2019 (3) TMI 415 - HC - Central Excise

Recovery of arrears of tax of company from the director of company - Prohibition restraining the respondents from taking coercive recovery measures - Held that - It is well settled that in the absence of any specific provision in the statute, the duty/penalty liability of the company cannot be recovered from the assets of its director - The Director is not personally liable towards liability of the company. This court while delving into an identical issue in Subhash Goyal vs. State of Haryana and others, 2015 (11) TMI 1014 - PUNJAB AND HARYANA HIGH COURT held that in the absence of taking any specific recourse to proceedings under Section 18 of the Central Sales Tax Act, 1956 and any valid order for effecting recovery of arrears of sales tax from the directors of a private limited company in liquidation, the proceedings relating to recovery of arrears of tax from the petitioner being a director were not permissible in law. The action of the respondents in compelling the petitioner to clear the dues of the company cannot be sustained - petition allowed - decided in favor of petitioner.

Summary

Issues:
Recovery of outstanding dues from a company's director under Central Excise Act, 1944.

Analysis:
The petitioner sought a writ of mandamus/prohibition to prevent coercive recovery measures by the respondents. The case involved M/s Narindera Paper Mills Limited facing duty and penalty demands of ?2.65 crores, confirmed by the adjudicating authority. Despite appeals and a remand by the Delhi High Court, the company failed to comply due to business closure. Subsequently, the respondent department directed the petitioner, a director, to deposit the outstanding dues. The petitioner argued that recovery from a shareholder or director is not provided for under the Central Excise Act, 1944, akin to income tax recovery from private limited company directors.

The court examined the legal position and cited precedents to establish that in the absence of specific provisions, a company's duty/penalty liability cannot be recovered from its director's assets. Referring to Subhash Goyal vs. State of Haryana, it was highlighted that recovery from directors requires specific recourse under Section 18 of the Central Sales Tax Act, 1956, which was not evident in the present case. The court emphasized that directors are not personally liable for the company's liabilities unless specific legal provisions exist for recovery.

Addressing judgments cited by the respondents, the court differentiated cases involving corporate entities created for fraudulent purposes or transfers with tax evasion intent, which were not applicable to the present scenario. Ultimately, the court held that the respondents' action compelling the petitioner to clear the company's dues was unsustainable. The petition was allowed, granting liberty to the respondents to pursue the company for dues clearance in accordance with the law.