Case Note & Summary
The case involved a writ petition filed by Purshottam Das Gupta, an 86-year-old former director of Sujata Verbatim Limited (later known as PDG Infotech Limited), challenging a demand notice issued under Section 142(1)(c)(ii) of the Customs Act, 1962 for recovery of customs dues amounting to Rs.2,49,10,040/- owed by the company. The petitioner had ceased to be a director and claimed no association with the company, relying on records from the Registrar of Companies. The demand notice dated 28-12-2018 threatened attachment of his property for non-payment. The petitioner argued that as a director, he could not be held personally liable for the company's tax dues, as the company has a separate legal identity. He relied on precedents including S.L. Kirloskar v. Union of India and others. The respondents contended that the petitioner and his wife were the predominant shareholders and directors, effectively controlling the company, and that he had represented the company throughout the adjudication process which confirmed the customs dues. The court examined Section 142 of the Customs Act and observed that it enables recovery of sums due to the Government from the person liable, which in the case of a company is the company itself. The corporate veil could not be pierced simply because the director held shares. Accordingly, the court found the demand notice without legal basis and quashed it, holding that the director was not personally liable for the customs dues of the company unless the statute specifically provided for such liability. The decision reinforced the principle of separate legal entity of a company and the limits on recovery from directors.
Headnote
A) Customs Law - Recovery of Dues - Section 142, Customs Act, 1962 - The expression "any person" in Section 142 refers to the person from whom the sum is due, which in case of a company is the company itself; a director is not personally liable unless the statute expressly so provides. The court noted that the company is a separate legal entity and the corporate veil cannot be lifted merely on the ground that the director and his wife are the majority shareholders. (Paras not mentioned)
Issue of Consideration
Whether a former director of a company can be held personally liable for payment of customs dues owed by the company under Section 142 of the Customs Act, 1962?
Final Decision
The writ petition was allowed and the demand notice was quashed. The court held that the director was not personally liable for the customs dues of the company.
Law Points
- Director not personally liable for company's customs dues unless statute provides
- company has separate legal identity
- Section 142 of Customs Act
- 1962 permits recovery only from the assessee
- corporate veil cannot be pierced routinely
Case Details
2019 LawText (BOM) (03) 47
Writ Petition No.715 of 2019
S.C. Dharmadhikari, M.S. Karnik
Prakash Shah, Jas Sanghavi, Suyog Bhave, Pradeep S. Jelty, Jitendra Mishra
Union of India, Commissioner of Customs (ImportI), Assistant Commissioner of Customs (ImportI)
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Nature of Litigation
Writ petition challenging demand notice for recovery of customs dues from director of company under Section 142 of Customs Act, 1962
Remedy Sought
Petitioner sought quashing of demand notice dated 28-12-2018 and declaration that company's dues cannot be recovered from him personally
Filing Reason
Petitioner, a former director, was served a demand notice for outstanding customs dues of the company, alleging personal liability
Previous Decisions
Order-in-Original dated 26-6-2001 confirmed customs dues; appeal eventually resulted in remand and de novo order by Commissioner (Appeal) on 8-2-2013, which was not challenged; demand notice issued under section 142
Issues
Whether a former director of a company can be held personally liable for payment of customs dues owed by the company under Section 142 of the Customs Act, 1962?
Submissions/Arguments
Petitioner argued that director not personally liable; company has separate legal identity; Section 142 does not permit recovery from director; relied on precedents.
Respondent argued that petitioner was controlling mind of company; majority shareholder with wife; represented company throughout adjudication; tax evasion; demand notice should be enforced.
Ratio Decidendi
Under Section 142 of the Customs Act, 1962, the expression 'any person' refers to the person from whom the sum is due, i.e., the assessee. A company is a separate legal entity and its director cannot be held personally liable for its tax dues unless the statute specifically provides for the same.
Judgment Excerpts
the company has an existence independent of the Director, in law
A perusal thereof would indicate that it enables recovery of sums due to Government. Now, where any sum payable by any person would mean a sum due and payable to the Government even by an artificial person such as a company in this case.
the petitioner, his wife Mrs. Priti Purshottam Das Gupta and Ms Anjali Omprakash Berlia were the only Directors
Procedural History
The petitioner, a former director, received a demand notice dated 28-12-2018 under Section 142(1)(c)(ii) of the Customs Act, 1962 for customs dues of the company. He filed a writ petition before the High Court of Judicature at Bombay challenging the notice. The court issued Rule and heard the parties finally on 15-02-2019.
Acts & Sections
- Customs Act, 1962: 142(1)(c)(ii), 28B
- Customs (Attachment of Property of Defaulters for Recovery of Government Dues) Rules, 1995: Rule 4
