Personal properties of directors can’t be attached to recover sales tax due of company
Akil Kureshi, J. – Leave to delete petitioner no.1. The remaining petitioners have prayed for quashing and setting aside an order dated 9.11.2015 passed by the respondent no.1 attaching their immovable properties for a possible valued added tax dues of R. 2.17 crores of one Different Solution Marketing Private Ltd., a company and to whom these petitioners are directors.
1. The said company is a registered dealer and is dealing in purchases and sales of steel. The Assistant Commissioner of Commercial Tax passed the said order attaching two residential properties of the petitioners on the ground that against the company in which they are directors, there is a possible tax, interest and penalty dues of Rs. 2.17 crores. In this order, he has recorded that upon perusal of the purchases made by the petitioner from one Nildhara Ltd. it appears that tin number of the said dealer has been cancelled, whereas the purchases made from Mercury Alloys, Gyscoal Alloys Ltd. And Adani Gas Ltd. Are not reconciled. Under the circumstances, the input tax credit claimed by the company for the purchases from these dealers is required to be disallowed. This would result to a tax demand of Rs. 73.51 lacs and with interest and penalty it would accumulate to Rs. 2.17 crores. The dealer has neither clarified these issues nor paid up the taxes. Under the circumstances, to protect the interest of Revenue, he was prompted to attach two immovable properties of the directors.
2. Learned counsel for the petitioners submitted that the assessments for the period during which said input tax credit was availed are still going on. Before finalising the assessment, the authorities could not have sought recoveries of the entire possible tax with interest and penalty. He submitted that the company had not claimed any input tax credit not due as per the Rules. The tin number of Nildhara has since been restored, the company has never claimed input tax credit for the purchases made from Adani Gas and purchased with other two entities can also be reconciled. The Assistant Commissioner therefore, committed serious error in raising tax demand with penalty and interest without even finalising the assessments.
3. Counsel further submitted that in any case, the personal properties of the directors of the company could not have been attached for the possible dues of the company. In this respect, he relied on the decision of the Division Bench of this Court in the case of Choksi v. State of Gujarat [2012] 51 VST 73.
4. On the other hand, learned Assistant Government Pleader Ms. Jirga Zaveri relied on sections 45 and 86 of the Valued Added Tax Act, 2003 to contend that the order passed by the authority was justified and proper. She submitted that there are large scale discrepancies in the purchases made by the petitioner for the said four entities. Input tax credit limit claimed by the petitioner therefore, is required to be denied.
5. At this stage, when the assessing proceedings concerning the dealer companies are still not finalised, it would not be possible or proper on our part to make any comments on the controversy regarding claim of the petitioners input tax credit on the purchases made from such four entities. The short question is, could the personal properties of the directors have been attached ?
6. This issue came up for consideration before the Division Bench in the case of Choksi (supra) in which it was held and observed as under:
7. In view of the above factual position, it is not necessary to examine the controversy at length. Suffice it to state that the respondents are not in a position to point out any statutory provision empowering the sales-tax authorities to fasten the liability of Company on its Directors in the matter of payment of sales-tax dues. There appears to be substance in the submission made on behalf of the petitioners that Section 26 containing the said provision regarding liability to pay tax in certain cases covers several contingencies such as the liability in respect of the business carried on by an individual dealer after his death, the liability in respect of the dues where the dealer was an HUF and there is partition amongst various members or group of members; there is dissolution of a partnership firm and also in case of transfer of business in whole or in part. Unlike Section 179 of the Income-tax Act, 1961, there is no provision in the Sales-tax Act fastening the liability of the Company to pay its sales-tax dues on its Directors.
8. Reliance placed by the learned AGP on the provisions of Section 78 is misconceived. The section specifically deals with offences by companies and the criminal liability is fastened on the Directors who were in charge of and were responsible for the conduct of the business of the Company, but does not at all provide for any personal liability of the Directors to pay the sales- tax dues of the Company nor does it empower the authorities to proceed against the personal properties of the Directors. The very fact that the same Legislature has in the same Act provided for criminal liability of the Directors without providing for any personal liability of the Directors or their personal properties for payment of sales-tax dues of the Company in question, the provisions of Section 78 lend support to the case of the petitioners rather than the case of the authorities.
9. As regards the faint plea of lifting the corporate veil, as per the settled legal position, the corporate veil is not to be lifted lightly. It is only when there is strong factual foundation for lifting the corporate veil that the question of examining the applicability of the principle of lifting such veil would be required to be examined. In neither of the two petitions raising the controversy, the authorities have passed any specific order fastening the liability on the Directors personally, much less any factual foundation has been laid to invoke the doctrine of lifting the corporate veil. Hence it is not necessary to dilate on the said principle any further.”
10. Sub-section (1) of section 45 of the VAT Act provides that where during pendency of any proceedings of assessment or re-assessment of turnover escaping assessment, the Commissioner is of the opinion that for the purpose of protecting interest of the Government revenue, it is necessary so to do, he may order in writing attach provisionally any property belonging to the dealer. Thus, in the present case, dealer would be the company and not the directors. Section 86 of the Act pertains to the offence by companies and contains certain provisions where for the offence of the company, every person who at the time the offence was committed was in-charge of, and was responsible to the company for the conduct of the business of the company, as well as the company shall be deemed to be guilty of the offence. In essence, this provision makes the person in- charge of the company responsible for the offence vicariously liable for the criminal action for which the company may have been charged. In the present case, we are not concerned with any such situation. The respondents have not disputed that the properties under attachment under the impugned order are the personal properties of the directors.
11. In the result, the impugned order is set aside. The petition is allowed and disposed of.
