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Shri Harbhajan Singh Versus The Commissioner of Trade Tax, U.P. Lucknow

2016 (10) TMI 260 - ALLAHABAD HIGH COURT

Principle of 'lifting of the corporate veil' - recovery of duty - discharge of duties and functions as a Director of the Company - management of affairs of the company - whether the recovery of duty from the revisionist justified on the strength of the principles of lifting of corporate veil and after going through the facts and circumstances of the case? - Held that: - the said doctrine is liable to be invoked in a case where it is found that the corporate personality or structure itself is use .....

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as to attract the principle of lifting of corporate veil - While no recoveries for the dues of the assessee can be executed against the revisionist, it shall be open to the department to move against the assets, moveable or immoveable, of the assessee in accordance with law - revision allowed - decided in favor of revisionist. - Sales/Trade Tax Revision No. - 81 of 2006 - Dated:- 1-9-2016 - Hon'ble Yashwant Varma, JJ. For the Applicant : Piyush Agrawal,Bharatji Agarwal For the Opposite P .....

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partment was based on the principle of 'lifting of the corporate veil' on an allegation that the revisionist had failed to truthfully discharge his duties and functions as a Director of the Company and that his management of its affairs was irresponsible. The application made by the revisionist refuting the contention of the department came to be rejected by the Deputy Commissioner on 13 January 2005. This order was taken in appeal before the Joint Commissioner (Appeals) which came to be .....

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the other hand Sri Piyush Agrawal, learned counsel appearing for the revisionist has sought to draw the attention of the Court to the subsequent judgment rendered by a Division Bench of this Court in R.K. Chhadda and another Vs. State of U.P. and others 2014 NTN (55) 176. Before dealing with the rival submissions, however, it becomes apposite to extract the findings of the Tribunal on the strength of which the action against the assessee came to be upheld. The Tribunal in its order has noted as .....

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itself is used as a camouflage or a vehicle to evade payment of tax and perpetrate fraud upon the revenue. The principles enunciated in various judgements on the subject, while formulating the circumstances in which said the principle may be invoked, have gone on to hold that the creation of the corporate personality itself must be for the purposes of evading tax and committing illegalities. The said principle stands attracted in a case where the corporate personality is used as a ruse to play f .....

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he Company could be recovered from the persons responsible for such fraud. However, this doctrine cannot be applied as a matter of course in a routine manner to recover the dues of a Company on the mere pretext that the dues are now not recoverable from the Company and, therefore, a resort has been made to recover the dues of the Company from the personal assets of the Directors. If such a course is permitted, it will lead to disastrous results and would completely destroy the juristic personali .....

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he initial burden would be upon the department to allege and plead that the person concerned or the Director was personally responsible for playing a fraud upon the Company for his personal gains. It must be specifically pleaded that the corporate personality has been obtained as a pretext to cover up a transaction or intention of those persons, who was committing fraud or misrepresentation and, therefore, the legal personality of the corporate body should be ignored and the corporate veil shoul .....

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of the Company was irresponsible. It was alleged that he had failed to obtain requisite forms as a result of which the dues of the company continued to mount. This does not in the opinion of this Court satisfy the test of fraudulent conduct. Insofar as the judgement relied upon by Sri Pandey is concerned, this Court clearly found that in the facts and circumstances of that case that the directors had successively defrauded the secured creditors as well as the department and that the fund of the .....

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cate under Section 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 ass .....

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