Service tax dues of company cannot be recovered from directors

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HIGH COURT OF BOMBAY

Suman N. Agarwal

v.

Union of India

WRIT PETITION NOS. 2347 & 2586 OF 2011

JANUARY 9/10, 2013

 

In the present case the notice to show cause under Section 124 was not issued to the Petitioner. The order of adjudication dated 20 September 2007 was similarly not in respect of the Petitioner. The certificates that were issued under Section 142(1)(c)(ii) on 19 March 2010 were in the names of (i) Mehul Exports of which the proprietor is Nirmal Agawal, the spouse of the Petitioner; (ii) Nisum Exports and Finance Private Limited of which the director is stated to be Nirmal Agawal in the certificate; and (iii) Nisum Global Limited of which again the director is stated to be Nirmal Agawal. The Petitioner at the highest, as the affidavit in reply states, is one of the directors of Nisum Global Limited and of Nisum Exports and Finance Private Limited. But that is not sufficient to follow the recoveries that are due and payable by the two companies in the hands of the Petitioner who is a director. As the Division Bench of this Court has noted in the judgment in Vandana Bidyut Chaterjee (supra), there is no provision in the Customs Act, 1962 similar to Section 179 of the Income Tax Act 1961 or Section 18 of the Central Sales Tax Act, 1956 where the dues of a private limited company can be recovered from its directors. A company which is a juristic entity has a status independent of its directors and shareholders. If in a given case, it is the contention of the Revenue that the entity of a corporate body is a mere shell which is being utilized to defraud the Revenue, a case for lifting the corporate veil has to be made out when notices of demand are issued to the company by making the directors/shareholders liable to pay the dues. In the present case, no such exercise was carried out and as we have noted neither was a notice to show cause under Section 124 issued to the Petitioner nor was an order of adjudication passed against her. The certificate that was issued under Section 142(1)(c)(ii) was not issued to the Petitioner. Hence, the action of addressing a demand to the Petitioner on 1 November 2011 under Section 142(1)(c)(ii) read with Rule 6 of the Attachment Rules and the consequential attachment are wholly without the authority of law.