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2022 (9) TMI 385 - HC - VAT and Sales Tax


Issues Involved:
1. Legality of the order dated 27th September 2021.
2. Applicability of Section 142(8) and Section 89 of the MGST Act.
3. Liability of directors under the BST Act, CST Act, and MGST Act.
4. Validity of the recovery process and notices issued.
5. Limitation period for recovery actions.

Detailed Analysis:

1. Legality of the Order Dated 27th September 2021:
The petitioner challenged the order dated 27th September 2021, the consequential Notice of Demand, and the Final Notice of Assessment. The petitioner argued that these were illegal, violative of the principles of natural justice, and contrary to the provisions of the MGST Act, BST Act, and CST Act. The court found that the impugned order failed to consider the petitioner's submissions and brushed aside the explanation without proper reasoning, deeming the order perverse and grossly illegal.

2. Applicability of Section 142(8) and Section 89 of the MGST Act:
The court held that Section 142(8) of the MGST Act would only be applicable when the amount first becomes recoverable under the "existing law." The court noted that there was no discussion in the impugned order on how the amounts could be recovered under the old law (BST Act or CST Act). The court found that the respondents misinterpreted Section 142(8) and that the MGST Act's recovery procedure could not be applied directly to recover dues under the BST Act or CST Act.

3. Liability of Directors under the BST Act, CST Act, and MGST Act:
The court reiterated the settled law that liability for the company's dues cannot be fastened upon the directors unless there is a specific statutory provision. The BST Act did not contain any provision making directors liable for the company's dues. The court noted that Section 18 of the CST Act and Section 89 of the MGST Act provide that directors are liable only if non-recovery can be attributed to gross neglect, misfeasance, or breach of duty on their part. The court found that the impugned order failed to establish such grounds against the petitioner.

4. Validity of the Recovery Process and Notices Issued:
The court observed that the consequential notices issued under the BST Act and CST Act were flawed as the impugned order relied on the MGST Act's provisions. The court found that this indicated a non-application of mind by the respondents. The court also noted that the CST Act had not been repealed and questioned how the respondents proposed to recover amounts payable under the CST Act using the MGST Act's provisions.

5. Limitation Period for Recovery Actions:
The court held that actions must be conducted within a reasonable period, even when no limitation is prescribed. The court found that the attempt to recover dues in 2018, after more than ten years since the Official Liquidator's report in 2008, was not within a reasonable period. The court referenced previous judgments to support the view that delayed actions violate procedural fairness and principles of natural justice.

Conclusion:
The court ruled in favor of the petitioners, declaring that the sales tax dues of the company could not be recovered from its directors. The court quashed the impugned order dated 27th September 2021, the consequential Notice of Demand, and the Final Notice of Assessment. The petitions were disposed of accordingly, with no order as to costs.

 

 

 

 

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