2024 (7) TMI 463 - HC - VAT and Sales Tax

Recovery of the outstanding dues of the company from the Director - lifting of corporate veil - HELD THAT - The issue of recovery of the outstanding dues of the company from the Director is no more re integra in view of the decision by this Court in the case of M.R. CHOKSI VERSUS STATE OF GUJARAT 2004 (6) TMI 642 - GUJARAT HIGH COURT , wherein it is held that ' As regards the faint plea of lifting the corporate veil, as per the settled legal position, the corporate veil is not to be lifted lightly. It is only when there is strong factual foundation for lifting the corporate veil that the question of examining the applicability of the principle of lifting such veil would be required to be examined. In neither of the two petitions raising the controversy, the authorities have passed any specific order fastening the liability on the Directors personally, much less any factual foundation has been laid to invoke the doctrine of lifting the corporate veil. Hence it is not necessary to dilate on the said principle any further.' In view of the above settled legal position, the impugned notice dated 7th March 2023 for recovery of outstanding dues of the company from the petitioner is hereby quashed and set aside and the respondents are restrained from initiating proceedings against the petitioner from his personal property for recovery of the outstanding dues of the company in which the petitioner was a Director. Petition disposed off.

Summary

Issues:
Recovery of outstanding dues from a director under the VAT Act.

Analysis:

Issue 1: Recovery of outstanding dues from a director under the VAT Act
The petitioner, an individual residing in Vapi, challenged a notice issued by the State of Gujarat seeking payment for outstanding dues under the Value Added Tax Act, 2005. The petitioner was appointed as an Additional Director in a company with tax dues for 2014-15 and 2015-16 due to a supplier's non-payment resulting in disallowed Input Tax Credit. Despite the petitioner not being a Director during the period of dues, the notice was issued, prompting the petitioner to respond that he was appointed after the relevant period. The petitioner sought to quash the notice, arguing that as an Additional Director for only one year from 2020, he was not liable for prior period dues. The petitioner contended that prosecution under Section 86 of the VAT Act is permissible only against the person in charge at the time of the offense. The petitioner cited legal precedents to support the argument that personal liability of Directors for company dues is not provided under the VAT Act. The Court referred to previous judgments emphasizing that statutory provisions do not empower tax authorities to hold Directors personally liable for company tax dues. The Court held that the notice for recovery of dues from the petitioner was illegal and quashed it, restraining proceedings against the petitioner's personal property for the company's outstanding dues. The petition was disposed of with no costs imposed.

This detailed analysis covers the issues involved in the legal judgment, providing a comprehensive understanding of the case and the Court's decision regarding the recovery of outstanding dues from a director under the VAT Act.