2018 (11) TMI 1134 - HC - VAT and Sales Tax

Recovery of dues of the private limited company from the petitioner as the director of the company - GVAT Act - Held that - No provision is brought to our notice under the VAT Act enabling the department to do so. Concept of the company and its directors being separate and distinct entities is all too well established. In the present case, in absence of any statutory provision and further in absence of any prima facie facts even suggesting that the company was created only to defraud the government revenue or some such other valid reason, the department cannot seek recovery of the company s dues from its directors - Additional ground in the present case is that it is doubtful whether the petitioner has any ownership rights over the property in question. Petition disposed off.

Summary

Issues:
1. Setting aside a notice and subsequent communication issued under the Gujarat Value Added Tax Act, 2013.
2. Recovery of VAT dues from a director of a private limited company.
3. Ownership rights over a property in question.

Analysis:
1. The petitioner sought to set aside a notice and subsequent communication issued by the authorities under the Gujarat Value Added Tax Act, 2013. The notice directed a society not to transfer a property due to unpaid dues of a private limited company, of which the petitioner was a director. The petitioner clarified that he had resigned from the company and the property was not in his name but belonged to his family members. The department's reply highlighted the petitioner's directorship during the period of tax demand, leading to the communication to protect government revenue. The court observed the department's attempt to recover dues from the petitioner lacked statutory provision under the VAT Act.

2. The court emphasized the separation between a company and its directors as distinct entities, acknowledging the principle of lifting the corporate veil in exceptional cases. However, this can only be done with statutory provisions or evidence suggesting fraudulent intent behind the company's creation. In this case, the absence of statutory provisions and evidence of fraudulent intent led the court to rule against the department's attempt to recover the company's dues from its directors. Additionally, doubts were raised regarding the petitioner's ownership rights over the property in question, further weakening the department's case.

3. The court concluded by setting aside the impugned communications and disposing of the petition accordingly. The judgment highlighted the lack of statutory provisions enabling recovery of company dues from directors without evidence of fraudulent intent or valid reasons. The court's decision emphasized the importance of establishing ownership rights and the separation between company and director liabilities in such cases.