Case Law Details

Case Name : Manharlal Hirjibhai Virdiya Vs Assistant Commissioner of Commercial Tax (Gujarat High Court)
Appeal Number : R/Special Civil Application No. 12733 of 2021
Date of Judgement/Order : 08/10/2021
Related Assessment Year :

Manharlal Hirjibhai Virdiya Vs Assistant Commissioner of Commercial Tax (Gujarat High Court)

Facts- The only question that arises is whether for the purpose of recovery of sales tax dues under the Gujarat Value Added Tax Act and Gujarat Sales Tax Act against the private limited company, the personal property belonging to the Managing Director of such company can be attached.

Accordingly, the order passed attaching the personal property of the petitioner is challenged.

Conclusion- In the case of Mr. Chokshi Vs. State of Gujarat it was held that the auction of the residential property is illegal and bad-in-law. Further, attaching/ selling of private property of the Managing Director was also restrained for realization of the dues.

On the basis of the observation made in the case of C.V. Cherian and Mr. Chokshi it was held that attaching director’s personal property for recovery of sales tax dues is illegal and bad-in-law.

FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT

1. By way of this petition under Article 226 of the Constitution of India, the petitioner has challenged the order dated 17.05.2019 whereby the respondent No.1 passed order attaching the personal property of the petitioner purportedly for the outstanding dues of the Company as well as the action of the respondent No.3 dated 21.05.2019 whereby the respondent No.3 issued a show cause notice to the petitioner under section 135D of the Bombay Land Revenue Code inter-alia calling upon the petitioner to raise objections, if any. The petitioner has prayed for the following main reliefs :

“7.0. The Petitioner therefore prays that this Honourable Court may be pleased to:

(A) Issue a writ of certiorari:

(i) quash and set aside the impugned action of the Respondents whereby a lien is earmarked on the property of the Petitioner being Survey No.205, Ward No.2, District Rajkot ad-measuring 249.94 sq. mtrs. quash and set aside the communication dated 11.05.2019 of the Respondent No.1 to the Respondent No.4

(B) During the pendency and final disposal of the this petition, stay the 05 implementation, operation of the order dated dated 17062019 at Annexure-A and the impugned action of the Respondent No. 4 hereto and restrain the Respondents from taking any coercive steps against the Petitioner herein.

(C) Award cost of this petition.

(D) Pass such other and further orders as may be deemed just and expedient.”

2. Facts giving rise to the present petition are as follow:

2.1. It is the case of the petitioner that the petitioner is a director of the Patel Rolling Mills Pvt. Ltd. The said Company was inter alia in the business of rolling steel bars.

2.2. It is the case of the petitioner that the Respondent Nos. 1 to 3 had initiated proceedings against the said Company in respect of the purported outstanding dues of sales tax and a demand of Rs.2.37 crores was raised against the said Company for the outstanding dues of sales tax in respect of the years 1998-99 to 2000-01.

2.3. It is the case of the petitioner that on 04.06.2015, the respondent No.1 issued a notice to the petitioner calling upon the petitioner to remain present before him on 05.06.2015 and disclose the material facts in respect of the said Company.

2.4. It is the case of the petitioner that the respondent No.1 again issued a notice dated 15.06.2015 calling upon the petitioner to disclose additional facts of the said Company.

2.5. It is the case of the petitioner that the petitioner replied to the said letter vide his letter dated 18.06.2015 whereby the Petitioner informed the respondent No.1 that the personal property of the petitioner cannot be attached in view of the judgement of this Hon’ble Court.

2.6. It is the case of the petitioner that the petitioner also addressed a letter dated 18.06.2015 to the Manager, Central Bank of India, requesting the said Bank to disclose the relevant information in respect of the property of the said Company mortgaged with the said Bank in order to enable the petitioner to reply to the said notice dated 15.06.2015 issued by the Respondent No.1.

2.7. It is the case of the petitioner that thereafter the respondent No.1 issued a letter dated 10.05.2019 calling upon the petitioner to remain present and produce relevant information failing which necessary steps in respect of attachment of assets and bank accounts may be taken.

2.8. It is the case of the petitioner that the petitioner once again remained personally present before the respondent No.1 and disclosed all facts in the knowledge of the petitioner to the Respondent No.1.

2.9. It is the case of the petitioner, however, the respondent No.1 issued a notice dated 17.05.2019 to the respondent No.1 informing him about the outstanding dues of the said Company and requesting the respondent No.4 to immediately earmark the lien on all the properties belonging to the petitioner.

2.10. It is the case of the petitioner that the respondent No.3 issued a notice dated 21.05.2019 to the Petitioner under Section 135D of the Bombay Land Revenue Code, 1879 calling upon the petitioner to raise objections, if any, in respect of the said action of the respondent No.4. The petitioner submitted his written objections dated 11.06.2019 to the respondent No.4 pointing out that the said property is the personal property of the petitioner and the same cannot be attached for the outstanding dues of a company which is a separate legal entity. The petitioner also referred to the judgements of this Hon’ble Court.

2.11. According to the petitioner, despite the aforementioned objections, a lien was earmarked on the said property belonging to the petitioner on 26.06.2019.

2.12. It is the case of the petitioner that the said property is the personal property of the petitioner and respondents have on a premise that the said Company is a partnership firm and the petitioner is a partner therein attached the property belonging to the petitioner. However, the same is on an entirely wrong premise. According to the petitioner, it is not in dispute that the said Company is a private limited company registered under the Companies Act, 1956 and for this reason alone, the Petitioner’s property cannot be attached for the dues of the said Company. Hence, the petitioner has preferred present petition for the aforesaid reliefs.

3. The co-ordinate Bench of this Court issued Notice on 03.09.2021.

4. Affidavit-in-reply has been filed by by Commercial Tax Officer, Unit 92, Rajkot, denying all the averments and allegations made in the petition. It is contended that since the arrears of sales tax could not be recovered from the Company, the respondent authorities have taken recourse under section 78 of the Gujarat Sales Tax Act, 1969 (“the Act” for short) and in light of the said provision that where an offence has been committed by Company for the conduct of the business of the Company as well as the company shall be deemed to be guilty of offence and shall be liable to be proceeded against.

4.01. It is further contended as per Section 47A of the Act, power has been vested with the officer to collect revenue as arrears in land and that since the dues have not been paid and the director of the company has to pay the government dues, the property bearing Survey No.205, Ward No.2, District Rajkot ad-measuring 249.94 sq.mtrs. has been attached. Contending accordingly, it is submitted to dismiss the petition.

5. Heard Mr.Tirth Nayak, learned advocate for the petitioner and Mr.Soham Joshi, learned AGP for the respondents State.

6. The learned advocate for the petitioner has submitted that the impugned action of the Respondents in earmarking a lien over the personal property of the Petitioner is ex-facie arbitrary, contrary to law and based on the irrelevant considerations.

6.1. It is further submitted by the learned advocate for the petitioner that it is an admitted case that the demand of Rs.2.37 crores is against the said Company in respect of the outstanding commercial tax payable by the said Company. Therefore, the said Company which is a separate legal entity then the property of the Petitioner cannot be attached for the dues of the said Company. It is submitted that the property of the Petitioner was attached because the petitioner was a director of the said Company. However, the said property is admittedly solely belonging to the Petitioner and therefore, the action of the Respondents against the Petitioner to attach his property because the Petitioner was a director in the said Company is contrary to law and ex facie illegal.

6.02. It is further submitted by the learned advocate for the petitioner that it is clear from the impugned order at Annexure-A that the respondents have proceeded on the presumption that the said Company is a partnership concern and the petitioner is a partner therein. However, the same is solely on the basis of assumptions and presumptions. The said company is a Private imited Company, which is evident from the Master Data of the Company, and the petitioner is a Director of the Company and not a partner therein.

6.3. It is submitted by the learned advocate for the petitioner that this Hon’ble Court in various judgments have held that the liability of a company cannot be fastened on its directors in the matter of payment of sales tax dues and therefore also, the property belonging to the petitioner cannot be attached. Moreover, there is no order whereby the liability of the said amount has been fastened on the petitioner personally and there is no foundation to invoke the doctrine of lifting the corporate veil and therefore also, the impugned action of the respondents is ex-facie contrary to law.

6.4. The learned advocate for the petitioner has relied on various judgements of this Hon’ble Court. However, the respondents in ignorance of the said judgements proceeded to earmark a lien on the property of the petitioner.

6.5. Learned advocate for the petitioner has relied on the decision of co-ordinate Bench of this Court in the case of C.V. Cherian Versus C.A. Patel rendered in Special Civil Application No.1853 of 2012 decided on 21.03.2012 as well as decision of Division Bench of this Court in the case of Mr.Choksi Versus State of Gujarat rendered in Special Civil Application No.243 of 1991 and allied matters.

7. Learned AGP Mr.Soham Joshi has emphasized on the main issue that since the arrears of sales tax could not be recovered from the Company, the respondent authorities have taken recourse under section 78 of the Gujarat Sales Tax Act, 1969 and in light of the said provision that where an offence has been committed by Company for the conduct of the business of the Company as well as the company shall be deemed to be guilty of offence and shall be liable to be proceeded against.

7.1. It is further submitted by the learned AGP has relied upon Section 47A of the Act wherein, according to him, power has been vested with the officer to collect revenue as arrears in land and that since the dues have not been paid and the director of the company has to pay the government dues, the property in question has been attached.

8. Having heard the learned advocates for the respective parties and considering the material on record, it appears that it is not the case of the State that the property in question at any point of time belonged to the company nor is it the case that. The only question that arises for determination in this petition under Article 226 of the Constitution of India is whether for the purpose of recovery of sales tax dues under The Gujarat Value Added Tax Act and Gujarat Sales Tax Act against Gujarat against a private limited company, the personal property belonging to the Managing Director of such company can be attached.

8.1. The Co-ordinate Bench while considering the similar issue, relying upon the decision of Division Bench of this Court rendered in Special Civil Application No.243 of 1991 with Special Civil Application No.3103 of 1991 and Special Civil Application No.7578 of 1991 in the case of Mr.Choksi Vs. State of Gujarat, has allowed the said petition and quashed and set aside the impugned notification by holding that the auction of the residential property in question as illegal and bad in law and restrained the respondents from attaching or selling any private property of the Managing Director of the Company for realization of the aforesaid dues. Relevant findings and observations of the aforesaid decisions are as follows:

“12. ………….. The section 78 specifically deal with offence 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 of 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.

13. 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 requiqred 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.”

For the reasons aforesaid, the reliance placed by the learned AGP on Section 78 is misconceived.

Resultantly, considering the observations made by the Co-ordinate Bench of this Court in the cases of C.V. Cherian (Supra) and in the case of Mr.Choksi (supra), the issue has already been decided and therefore, there is substance in the submission made by the learned advocate for the petitioner. In the result, present petition is allowed. The impugned order passed by the respondent No.1 dated 17.05.2019 and the impugned action of the respondent No.3 dated 21.05.2019 are hereby quashed and set aside.

Present petition stands disposed of accordingly. In the facts and circumstances of the case, there shall be no order as to costs.

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