysis of Judgment:

1. Liability of Directors for Company’s Tax Dues:
The primary issue addressed is whether the directors of M/s Sunshine Industries Ltd. are personally liable for the company's outstanding tax dues. The petitioners argued that the liability for tax dues should be limited to the company's assets and not extend to the personal assets of the directors. The court referenced the judgment of the Allahabad High Court in "Meeking Transmission Ltd. vs. State of Uttar Pradesh," which established that directors are not personally liable for the company's tax dues unless there is evidence of fraud or misrepresentation.

2. Applicability of Section 12 of the Uttarakhand VAT Act, 2005:
The court examined Section 12 of the Uttarakhand VAT Act, 2005, which outlines the liability of directors of a private company in liquidation. The court noted that the company in question was not in liquidation, thus Section 12(2) was not applicable. The court emphasized that without specific statutory provisions, personal liability cannot be imposed on directors for the company’s tax dues.

3. Validity of Recovery Notices Issued to Directors:
The court scrutinized the recovery notices issued to the directors and found them to be issued mechanically without any substantive evidence of fraud or misrepresentation by the directors. The court reiterated that the responsibility of directors must be established through the doctrine of lifting the corporate veil, which was not done in this case. The court cited the Allahabad High Court's decision in "Kanwar Hasan vs. State of U.P." and "Anupam Jalan vs. State of U.P.," which supported the view that directors' personal assets cannot be attached for the company's dues in the absence of statutory provisions or evidence of wrongdoing.

Conclusion:
The court concluded that the directors of M/s Sunshine Industries Ltd. cannot be held personally liable for the company's tax dues. The recovery notices issued to the directors were quashed, affirming that the liability for tax dues rests with the company and not its directors, unless there is clear evidence of fraud or misrepresentation. The writ petition was allowed, and the impugned recovery notice dated 12.12.2011 was set aside.