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TMI Blog2009 (1) TMI 496X X X X Extracts X X X X X X X X Extracts X X X X ..... - 28-1-2009 - S.J. MUKHOPADHAYA, ACTG. AND V. DHANAPALAN, JJ. R. Saravana Kumar for the Petitioner. Haja Naziruddin for the Respondent. JUDGMENT S.J. Mukhopadhaya, Actg. CJ. - The writ petition was preferred by the petitioners against notice in Rc. No. 5735/95/A3 dated 17-2- 2004, issued by the first respondent, Commercial Tax Officer (FAC), Ambattur Assessment Circle, whereby it has been informed that the second respondent, M/s. Vinayaka Garments (P.) Ltd. (hereinafter referred to as the company ) who did business are in arrears of Rs. 13,25,868 for the years 1993-94 to 1995-96 under the Tamil Nadu General Sales Tax Act, 1959 (hereinafter referred to as the TNGST Act ) and the Central Sales Tax Act, 1956 (hereinafter referred to as the CST Act ) and the petitioners being shareholders are liable to pay tax arrears. They have been asked to clear the entire arrears within a stipulated period. 2. During the pendency of the writ petition, interim order of stay was passed on 19-5-2004, but at the instance of the first respondent, the same was modified by order dated 7-9-2006 and conditional interim order was passed subject to payment of 25 per cent o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue as association of partners are personally liable in respect of tax and other dues, but both under the TNGST Act and the CST Act, there is no enabling provision for charging tax or for recovery of such tax and other dues personally from the directors, if the amount is payable by the company. Therefore, the petitioners, ex-directors, are not liable to pay tax or dues payable by the company. 6. Further, according to the petitioners, the only provision which deals with liability of directors of company is section 19B of the TNGST Act and section 18 of the CST Act, which are in pari materia similar. But plain reading of such section would show that where a dealer is a private company, then only when it is wound up, every person, who is a director of such company at the time of winding up shall be jointly and severally liable to pay the tax and other dues payable by such company. Therefore, directors of private company cannot be made liable for payment of tax while the company is in existence. 7. Learned counsel, appearing on behalf of the petitioners, while referred to tax liability which relates to the years 1993-94 to 1995-96, submitted that petitioner Nos. 1, 2 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recovery of the same taking refuge under the cloak of being a legal entity. Such a construction would virtually nullify the object of the Act and no collection or recovery would ever be possible from a firm, company or Hindu Undivided Family or other association. The stand of the first respondent is that even the details of property of the company or individual directors of the company has not been provided to the first respondent or the Sales Tax Department. 10. The following facts were highlighted on behalf of the first respondent: (1)The company carried on business from the assessment years 1993-94 to 1996-97 and thereafter its business was discontinued and registration not renewed under the Sales Tax Act. (2)The assessment orders were duly served on the company and become final; the sum of Rs. 18,25,048 is the settled arrears as against which the defaulter-company has paid only a sum of Rs. 37,827 during the assessment year 1993-94 and the sum of Rs. 1,671 for the assessment year 1995-96. (3)The company is only in symbolic existence for the past ten years without any business activity or affairs carried on and no positive evidence is forthcoming from the petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, the firm and each partners of the firm are jointly and severally liable for such payment. It reads as follows : 19. Liability of firms. (1) Where any firm is liable to pay any tax or other amount under this Act, the firm and each of the partners of the firm shall be jointly and severally liable for such payment. (2) Where a partner of a firm liable to pay any tax or any amount under this Act retires, he shall, notwithstanding any contract to the contrary, be liable to pay the tax or other amount remaining unpaid at the time of his retirement and any tax or other amount due up to the date of retirement, though unassessed. 17. Under section 19, the firm as well as each of its partners are jointly and severally liable for the tax or other amount; even a retiring partner shall also be liable to pay the tax of the firm, assessed or unassessed, if it remains unpaid at his time of retiring, which even cannot be saved by a contract to the contrary. Section 19 is not applicable to a company or its directors/ex-directors, as the provision is applicable to firms and its partners. 18. Section 19A provides liability to tax on partition in Hindu family, dissolved firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was a director of such company at the time of such winding up, irrespective of winding up, is held to be jointly and severally liable for payment of tax, penalty and other amounts payable under the TNGST Act by such company irrespective of assessment made, whether prior to or after the winding up. Thus, it can be given effect to even with regard to the assessment for a period prior up to 6-11-1997, irrespective of the fact whether such assessment has already been made or is to be made. The question of applicability of this provision will arise in the present case only if the company has been wound up. As we have already noticed and the first respondent has also accepted that the company has not yet been wound up, merely because the renewal of licences of the company under the TNGST Act and the CST Act have not been made, it cannot be presumed that the second respondent-company has been wound up. In this background, no action can be taken by authorities against the ex-directors, including ex-directors under section 19B of the TNGST Act. 22. Counsel for the revenue placed much reliance on rule 40, which reads as follows : 40. Every firm or company consisting of partners sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, no notice can be issued against them under section 19B of the TNGST Act. 25. In Union of India v. Manik Dattatreya Lotlikar [1988] 172 ITR 1 (Bom.), the Court held that the directors of any company, whether public limited or private, are not personally liable for the debts of the company unless the company court found them guilty of any misfeasance or wrong-doing. 26. In G.C. Mehrotra v. Dy. Collector (Collections), Sales Tax [1998] 110 STC 406 (All.), the Court held that in case of a private company, recovery of tax dues from it cannot be made from its directors, unless permitted by specific provision of the law or by an agreement between the parties. 27. There are other decisions in this regard referred to by learned counsel for the petitioners, but in view of our finding that in absence of any order of winding up. Section 19B is not attracted in the present case of petitioners, it is not necessary to discuss other case laws. 28. From the impugned notice dated 17-2-2004, it will be evident that the first respondent issued the notice on presumption that the second respondent is a firm . In the second paragraph, it is stated that the petitioners bei ..... X X X X Extracts X X X X X X X X Extracts X X X X
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