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TMI Blog2014 (3) TMI 1137X X X X Extracts X X X X X X X X Extracts X X X X ..... any reason whatsoever, every person who was a director of such company at any time during the period for which the tax or other amount is due under this Act shall be jointly and severally liable for the payment of such tax or other amount. Relying on the provisions of S. 26C, revenue recovery proceedings were initiated against the petitioners in the Writ Petitions, the appellant in W.A. No. 1995/12 and the party respondents in W.A. No. 956/2013 for recovery of the sales tax due from the Private Companies of which they were Directors in relation to assessment years prior to 1.4.1999. Aggrieved by such recovery proceedings, Writ Petitions were filed before this Court. 2. When the petitioner in W.P.(C) No. 6599/2005 pressed into service the judgment of this Court in Kassim v. Sales Tax Officer (2007 (4) KLT 538), where it was held that S. 26C being a prospective legislation, cannot affect rights and liabilities in respect of any assessment year prior to 1.4.1999, doubting the correctness of the same, by order dated 1.8.2012, a learned Single Judge referred the Writ Petition to be considered by a Division Bench of this Court. In so far as W.A. No. 1995/12 is concerned, though the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng, wound up or is under liquidation and if the other ingredients of the section are also satisfied, every person who was a Director of such company at the time when the amount became due, shall be jointly and severally liable. This therefore means that under S. 26C, a Director, who was in office when the amount became due, is made liable for amount due from the company and such liability could have been incurred by the Company any time prior to 1.4.1999 also and if such liability is remaining outstanding and is not recoverable for any reason as stated in the Section, the Directors who were then in office are jointly and severally liable. The above elements of the Section would show that though this provision was introduced w.e.f. 1.4.1999, it applies for recovery of the liabilities incurred by the company prior to 1.4.1999 also. 10. We also notice that by S. 2A, a similar provision was introduced to the Karnataka Sales Tax Act, 1957 by Act No. 23 of 1983, providing that where any firm is liable to pay any tax or penalty or any other amount under the Act, the firm and each of the partners of the firm shall be jointly and severally liable for such payment. S. 2A came up for conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tute will be presumed to apply only to persons born and things come into existence after its operation and the rule may well result in virtual nullification of most of the statutes. An amending Act is, therefore, not retrospective merely because it applies also to those to whom pre-amended Act was applicable if the amended Act has operation from the date of its amendment and not from an anterior date. 17. There is, therefore no question of sub-section (2-A) of S. 15 of the Karnataka Sales Tax Act being given a retrospective operation. It is prospective. However, it does not make any difference for the facts of the present case. 12. In Dena Bank's case (supra), the Apex Court also relied on its previous judgment in Third Income-tax Officer v. Arunagiri Chettiar (AIR 1996 SC 2160) and held thus in paragraph 20 and 21. 20. A provision similar to the one included in S. 18 of the Bombay Sales Tax Act has been incorporated in the Karnataka Sales Tax Act as referred to hereinabove and that is why the partners of the borrower firm in the case before us cannot take shelter behind the law laid down by this Court in Radhakrishan (AIR 1979 SC 1588) (supra). Here we may also refer to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all be a first charge on the property of the dealer or such person was considered. In that judgment, the Apex Court held thus: 5. Section 33-C creates a statutory first charge that prevails over any charge that may be in existence. Therefore, the charge thereby created in favour of the State in respect of the sales tax dues of the second respondent prevailed over the charge created in favour of the bank in respect of the loan taken by the second respondent. There is no question of retrospectively here, as, on the date when it was introduced, S. 33-C operated in respect of all charges that were then in force and gave sales tax dues precedence over them. This position in law is discussed in detail in the judgment of this Court in Dena Bank v. Bhikhabhai Prabhudas & Co. (2000) 5 SCC 694). 14. In the light of the above principles laid down by the Apex Court, we cannot accept the contention of the learned counsel for the parties that the S. 26C of the K.G.S.T. Act cannot be taken advantage of by the State to recover amounts due to it for the periods prior to 1.4.1999. 15. In so far as the judgment in Kassim's case (supra) is concerned, in paragraph 4 of the judgment, it has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company. The contention of retrospectivity was considered and the Division Bench held thus: Section 179 is a new provision introduced in the Act in the sense that there was no corresponding provision in the Indian I.T. Act, 1922. It imposes a vicarious liability upon the directors in respect of the tax arrears of the companies, although the companies themselves are entities independent of the directors. The liability is linked to the income of the previous year which has been assessed to tax. From its very scheme the section is prospective and there is nothing in its wording that would attract its provisions to the previous year before the commencement of the Act on April 1, 1962. The previous years relative to the assessment years 1959-60 and 1960-61 are far prior to the commencement of the Act and are clearly outside the sweep of S. 179. The petitioner's contention that he could not be saddled with the tax liability of the company for these two years, by resorting to S. 179, is thus well founded and has to be sustained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs under S. 65 should be preceded by proceedings under S. 34 of the Revenue Recovery Act and such a view has been taken by this Court in Muralidharan v. State of Kerala (1995 (2) KLT 176). Similarly, learned counsel for the appellant in W.A. No. 1995/12 contended that though S. 26C authorises recovery from a Director only if the amount is otherwise not recoverable from the company, recovery proceedings were initiated against him despite the availability of assets with the company itself. We also note that such a contention was accepted by a Division Bench of this Court in Jose Kurian & Ors. v. Deputy Tahsildar (RR) Ernakulam & Ors. (2011 (4) KHC 879). These contentions have nothing to do with the validity of Section and are factual in nature. In our view, such contentions are always available to the affected parties and when proceedings are initiated against them, it is for them to urge those contentions in the objections which they are entitled to file against the proceedings initiated. Therefore, we refrain from dealing with those contentions and leave it open to the parties concerned to agitate those issues before the concerned authorities at the appropriate stage. 21. It was t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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