2022 (2) TMI 1165 - HC - VAT and Sales Tax

Seeking lifting of attachment on Bank Accounts of Directors - recovery of dues of the company, while the bank accounts of Directors were attached - HELD THAT - Unlike Section 179 of the Income Tax Act, 1961, there is no provision in the Sales Tax Act fastening the liability of the company to pay its sales tax dues on its Director. The attachment on the bank account of the writ applicant is hereby ordered to be lifted. The bank shall permit the writ applicant to operate the bank account - Application allowed.

Issues Involved:
1. Attachment of the personal bank account of a company director for the recovery of the company's VAT dues.
2. Legal distinction between the liability of a company and its directors under the VAT Act, 2003.
3. Applicability of precedents and legal principles regarding lifting the corporate veil.

Detailed Analysis:

1. Attachment of the Personal Bank Account of a Company Director for the Recovery of the Company's VAT Dues:

The writ applicant, a director of M/s. Neha Exim Energy Private Limited, sought relief against the attachment of his personal bank account by the tax authorities. The authorities had frozen his account to recover ?1,58,65,840/- due from the company, which was assessed under Section 34 of the VAT Act, 2003, for the period 2008-09. The company had ceased commercial activities for many years and was the taxable entity under the Act.

The principal argument presented by the writ applicant's counsel was that the tax department could not attach a personal bank account of a director to recover dues owed by the company, as the company itself is the taxable entity under the VAT Act, 2003.

2. Legal Distinction Between the Liability of a Company and Its Directors Under the VAT Act, 2003:

The court examined whether the liability of the company could be extended to its directors. The respondents failed to demonstrate any statutory provision under the VAT Act, 2003, that empowered the tax authorities to hold directors personally liable for the company's tax dues. The court referenced prior judgments, specifically in the cases of Paras Shantilal Savla vs. State of Gujarat and Sunita Ramesh Bansal vs. Assistant Commissioner of State Tax, which upheld that there is no provision in the Sales Tax Act similar to Section 179 of the Income Tax Act, 1961, that fastens the liability of the company on its directors.

3. Applicability of Precedents and Legal Principles Regarding Lifting the Corporate Veil:

The court also considered the argument for lifting the corporate veil, which would allow the authorities to hold directors personally liable for the company's dues. However, it was noted that lifting the corporate veil requires a strong factual foundation, which was absent in this case. The court reiterated that the principle of lifting the corporate veil should not be applied lightly and must be backed by substantial evidence.

Conclusion:

The court concluded that the attachment of the writ applicant's personal bank account was not justified under the VAT Act, 2003. The application succeeded, and the bank was directed to lift the attachment, allowing the writ applicant to operate his account. However, the dues payable by the company remained pending, and the department was free to take appropriate steps against the company to recover the dues in accordance with the law.

Separate Judgments:

There were no separate judgments delivered by the judges in this case. The judgment was collectively delivered, reflecting a unified decision of the bench.

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