Recovery of tax – Director of a company not personally liable for sales tax dues of company: Gujarat Value Added Tax Act 2003:

Whether for the purpose of recovery of sales tax dues under the Gujarat Value Added Tax Act and Gujarat Sales Tax Act against a private limited company, the personal property belonging to the managing director of such company can be attached and sold for realisation of the dues against the company?

The said proceedings are challenged on the ground that the company and its directors being separate legal entities, the liability of the company to pay sales tax cannot be fastened on the directors personally or on the personal properties of the directors, in the absence of any provision to that effect under the Gujarat Sales tax Act, 1969.

The property in question at no point of time belonged to the company nor is it the case that the managing director is holding property as “benamdar”. In that view of the matter, the attachment and proposed auction of the residential building was on the face of it without jurisdiction. The Hon’ble Court relied on its earlier order in case of Choksi vs. State of Gujarat (2012) 51 VST 73 (Guj.)

The Court observed that the respondents were 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. The 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.