VAT Dues of Company cannot be recovered from Individual Directors: Orissa HC [Read Order]

A division bench of Orissa High Court headed by the Chief Justice held that the dues under the Orissa VAT Act cannot be recovered from the individual directors of the Company.

The petitioner, Mr. Atul Kumar Saxena is the Director of M/s. Amcon Engineers Private Limited (AEPL), the Assessee. The VAT department has initiated recovery proceedings against the petitioner in respect of the dues of the Company. by invoking Section 71 of the OVAT Act.

The petitioner contended that he had already resigned from the Board of Directors of AEPL on 15th February 2014 and therefore could not be made liable for the dues of AEPL.

Dr. S. Muralidhar and Justice M.S. Raman observed that Section 71 of the OVAT Act which does not talk of dues of a company being recovered from its Directors, but the dues of a partnership firm being recovered from the individual partners.

The High Court held that there is no mention of any source of power under the OVAT Act enabling the Department to proceed, for the dues of a company, against its Directors.

“In other words, there is no provision of the OVAT Act under which the Department can seek to attach the Bank account of an individual Director only because he happens to be associated with the Company which is in default. The Company is a separate legal entity which can sue and is capable of being sued. Admittedly, the assessment in the present case is in the name of the Company and throughout, it is the Company which has been treated as the Assessee and demands raised against it. While the impugned order notices that there is nothing wrong in the attachment of the Company’s account, the grievance of the Petitioner that as an individual Director who has already resigned much prior to the impugned attachment, his individual account could not have been attached was not even addressed in the impugned order,” the Court said.

Section 51 of the OVAT Act read with Rule 55 of the OVAT Rules provides a special mode of recovery of outstanding amount of tax, interest and penalty. Even these provisions do not authorize recovery of outstanding taxes of a Company from the accounts of its individual Directors.

Allowing the petition, the High Court held that “For the aforementioned reasons, this Court is unable to sustain the impugned order dated 16th April 2019 of the Commissioner of Sales Tax, Odisha in so far as the said order confirms the attachment of the Petitioner’s individual Bank account notwithstanding his having ceased to be a Director of AEPL whose tax dues were sought to be recovered.”

To Read the full text of the Order CLICK HERE

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