Case Note & Summary
The petitioners, Mukesh D. Ramani, Satish D. Sanghavi, and Prakash D. Sanghavi, were former directors of Twin City Organics Pvt. Ltd. They filed writ petitions challenging an order dated 27 September 2021 passed by the State Tax Officer (Respondent No. 3), a consequential Notice of Demand dated 27 September 2021 under Section 38 of the Bombay Sales Tax Act, 1959, and a Final Notice of Assessment. The petitioners had resigned as directors long before the relevant tax period. The respondents sought to hold them personally liable for the company's tax dues under the Maharashtra Goods and Services Tax Act, 2017, the Bombay Sales Tax Act, 1959, and the Central Sales Tax Act, 1956. The court noted that the facts in all three petitions were almost identical, with differences only in the dates of joining and resignation. The court held that there is no provision in these Acts that imposes personal liability on directors for the company's tax dues without lifting the corporate veil. The show cause notice was issued to the company, not to the petitioners personally, and the respondents failed to establish any fraud or that the petitioners were in charge during the relevant period. Consequently, the assessment order and demand notice were quashed as being without jurisdiction and in violation of natural justice. The court allowed the petitions and set aside the impugned orders.
Headnote
A) Taxation - Personal Liability of Directors - Vicarious Liability - MGST Act, 2017; BST Act, 1959; CST Act, 1956 - Directors who resigned before the relevant tax period cannot be held personally liable for the company's tax dues without lifting the corporate veil - The court held that there is no provision in the MGST Act, BST Act, or CST Act that imposes personal liability on directors for the company's tax dues, and the respondents failed to establish any fraud or that the petitioners were in charge of the company during the relevant period (Paras 1-10). B) Taxation - Show Cause Notice - Natural Justice - MGST Act, 2017; BST Act, 1959; CST Act, 1956 - Show cause notice must be served on the person sought to be made liable - The court held that the show cause notice was issued to the company and not to the petitioners personally, and therefore, the assessment order and demand notice against the petitioners are in violation of principles of natural justice (Paras 11-15). C) Taxation - Assessment Order - Validity - MGST Act, 2017; BST Act, 1959; CST Act, 1956 - Assessment order passed without jurisdiction against former directors is liable to be quashed - The court held that the respondents cannot bypass the corporate entity and proceed against the petitioners without any statutory provision or finding of fraud (Paras 16-20).
Issue of Consideration
Whether a director who has resigned from the board of a company prior to the relevant tax period can be held personally liable for the company's tax dues under the MGST Act, BST Act, and CST Act without lifting the corporate veil.
Final Decision
The court allowed the writ petitions and quashed the order dated 27 September 2021, the consequential Notice of Demand dated 27 September 2021, and the Final Notice of Assessment. Rule made absolute.
Law Points
- Personal liability of directors for company's tax dues
- Lifting of corporate veil
- Vicarious liability under tax statutes
- Natural justice
- Show cause notice
- Assessment order
- Demand notice
