Case Law Details
Shankar Rudra Vs State of Uttarakhand & Ors. (Supreme Court of India)
Summary: In the case of Shankar Rudra v. State of Uttarakhand & Ors., the Supreme Court addressed the issue of whether tax dues of a private company can be recovered from its directors. The appellant, Shankar Rudra, a director of M/s. SLR Impex Private Limited, challenged a recovery notice issued for unpaid taxes under the Uttarakhand Value Added Tax (UVAT) Act for the assessment years 2014-2017. The Court held that the UVAT Act does not allow for the recovery of a company’s dues from its directors unless the company is in liquidation, as specified in Section 12(1) of the Act. Since no winding-up order was presented, the recovery notice issued to Rudra was deemed unjustified. The Court noted that the High Court had overlooked this crucial aspect, which rendered the recovery attempts illegal. Therefore, the Supreme Court allowed the civil appeal, quashing the recovery notice issued on June 6, 2019. This ruling emphasizes that directors cannot be held personally liable for a company’s tax obligations unless specific statutory conditions are met, such as the company’s liquidation. Consequently, the orders of the lower courts were set aside, reaffirming the principle that liability for tax recovery must align with established legal provisions.
The Hon’ble Supreme Court in the case of Shankar Rudra v. State of Uttarakhand & Ors. [Special Leave to Appeal (C) No. (s). 20534/2019 dated September 10, 2024] allowed the civil appeal and held that when the provisions of the Uttarakhand Value Added Tax (“the UVAT Act”) does not provide for the dues of a limited company could be ascertained by the Director. Hence, recovery certificate and demand notice shall have not been issued to the Assessee.
Facts:
The Orders of assessment were passed by the State Government (“the Respondent-1”) under the UVAT Act against M/s. SLR Impex Private Limited (“the Company”). The assessment made was pertaining to the years 2014-15, 2015-16 and 2016-17. The notice of demand and the tax assessment order were attempted to be served at the last known address of the Company. The amount was not paid by the Company. Therefore, the Respondent-1 took recourse to the recovery proceedings by treating the amount of tax and other dues payable by the Company as arrears of land revenue.
Accordingly, an Officer of the Government of NCT of Delhi (“the Respondent-3”), issued a recovery certificate and a recovery notice dated June 6, 2019 addressed to Mr. Shankar Rudra (“the Appellant”) who was one of the Directors of the Company.
The Appellant, therefore, filed a writ petition before the learned Single Judge and the Division Bench of the Hon’ble High Court challenging the recovery notice, which was dismissed by holding that the Appellant had an alternative remedy under Section 287-A of the Uttar Pradesh Zamindari Abolition and Land Reforms Act, 1950 to challenge the recovery certificate.
Hence, aggrieved by the Impugned Orders, the Appellant filed the present Special Leave to Appeal.
Issue:
Whether recovery dues of a private company be recovered from its directors?
Held:
The Supreme Court in Special Leave to Appeal (C) No. (s). 20534/2019 held as under:
- Observed that, as per Section 12(1) of the UVAT Act, the liability of the Directors of a private company will arise when a private company is wound up after the commencement of the UVAT Act. Therefore, Section 12(1) of the UVAT Act will have no application in the current case as an order of winding up has not been produced.
- Held that, when there is no provision under the UVAT Act under which dues of a limited company could have been recovered from its directors. Hence, the Respondent-3 was not justified in issuing the recovery certificate and demand notice against the Appellant. These crucial factors were ignored by the Hon’ble High Court. It ought to have been noted by the Hon’ble High Court that an attempt to recover tax payable by the Company from the Appellant from its inception was illegal. Therefore, the Appellant ought not to have been driven to the remedy of preferring an appeal. Hence, the appeal was succeeded and the Impugned Orders of single bench and Division bench were sets aside. The notice of recovery was passed on June 6, 2019.
Our Comments:
Section 12 of the UVAT Act governs “Liability in case of a Company”. Section 12(1) of the UVAT Act discusses the liability of the directors of a private company in liquidation. It states that under the Company’s Act, 1956, when any private company is wound up after the commencement of the UVAT Act, and any tax assessed on the company for any period, whether before or in the course of or after its liquidation, cannot be recovered, then, every person who was a director of the private company at any time during the period for which the tax is due shall be jointly and severally liable for payment of such tax unless he proves that the non-recovery can not be attributed to any gross neglect, misfeasance or breach of duties on his part in relation to the affairs of the company.
Hence, Section 12(1) of the UVAT Act is only applicable in the case of winding up or liquidation of a company. In the case in hand, the Company did not wind up. Therefore, the Directors were not liable for payment of recover. Had the case been of liquidation, all the directors would have been jointly and severable liable for payment of such tax.
Under GST Law, the Hon’ble Madras High Court in the case of K. Malathi v. State Tax Officer & Anr. [W.P.No.19728 of 2020 & 484 of 2021 dated October 30, 2023] held that, Director is not liable for payment of tax amount when it is not determinable that the Company is unable to pay the tax amount during liquidation proceedings. However as per Section 88 (3) of the Central Goods and Services Tax Act, 2017 (“the CGST Act”), the Directors can be held liable jointly and severally, when it is conclusively determined that the Company is unable to settle the amount of tax, interest or penalty payable.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
1. Heard the learned counsel appearing for the parties.
2. Leave granted.
3. The orders of assessment were passed by the first respondent-State Government under the Uttarakhand Value Added Tax Act, 2005 (for short, “the Act”) against M/s. SLR Impex Private Limited. The assessment made was pertaining to the years 2014-15, 2015-16 and 2016-17. It appears that the notice of demand and the tax assessment order were attempted to be served at the last known address of the said Company. The amount was not paid by the Company. Therefore, the first respondent took recourse to the recovery proceedings by treating the amount of tax and other dues payable by the Company as arrears of land revenue. Accordingly, it appears that the third respondent, who is an officer of the Government of NCT of Delhi, issued a recovery certificate and a recovery notice dated 6th June, 2019 addressed to the appellant on the basis of the certificate.
4. The appellant, therefore, filed a writ petition before the learned Single Judge challenging the recovery notice. At the admission stage, the learned Single Judge dismissed the petition by holding that the appellant had a statutory remedy of preferring an appeal under Section 51 of the Act. A writ appeal was preferred by the appellant which has been dismissed by the Division Bench of the High Court. The Division Bench modified the order of the learned Single Judge by holding that the appellant had an alternative remedy under Section 287-A of the Uttar Pradesh Zamindari Abolition and Land Reforms Act, 1950 to challenge the recovery certificate.
5. When we made a query to the learned counsel appearing for the first and second respondents (State of Uttarakhand) whether there is any provision under the Act for recovery of the dues of a Company from its Directors, the learned counsel appearing for the first and second respondents states that the first and second respondents had not initiated any proceedings against the appellant. She pointed out the stand taken in the counter affidavit that no recovery certificate or assessment of tax has been done by the first and second respondents against the appellant and the assessment has been made in respect of the Company. However, she relies upon Section 12(1) of the Act.
6. We have considered the submissions of both the parties.
7. On a plain reading of sub-Section (1) of Section 12 of the Act, the liability of the Directors of a private company will arise when a private company is wound up after the commencement of the Act. Therefore, Section 12(1) will have no application as an order of winding up has not been produced.
8. Therefore, when there was no provision under the Act under which dues of a limited company could have been recovered from its Directors, the third respondent was not justified in issuing the recovery certificate and demand notice against the appellant. These crucial factors have been ignored by the High Court. It ought to have been noted by the High Court that an attempt to recover tax payable by the Company from the appellant from its inception was illegal and, therefore, the appellant ought not to have been driven to the remedy of preferring an appeal.
9. Accordingly, the Appeal succeeds. The impugned judgments and orders of the learned Single Judge and the Division Bench are set aside. The notice of recovery dated 6th June, 2019 issued by the third respondent is hereby quash and set aside.
10. The Appeal is, accordingly, allowed.
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