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2022 (9) TMI 385 - HC - VAT and Sales TaxValidity of demand and assessment notice - liability of Directors / Shareholders - limited to the extent of face value of shares subscribed by each member and amount remaining unpaid on them for the time being - whether there are any specific statutory provisions to the effect that liability for duty of the company can be fastened upon the Directors of the company? - HELD THAT - It will be seen from the provisions of Section 89 of the MGST Act, Section 18 of the CST Act and Section 44(6) of the MVAT Act that there are specific provisions that fastened upon the Directors of a company liability for duty of the company - Admittedly there exists no provision in the BST Act under which the liabilities/dues of the company recovered/fastened upon from the Directors. There is no discussion in the impugned order as to how the amounts could be recovered under the old law. Petitioner has, in his reply to the show cause notice submitted that the amounts were not even recoverable under the BST Act or CST Act but still that has not been dealt with at all in the impugned order. The impugned order simply states that the conjoint reading of Section 142(8) and Section 89 of the MGST Act leaves no doubt that if recovery cannot be made under the earlier law, i.e., the BST Act and CST Act, the same can be recovered under the MGST Act and Section 89 will squarely apply. Thus, it is settled law that liability for duty of the company cannot be fastened upon the Directors of the company unless there is statutory provision to that effect. Since the BST Act did not contain any provision to the effect making the Directors liable for the dues of the company, no amount is recoverable under the BST Act from the Directors of the company for the dues recoverable from the Company. There were no provisions in the BST analogous to Section 44(6) of the MVAT Act or Section 18 of the CST Act or Section 89 of the MGST Act - Undoubtedly Section 18 of the CST Act is a statutory provision to the effect that liability for dues of the company can be fastened upon the Directors of the company. There are total non application of mind by Respondent No.3 in as much as consequential notice issued to petitioner is issued under BST and CST, Act whereas the impugned order relies upon provisions of the MGST Act, to recover the dues of the company from petitioner - Strangely, the impugned order is accompanied with the Notice of Demand issued under Section 38 of the BST Act. The second consequential notice is, we find, not even a Notice of Demand issued under the CST Act, but rather Notice of Final Assessment in Form VIII(B), i.e., the Assessment Order itself. Respondent No.3 in consequence of the impugned order, has issued Assessment Order under the CST Act as opposed to a Notice of Demand. This indicates non application of mind. Petition disposed off.
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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