Thalappil Madhavanunni vs. Deputy Tahsildar
Original PDF →IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE V.G.ARUN WEDNE AY, THE 27TH DAY OF MAY 2020 / 6TH JYAISHTA, 1942 WP(C).No.3713 OF 2019(L) PETITIONER/S: 1 THALAPPIL MADHAVANUNNI AGED 57 YEARS KALLAMKUTHU HOUSE, NEDIYIRUPPU, MALAPPURAM, 673 638. 2 JAYASREE CHERUKKAT, W/O MADHAVANUNNI, KALLAMKUTHU HOUSE, NEDIYIRUPPU, MALAPPURAM, 673 638. 3 MAHESH, CHENAKKAL, PULIKKAL, MALAPPURAM, 673 637. 4 UNNIKRISHNAN MADHAVAN, ULLAS HOUSE, PERINTHALMANNA, MALAPPURAM, 679 332. BY ADVS. SRI.P.RAGHUNATH SRI.PREMJIT NAGENDRAN RESPONDENT/S: 1 DEPUTY TAHSILDAR, KONDOTTY, MALAPPURAM DISTRICT, 673 638. 2 ASSISTANT COMMISSIONER OF STATE TAX, STATE DEPARTMENT KERALA, SPECIAL CIRCLE, MALAPPURAM, 676 505. 3 MS. SKYHIGH MOTORS PVT. LTD, PERINTHALMANNA, 679 322. R1 BY GOVERNMENT PLEADER SMT.M.M.JASMINE THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 27.05.2020, ALONG WITH WP(C).6379/2019(V), THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
WP(C).3713 & 6379/19 2 IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE V.G.ARUN WEDNE AY, THE 27TH DAY OF MAY 2020 / 6TH JYAISHTA, 1942 WP(C).No.6379 OF 2019(V) PETITIONER/S: 1 THALAPPIL MADHAVANUNNI AGED 57 YEARS KALLAMKUTHU HOUSE, NEDIYIRUPPU MALAPPURAM-673638. 2 JAYASREE CHERUKKAT W/O.MADHAVANUNNI. KALLAMKUTHU HOUSE, NEDIYIRUPPU, MALAPPURAM-673638 3 MAHESH CHERUKKAT PULIKKAL.MALAPPURAM-673637. 4 UNNIKRISHNAN MADHAVAN ULLAS HOUSE.PERINTHALMANNA.MALAPPURAM-679332. BY ADVS. SRI.P.RAGHUNATH SRI.PREMJIT NAGENDRAN RESPONDENT/S: 1 DEPUTY TAHSILDAR KONDOTTY.MALAPPURAM DISTRICT-673638. 2 ASSISTANT COMMISSIONER OF STATE TAX STATE GST DEPARTMENT KERALA SPECIAL CIRCLE MALAPPURAM 676505. 3 MS.SKYHIGH MOTORS PVT.LTD PERINTHALMANNA-679322 R2 BY GOVERNMENT PLEADER SMT.M.M.JASMINE THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 27.05.2020, ALONG WITH WP(C).3713/2019(L), THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:
WP(C).3713 & 6379/19 3 V.G.ARUN, J. ----------------------------------------------- W.P(C).Nos.3713 & 6379 of 2019 ----------------------------------------------- Dated this the 27th day of May, 2020 JUDGMENT The petitioners in these writ petitions are the Directors of the 3rd respondent Company, which is an assessee under the KVAT Act. The petitioners are aggrieved by the revenue recovery proceedings initiated against their personal properties, in their capacity as Directors of the 3rd respondent. The revenue recovery proceedings in W.P(C) 3713 of 2019 is based on the assessment and consequential demand for tax for the assessment year 2011-12 and the revenue recovery proceedings in W.P(C) No.6379 of 2019 have been initiated on the basis of the best judgment assessment conducted under Section 25(1) for the assessment year 2015-2016. As per the averments in the writ petitions, petitioners 1 to 3 though Directors of the Company, were non-resident Indians and the fourth petitioner was only a namesake Director. The entire affairs of the Company had been entrusted with the previous Managing Director, whose mismanagement resulted in the company ending up in doldrums. The Managing Director responsible for the present state of affairs resigned on 1.12.2010 and thereupon the first petitioner took over as Chairman, in a bid to revive the Company. It is submitted that petitioners 3 and 4 retired from the directorship of the Company on 2.10.2014. 2. The challenge against the revenue recovery proceedings is on the
WP(C).3713 & 6379/19 4 ground that Section 39 of the KVAT Act, dealing with liability of Directors of a private Company, stipulates that the Director of a private company shall be jointly and severally liable for the payment of tax or other amounts recoverable from the Company under the Act. But such liability would arise only when it becomes impossible to effect recovery from the Company for any reason whatsoever. It is the contention of the petitioners that, without exhausting their attempts to effect recovery from the Company and finding such recovery impossible, the respondents had initiated revenue recovery proceedings against the petitioners. But according to the respondents, it was only after exhausting all efforts to recover tax from the Company that the petitioners were proceeded against after holding them to be personally liable.
Heard Sri.Premjit Nagendran, learned counsel for the petitioners and Smt.M.M.Jasmine, the learned Government Pleader.
Since the contention is centered around, Section 39 of the KVAT Act, it is only appropriate to extract the Section; “39. Liability of Directors of a Private Company,- Where any tax or other amount recoverable under this Act from any private company, whether existing or wound up or under liquidation, cannot be recovered for any reason whatsoever, every person who was a director of such company at any time during the period for which the tax or other amount is due under this Act shall be jointly and severally liable for the payment of such tax or other amount unless he proves that the non-recovery cannot be attributed to any negligence, misfeasance or breach of duty on his part in relation to the affairs of the company.”
WP(C).3713 & 6379/19 5 Section 39 would come into play when it becomes impossible to recover any tax or other amount recoverable under the Act from any private company. Under such circumstance alone, every person, who was a Director of such Company, at any time during the period for which the tax or other amount is due under this Act, shall be jointly and severally liable for the payment of such tax or other amount. The aforementioned liability can be avoided by a Director on proving that the non-recovery cannot be attributed to any negligence, misfeasance or breach of duty on his part in relation to the affairs of the Company. Therefore, under Section 39, liability is cast on the Department to make all efforts for recovery of the tax or other amount from the Company and only after all such efforts for recovery proving futile can the Directors be held jointly and severally liable. Even in such a case, it is open for the Director to prove that the non recovery of tax or other amount are not attributable to any negligence, misfeasance or breach of duty on his part in relation to the affairs of the Company. Therefore, before holding the Directors liable, they should necessarily be afforded with an opportunity of either proving that possibility of effecting recovery from the Company or that they cannot be attributed with any negligence, misfeasance or breach of duty in relation to the affairs of the Company. In the case at hand, no such opportunity was granted to the petitioners.
The learned Government Pleader draws attention to paragraph 4 of the counter affidavit in W.P(C).No.3713 of 2019, wherein it has been stated that though the revenue recovery action was first initiated against the Company itself,
WP(C).3713 & 6379/19 6 the revenue recovery certificate was later returned on the intimation from the authorities that they were not in a position to recover the arrears from the Company. It is hence contended that the respondents had acted in terms of Section 39 by proceeding for recovery against the Company first and thereafter only initiating proceedings against the Directors. Controverting this contention, the learned counsel for the petitioner points out that at paragraph 6 of the counter affidavit it is stated that the Company is continuing its business by migrating from VAT registration to GST. It is submitted that the Company being a dealer in motor cars, the recovery could have been easily effected by attaching the vehicles.
There is no dispute regarding the fact that the petitioners were not heard before initiation of proceedings. For that reason alone, the challenge against the proceedings is liable to be upheld. In the result, Exhibits P1 and P2 notices in W.P(C).No.3173 of 2019 and Exhibit P2 notice in W.P(C).No.6379 of 2019 are quashed. It is made clear that in the event of proceeding being initiated against the petitioners under Section 39 of the KVAT Act, the same shall be done only after affording them an opportunity of hearing. V.G.ARUN, JUDGE vgs
WP(C).3713 & 6379/19 7 APPENDIX OF WP(C) 3713/2019 PETITIONER'S/S EXHIBITS: EXHIBIT P1 PHOTOCOPY OF NOTICE DT 12.02.2018 IN FORM 1 U/S 7 OF THE RR ACT. EXHIBIT P2 PHOTOCOPY OF NOTICE DT 13.02.2018 IN FORM 1 U/S 34 OF THE RR ACT.
WP(C).3713 & 6379/19 8 APPENDIX OF WP(C) 6379/2019 PETITIONER'S/S EXHIBITS: EXHIBIT P1 PHOTOCOPY OF ORDER DT.07.02.2018 IN WP(C)NO.3713/2019 EXHIBIT P2 PHOTOCOPY OF NOTICE FORM 1 U/S 7 OF THE RR ACT DT.23.11.2018
Reproduced from the public record of the Kerala High Court. Verify against the court's own copy before relying on it. Income tax judgments are on bharattax.net.