TMI Blog2014 (5) TMI 534X X X X Extracts X X X X X X X X Extracts X X X X ..... ersonality; the corporate entity is employed to circumvent statute or to evade the existing obligation to commit illegality or defrauding others; and have resorted to dubious methods to artifice or subterfuge to avoid payment of taxes, the corporate veil can be lifted to recover the dues from the persons responsible for such illegal acts. Relying upon Calcutta Chromotype Ltd vs. Collector of Central Excise Kolkata [1998 (3) TMI 138 - SUPREME COURT OF INDIA] - There is no doubt that the petitioners and other directors persuaded the BIFR to allow them to run the sick industrial company with fresh infusion of funds from IFCI with two nominee directors of IFCI - The application for eligibility certificate u/s 4-A was made with false declaration that the plant and machinery is new - The eligibility certificate was not granted - Initially the company was doing well but as soon as Shri I.S. Gambhir and Shri L.K. Luthra took over successively as Managing Directors of the company, they started defrauding in payment of sales tax both State and Central; the excise dues and electricity dues - They incurred liability of several crores of rupees and did not participate in the proceedings of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Gambhir, the Director of the company and Shri A.S. Solanki, the Managing Director applied for registration under Section 8-A of U.P. Trade Tax Act, 1948 as well as Section 7 of the Central Sales Tax Act, 1956. In the statement given on oath by the representative of Shri I.S. Gambhir on 20.4.1991, it was stated that the company was under BIFR of which Shri I.S. Gambhir is the new promoter. It was stated in the statement recorded on Registration Form No. 14, that the entire machines are new. An application under Section 4-A was submitted by Shri A.S. Solanki (Managing Director) wherein it was represented/declared/certified that all the plants, machineries, equipments, apparatus and components have not been used or acquired for use in any other factory or workshop in India before installation in the unit. 5. The application for grant of Eligibility Certificate for exemption from Trade Tax, was considered by the Divisional Level Committee, and was rejected by the order dated 18.12.1995 on the ground that the alleged unit was not eligible for exemption, besides the fact that it is lying closed for more than six months with huge arrears of tax, and that the directors are totally non- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng false declaration, whereas the company was not exempt for any amount of trade tax. 9. In the facts and circumstances of the case, notices were issued to all the directors/persons involved for defrauding the revenue and misusing the corporate personality, on 18.10.2004, to show cause as to why the directors may not be held personally liable for the dues after lifting the corporate veil of the company. 10. In pursuance to the notices issued by the Trade Tax Department Shri Jagbir Singh-the petitioner in Writ Tax No. 1464 of 2005 through his counsel Shri I.M. Puri, Shri G.L. Tandon and Shri R.C. Singh submitted their replies. All of them stated that Shri I.S. Gambhir is the person liable for all the tax evasion. Shri L.K. Luthra stated that due to indifferent attitude of the Managing Director, working directors and promoters, there was deterioration in the company. He had raised the matter of the bungling of the company to the Secretary, Government of India, Department of Company Affairs and the Chief Vigilance Commissioner, Government of India. 11. The Assessing Authority, in a detailed order dated 30.3.2005 after affording opportunity of hearing to the directors, recorded f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thra he did not file any reply. He was in the list of Board of Directors dated 9.5.1991, and is shown as Managing Director in the annual report of 1992-93, and it was found that the amount for all the years can be recovered from him. 15. In respect of Shri Jagbir Singh, the Assessing Officer found that he was appointed as the Director in February, 1991 and resigned on 20.2.1992. There was no information of this resignation given to the Trade Tax Department. The Form 32 was produced showing that he resigned on 31.8.1992. The amount due for the year 1992-93, therefore, could be recovered from him. In respect of Shri S.P. Jain, the Assessing Officer observed that he has not filed any written explanation. His name is shown in the list of Directors dated 9.5.1991 and in the annual report of 1992-93. The dues on the company can be recovered from him. 16. In respect of Shri I.M. Puri, who did not appear in person and sent a letter dated 27.10.2004 to the Assessing Officer that Shri I.S. Gambhir was responsible for reviving the company, in his explanation dated 29.10.2004, it was stated that he is the Chartered Accountant and has held responsible posts in the Central Government. He has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the Joint Commissioner (Appeals)-IV, Commercial Tax, Ghaziabad. In this appeal filed by Shri I.M. Puri, the Appellate Authority accepted his statement that he was not the working director and was not looking after the day-to-day work. He was nominated by IFCI as a part time director. The appeal was allowed on 7.3.2008. 20. Similarly the appeal filed by Shri G.L. Tandon being Appeal No. 596/2005 was also allowed on the ground that he was a part time nominee director nominated by the IFCI. He was not responsible for day-to-day management of the company. The Appeal No. 601/2005 filed by Shri A.S. Solanki was, however, dismissed on 31.12.2007 on the ground that the appellant was the Managing Director of the company. He resigned from the post of Director on 21.7.1992 and thus the dues of the years 1991-92 and 1992-93 can be recovered from him. After his resignation Shri I.S. Gambhir was looking after the affairs of the company. 21. The petitioners have not challenged the order dated 30.5.2005 passed by the Assessing Officer lifting the corporate veil and holding all the directors to be responsible upto the date they had resigned. The appeals filed by Shri I.M. Puri and Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 998 SC 1631 (para 12, 14); Shubhra Mukharjee another v. Bharat Cooking Coal Ltd another (2003) 3 SCC 312; Kapila Hingorani vs. State of Bihar JT 2003 (5) SC 1 (paras 25, 26, 27); Vodafone International Holding B.V. Vs. Union of India and others JT 2012 (1) SC 410 (para 167 168) to support the submissions, on the conditions and imperatives for lifting corporate veil. 24. Shri S.P. Kesarwani has also relied upon the judgments of this Court in Naresh Chandra Gupta vs. District Magistrate ors 2003 NTN (22) 358 (paras 6 to 20); Shri Ram Gupta vs. Assistant Collector 2003 NTN 923) 995; Shri Ram Shyam Shukla and ors vs. Asstt. Collector, Collection, Trade Tax 2004 NTN (25) 768 (paras 5 to 20); M/s Meekin Transmission Ltd, Kanpur Nagar and another vs. State of UP and ors 2008 U.P.T.C. 600 (paras 35, 37, 42, 45 to 54, 77 78), to submit that this Court has applied doctrine wherever it was found. 25. In the present case, we are informed that the assets of the company have been sold for realisation of the dues of IFCI (the secured creditor). The dues of the Trade Tax Department are still to be recovered. The order passed by the Assessing Officer lifting the corporate veil was suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defrauding others, the Court would ignore the corporate character and will look at the reality behind the corporate veil 5. The principle of lifting the veil of corporate personality has been upheld in Shubhra Mukharjee another v. Bharat Cooking Coal Ltd another (2003) 3 SCC 312; Calcutta Chromotype Ltd vs. Collector of Central Excise Kolkata AIR 1998 SC 1631; New Horizon Ltd another vs. Union of India and others 1995 (1) SCC 478; C.I.T. vs. Meenakshi Mills Ltd Madurai AIR 1967 SC 819; Telco ors vs. State of Bihar AIR 1965 SC 40; Juggilal Kamlapat vs. CIT, AIR 1969 SC 932. 6. In State of U.P. vs. Renusagar Power Co. 1988 (4) SCC 59 the Supreme Court observed: "It is hightime to reiterate that in the expanding of horizon of modern jurisprudence, lifting of corporate veil is permissible. Its frontiers are unlimited. It must, however, depend primarily on the realities of the situation. The horizon of the doctrine of lifting of corporate veil is expanding." 7. In Tata Engineering's case (supra) the Supreme Court observed that the doctrine of the lifting of the veil thus marks a change in the attitude that law had originally adopted towards the concept of the separate e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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