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2016 DIGILAW 1273 (GUJ)

Umesh Mohanbhai Garala v. Commercial Tax Officer

2016-07-08

A.J.SHASTRI, AKIL ABDUL HAMID KURESHI

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JUDGMENT : A.J. Shastri, J. 1. The petition is directed against an order dated 14.12.2015 by virtue of which the property being residential unit belonging to the petitioner came to be attached by the respondent authorities. The case of the petitioner is that the petitioner was working as a Computer Engineer in one associate company of Mr. Sunil Kakkad named as Sai Infosystem (India)Ltd. And while the petitioner was working with said Mr. Sunil Kakkad, who later on floated a company in the name of Power Infocontrol and Service Pvt. Ltd. With persuation of Mr. Sunil Kakkad, had agreed to become nominal director of the company in the year 2007. However, it is the case of the petitioner at no point of time, the petitioner had any share holding in the company nor even was drawing salary from the company. The petitioner had also stated that he was not even in charge of day to day affairs of the company. As per the say of the petitioner he ceased to be Director of the company with effect from 8.7.2011 and necessary formalities of filling up form No. 32 before ROC had also been completed. 2. It is stated by the petitioner that an ex parte assessment came to be carried out of the company named as M/s. Power Infocontrol and Services Pvt. Ltd. by Commercial Tax Officer. Pursuant thereto, the respondent Nos. 1 and 2 authorities have issued notice on 26.5.2015 to the said company and as per the say of the petitioner, a copy of the said notice came to be forwarded to the petitioner. It was pointed out by the petitioner that at the relevant point of time, i.e. from 2007 to 2011, the petitioner was associated as nominal Director of the company had never participated in the activities of the company. Still however, notice came to be issued against him. Later on, on 12.10.2015 the respondent No. 1 had issued a notice under section 152 of the Bombay Land Revenue Code name of the petitioner was given in the bracketed portion and the notice was given at the address of the petitioner. By virtue of this notice, the respondent No. 1 had called the company to pay amount of tax as assessed within a period of 10 days failing which the property shall be seized and action for recovery of tax dues shall be initiated. By virtue of this notice, the respondent No. 1 had called the company to pay amount of tax as assessed within a period of 10 days failing which the property shall be seized and action for recovery of tax dues shall be initiated. Since notice had been posted to the address of the petitioner, upon an apprehension that the property of the petitioner will be attached, the petitioner approached this Court by way of filing Special Civil Application No. 21109 of 2015 and prayed to set aside the impugned notice which was issued under section 152 of the Bombay Land Revenue Code. After hearing the petitioner, this Court passed the following order on 23.12.2015: "1. Petitioner has challenged two notices dated 26.05.2015 and 12.10.2015 as Annexures D and E respectively for recovery of the dues of the Sales Tax Department. According to the petitioner, such dues pertained to one Power Infocontrol and Service Pvt. Ltd., a company of which, the petitioner no longer is a director. Counsel for the petitioner submitted that quite apart from the ceasing to be the director of the company long back, the petitioner cannot be personally made answerable to the dues of the private limited company. 2. There is nothing in the said notices to suggest that the recovery are sought to be made against the petitioner personally or, through any of his private properties. Both the notices are addressed to the company. Merely because it is also endorsed to the petitioner or, in one such communication, his name is written in the bracket would not permit us to presume that the department is in the process of proceeding petitioner's personal property. 3. The petition is disposed of accordingly. If such a situation arise in future, it is always open for the petitioner to take legal recourse." 3. Relevant para-2 of the above order states that since the name of the petitioner is written in bracketed portion, the same would not permit to presume that the department is in the process of proceeding ahead with the present petitioner. On that basis, the petition came to be disposed of. 4. It is the case of the petitioner that the respondent No. 1 by that time, had passed order on 14.12.2015 which came to be received by the petitioner only on 23.12.2015 whereby the property of the petitioner was attached for the recovery of VAT dues. On that basis, the petition came to be disposed of. 4. It is the case of the petitioner that the respondent No. 1 by that time, had passed order on 14.12.2015 which came to be received by the petitioner only on 23.12.2015 whereby the property of the petitioner was attached for the recovery of VAT dues. It was observed in the order impugned in the petition that despite issuance of the notice under sections 152 and 200 of the Land Revenue Code, the petitioner has not deposited the amount stated in the notice, as a result of which, the order was passed. It is in the background of these facts that the petitioner has approached this Court for seeking quashment of the said order dated 14.12.2015 at Annexure "H" to the petition. 5. Learned advocate Mr. Gupta on behalf of the petitioner contended that the petitioner was merely a nominal director and was not even drawing any salary from the company and was not in charge of the day to day affairs of the company. He was merely working in a associate company of Mr. Sunil Kakkad as an engineer and he was persuaded to be director of the company. In the background of these facts, learned counsel contended that from the year 2007 to 2011, the petitioner has never actually worked as a director nor participated in the company's affairs and therefore, the petitioner's liability for the said VAT dues has not accrued. Pursuant to the notice having been issued on earlier occasion, a representation was also filed by the petitioner wherein it was clarified that the petitioner has never actually worked as a director nor has taken any part in day to day affairs of the company. Learned counsel drew our attention to the fact that in any case, the petitioner has resigned from the company on 8.7.2011 and the said resignation also came to be recorded in form No. 32 filed with ROC and since that period, the petitioner ceased to be director. Learned counsel for the petitioner therefore submitted that in the background of these facts, the order in question deserves to be quashed. It was also pointed out by the learned counsel that director of the company is not included in the definition of word "dealer" as defined under section 2(10) of the VAT Act. Learned counsel for the petitioner therefore submitted that in the background of these facts, the order in question deserves to be quashed. It was also pointed out by the learned counsel that director of the company is not included in the definition of word "dealer" as defined under section 2(10) of the VAT Act. Even a person who has been defined under section 2(15) of the VAT Act also is not referring to a director and therefore, in absence of any such indication in the definition also, director cannot be held responsible in his personal capacity. He further contended that under the provisions of the VAT Act, right from sections 49 to 59, none of the provisions empower the authority to fix liability of the director personally and therefore, the order passed by the respondent authority is without authority of law. Learned counsel further relied upon the decision of this Court in the case of M.R. Choksi v. State of Gujarat reported in (2012) 51 VST 73, wherein also it is held that personal property of a director cannot be attached and based upon this, learned counsel submitted that the order passed by the authority is unjust, illegal, improper and lacks authority. In the background of these facts, learned counsel submitted that the petition may be allowed. 6. As against this, learned Assistant Government Pleader submitted that huge tax demand to the tune of more than Rs. 158 crores is recoverable from the petitioner company. It was pointed out that the petitioner was actively associated with the company as a director. It was also pointed out in the affidavit-in-reply that the petitioner signed certain documents relating to bank transactions. It is also pointed out that when name of the company was changed, at the relevant point of time, the petitioner has put his signature as a director in form No. 101 and based upon this, learned Assistant Government Pleader submitted that the petitioner being closely associated with the activities of the company, order passed by the authority is just and proper. He further submitted that as per the case of the petitioner, he was persuaded by Mr. Kakkad and Mr. He further submitted that as per the case of the petitioner, he was persuaded by Mr. Kakkad and Mr. Kakkad has committed a fraud with him, but no action is initiated by the present petitioner and therefore, it is prayed to presume that the petitioner was in charge of the affairs of the company and was rightly held liable and responsible for the outstanding tax dues and for that purpose, order of attachment of the property is just and proper. It was also pointed out by the learned Assistant Government Pleader that that as on date also, even status of the company is shown as active and therefore, the order in question passed by the authority is just and proper. He has contended that simply because the petitioner is taking a stand that he was not in day to day charge of the company would not absolve him from the responsibility. Therefore, he has prayed to dismiss the petition. 7. Having heard learned counsel for the respective parties and having perused documents and material on record, and having examined the order passed by the authority impugned in the petition, it emerges that under the provisions of the VAT Act, personal property of the director is not permissible to be attached. In view of section 10(2) of the VAT Act, a director of the company is not to be presumed as a dealer who can be proceeded with by the authority. Resignation has also been reflected in form No. 32 which would indicate that the petitioner has remained no longer as a director of the company and cannot be held responsible and therefore, could not be proceeded with by way of attachment of property. The respondents may however, argue that the liability which arose during the period when the petitioner was the Director, cannot be avoided simply because he resigned or relieved as a Director later on. This issue need not be decided in this petition because moot question is, can the dues of the limited company be recovered from its Directors? The respondents may however, argue that the liability which arose during the period when the petitioner was the Director, cannot be avoided simply because he resigned or relieved as a Director later on. This issue need not be decided in this petition because moot question is, can the dues of the limited company be recovered from its Directors? Our attention has been drawn to the decision of this Court in the case of M.R. Choksi (supra), wherein after analysing provisions and after considering relevant material, the Court came to the conclusion that a company and its directors are a separate legal entity and liability of the company to pay sales tax on the sale of goods effected by the company cannot be fastened on the director personally. Relevant portion of the judgment reads as under: "8. Coming to the second controversy involved in Special Civil Application No. 243 of 1991 and also in Special Civil Application No. 7578 of 1991, Mr. Hasurkar and Mr. Mankad, learned counsel for the petitioners have submitted that since the Company and its Directors are separate legal entities, the liability of the Company to pay sales-tax on sale of goods effected by the Company cannot be fastened on the Directors personally or on the personal properties of the Directors. Referring to the provisions of Section 26, it is submitted that there are special provisions regarding liability to pay tax in certain cases like on the death of the dealer, partition of a Hindu undivided family, dissolution of a firm and transfer of business, termination of the guardianship or termination of the trust, but there is no provision fastening liability of a private Company on its Directors Reliance is placed on the decisions in Desirajur Vennkatakrishna Sarma, In re, (1955) 25 Company Cases 32, Kundan Singh v. Moga Transport Co.(P.) Ltd. & Ors., (1987) 62 Comp. Cases 600 and in Tikam Chand Jain v. State Government of Haryana & Anr., (1987) 62 Comp. Cases 601." 8. Cases 600 and in Tikam Chand Jain v. State Government of Haryana & Anr., (1987) 62 Comp. Cases 601." 8. Learned counsel for the petitioner has also drawn our attention to another decision of this Court delivered on 12.2.2014 in the case of Radhey Mohan Sharma v. Deputy Commissioner of Income Tax (OSD) in Special Civil Application No. 1921 of 2005 wherein the court dealing in the context of section 179 of the Income-tax Act has examined the issue pertaining to responsibility of a director of the company and while examining the question of concept of lifting the corporate veil. The Court held as under: "8. With regard to the outstanding dues of the company for the assessment years 1995-96, 1996-97 and 1997-98, the Company being a Public Limited Company from May 25, 1992 the certificate of incorporation having come, the very issuance of the notice cannot be sustained unless, of course, as provided in the case of Pravinbhai Kheni (supra) and followed thereafter, in the case of Sandeep A. Mehta (supra) there are glaring facts which would permit the lifting of the corporate veil. In the present case, as could be noticed, those foundational facts are completely missing. It is not even the case of the Revenue that such claim exist warranting lifting of veil. Except non fulfillment of the obligation by the Company of the tax demands that had arisen as a result of the assessment of all these years, nothing comes on record for the Court to permit the piercing of corporate veil. The petitioner being the director of the public limited company, this provision is non applicable. 9. Therefore, from these two decisions, it emerges that the challenge in the petition appears to be just and proper. No material is brought on record to permit lifting of corporate veil. In fact no such case has been put forth before us by the respondents. The petitioner's personal property could not have been attached by the impugned order. The order dated 14.12.2015 passed by the respondent authorities is not sustainable in the eye of law. Hence, this petition is allowed. The impugned order of attachment dated 14.12.2015 passed by the respondent authorities is quashed and set aside. Rule made absolute.