2018 (7) TMI 905 - HC - VAT and Sales Tax

Liability to pay certain sums on the petitioners in their capacity as Directors - proceedings by virtue of sub-section (6) of Section 44 of the Maharashtra Value Added Tax Act, 2002 on Directors - proper opportunity not given to Directors to show cause. Held that - In the event the petitioners show cause, then an opportunity of personal hearing will be afforded to the petitioners and a reasoned order will follow thereafter. At such an opportunity of personal hearing, the petitioners can prove that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on their part, in addition to urging that given the scheme of the Companies Act, 2013 and sub-section (6) being subject thereto, there is a distinct personality in law. The existence of a Director and the company is independent of each other. Unlike a partnership firm, the company does not cease to exist merely because persons like the petitioners are not associated with it. Thus, all contentions can be raised at such an opportunity of personal hearing. We are relieved of the obligation to express any opinion on the rival contentions. Keeping the jurisdictional as also other points on merits open for being urged at an appropriate stage in the proceedings which may be initiated pursuant to a show cause notice, we dispose of the writ petition.

Summary

Issues involved:
1. Quashing and setting aside of two orders imposing liability on petitioners as Directors of a company under Maharashtra Value Added Tax Act, 2002.

Analysis:

1. The petition sought to quash two orders, Exhibits "C" and "D," holding the petitioners liable to pay sums as Directors of a company under Section 44 of the Maharashtra Value Added Tax Act, 2002. The amendment to Section 44 by Maharashtra Act No. XXXI of 2017 was cited as the basis for the liability. An affidavit filed by the respondents justified the orders, claiming the amount was due and payable under the amended law.

2. The court noted that the Amendment Act, specifically subsection (6) of Section 44, was not available for perusal initially but was produced post-recess. It was confirmed that the amendment, adding subsection (6) to Section 44, came into effect from 15-4-2017. The respondents' counsel acknowledged that the liability could only be imposed after giving the petitioners an opportunity to prove that they were not grossly negligent, guilty of misfeasance, or in breach of duty regarding the company's tax non-recovery.

3. The respondents' counsel further stated that a demand could not be made without issuing a show cause notice to the petitioners. Consequently, the court directed the respondents to issue a show cause notice to the petitioners, allowing them to challenge the demand. If the petitioners responded, a personal hearing would be granted to present their case. The court emphasized the distinct legal personalities of Directors and the company under the Companies Act, 2013, indicating that the company's existence is independent of its Directors.

4. Acknowledging the fair stance of the respondents' counsel, the court refrained from expressing opinions on the conflicting arguments. The court kept jurisdictional and merit-based points open for future proceedings following the show cause notice. The respondents confirmed the withdrawal of the impugned orders of attachment, ensuring no coercive measures could be taken against the petitioners.

5. Consequently, the court disposed of the writ petition, rendering the orders of attachment and notices premature and ineffective. The judgment directed all concerned parties to act according to the court's decision, emphasizing the withdrawal of coercive measures against the petitioners.