2007 (12) TMI 213 - HC - VAT and Sales Tax

Personal Liability of Directors Arrears of Dues and Recovery thereof - whether a Director of a Company can be made personally liable for the amount due from the Company for the arrears of State and Central sales tax? It was observed that the company is still not wound up or formally liquidated Held that the notices are not only illegal but also arbitrary and whimsical as the same have been issued on 22-12-2005 in spite of the fact that the law has been settled by this Court in the cases of Suneet Khurana on 3-9-1997 and Mukesh Gupta on 18-7-1996 - The writ petition is thus allowed and consequently notices Annexures quashed with cost of Rs. 10000. - Haryana General Sales Tax Act 1973 or under the Central Sales Tax Act 1956

Summary

Issues:
1. Director's personal liability for company's sales tax arrears.

Analysis:
The main issue in this case was whether a Director of a Company could be held personally liable for the arrears of State and Central sales tax due from the Company. The petitioner, a Director of the Company, challenged the notices demanding payment of Central sales tax arrears personally from him. The respondent argued that under Section 18 of the Central Sales Tax Act, 1956, Directors of a private company could be held jointly and severally liable for tax payments if the company is wound up. However, the petitioner contended that the company was not yet wound up, and therefore, the provision did not apply in this case.

The Court considered the arguments presented by both parties. The petitioner relied on previous judgments, including Single Bench and Division Bench decisions, which held that recovery of sales tax arrears could not be made personally from Directors. On the other hand, the respondent cited Section 18 of the Act to support their claim for personal liability of Directors in case of company liquidation. However, the Court noted that the company in question was not yet wound up, making Section 18 inapplicable.

Ultimately, the Court agreed with the petitioner's contentions and held that the notices demanding payment from the Director were illegal, arbitrary, and whimsical. The Court referred to previous judgments that had settled the law on this issue and quashed the notices. The respondents were also directed to pay costs of Rs. 10,000 due to issuing the notices without any statutory provision.