W.P.(C). No. 14565 of 2012 (U)

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** ## **THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE** **WEDNESDAY, THE 20TH DAY OF MARCH 2013/29TH PHALGUNA 1934** ## **WP(C).No. 14565 of 2012 (U)** **----------------------------** ## **PETITIONERS:** **------------** **1. D.RAVEENDRAN AGED 61 YEARS** - **2ND FLOOR, PANCHARATNA APARTMENTS, TOC.H.ROAD VYTTILA, KOCHI-19.** **2. R.KUMARESAN** - **2ND FLOOR, PANCHARATNA APARTMENTS, TOC.H.ROAD VYTTILA, KOCHI-19.** **BY ADV. SRI.V.G.ARUN** **RESPONDENTS:** - **------------** **1. THE STATE LEVEL COMMITTEE ON SALES TAX REPRESENTED BY THE SECRETARY (TAXES), SECRETARIAT TRIVANDRUM-695 001.** **2. THE DEPUTY COMMISSIONER (GENERAL) COMMERCIAL TAXES, TRIVANDRUM-695 001.** **3. THE DIRECTOR OF INDUSTRIES AND COMMERCE DIRECTORATE OF INDUSTRIES AND COMMERCE, TRIVANDRUM-695 001.** **4. THE DISTRICT COLLECTOR,CIVIL STATION, KOLLAM-691 001.** **5. THE REVENUE DIVISIONAL OFFICER, KOLLAM-691 001.** **6. THE TAHSILDAR (REVENUE RECOVERY, KOLLAM-691 001.** **7. M/S.SUN REFINERIES PRIVATE LIMITED, THRIKKADAVOOR, KOLLAM REPRESENTED BY THE OFFICIAL LIQUIDATOR** **OFFICE OF THE OFFICIAL LIQUIDATOR, KAKKANAD-682 030.** **R1 TO 6 BY SENIOR GOVERNMENT PLEADER SRI.S.SUDHEESH KUMAR R7 BY ADVS.SRI.V.V.ASOKAN** **SRI.K.MONI** **THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 20-03-2013, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **VK** ## **WP(C).No. 14565 of 2012 (U)** ## **----------------------------** **APPENDIX -----------** ## **PETITIONER(S) EXHIBITS** **-----------------------** **EXHIBIT P1: A TRUE COPY OF THE ACKNOWLDGEMENT ISSUED BY THE MINISTRY OF INDUSTRY DATED 7/7/93.** **EXHIBIT P2: A TRUE COPY OF THE SRO 521/92.** **EXHIBIT P3: A TRUE COPY OF THE ELIGIBILITY CERTIFICATE.** **EXHIBIT P4: A TRUE COPY OF THE ORDER DATED 23/4/03 PASSED BY THE 2ND RESPONDENT.** **EXHIBIT P5: A TRUE COPY OF THE INSPECTION REPORT DATED 12/3/96.** **EXHIBIT P6: A TRUE COPY OF THE JUDGMENT IN TRC NO.51 OF 91 DATED 31/5/91.** **EXHIBIT P7: A TRUE CPY OF THE ORDER IN SLP(CIVIL)NO.(S)16091 OF 91 DATED 20/11/91.** **EXHIBIT P8: A TRUE COPY OF THE APPEAL FILED BY THE 1ST PETITIONER BEFORE THE 2ND RESPONDENT DATED 18.5.2003** **EXHIBIT P9: COPY OF THE JUDGMENT IN WPC.NO.18925 OF 2004 DATED 28/6/2004.** **EXHIBIT P10: COPY OF THE REPLY SENT BY THE 3RD RESPONDENT DATED 15/7/11.** **EXHIBIT P11: A TRUE COPY OF THE ORDER DATED 24/11/2001 ISSUED BY THE FOURTH RESPONDENT.** **EXHIBIT P12: COPY OF THE INTERIM ORDER IN WPC.24975 OF 2011 DT.21/2/12.** **EXHIBIT P13: COPY OF THE NOTICE NO.5466/B3/2012/TD DATED 2/4/12. EXHIBIT P14: COPY OF THE NOTICE NO.5466/B3/2012/TD DATED 12/4/12.** **EXHIBIT P15: COPY OF THE NOTICE NO.5466/B3/2012/TD DATED 20/4/12.** **EXHIBIT P16: COPY OF THE PROCEEDINGS NO.FC4-17268/11 DATED 4/6/12 OF THE 3RD RESPONDENT.** **EXT.P17. COPY OF THE SHOP INSPECTION REPORT CONDUCTED ON 12.03.1996** **EXT.P18. COPY OF THE COMMUNICATION DATED 2.2.1996 ISSUED BY THE DEPUTY CHIEF ENGINEER, ELECTRICAL CIRCLE, KOLLAM.** **EXT.P19. COPY OF THE JUDGMENT IN OP NO.34894 OF 2001 DATED 5.9.2007.** **RESPONDENTS' EXHIBITS : NIL ----------------------** **/ TRUE COPY /** **P.A. TO JUDGVE** **VK** ## **A.M. SHAFFIQUE, J** **---------------------------------------** ## **W.P.(C). NO. 14565 OF 2012** **----------------------------------------** Dated this the 20th day of March, 2013 ## **JUDGMENT** Petitioners are Directors of a defunct Company which was functioning under the name and style of M/s. Sun Refineries (P) Ltd which started commercial operations on 22.12.1994. According to the petitioners they had to approach this Court when proceedings were taken by the Sales Tax Authorities to recover the sales tax amounts by way of Revenue Recovery against the properties privately owned by the petitioners. The Company had become defunct from December 1996 onwards and winding up proceedings are pending. 2. The demand raised by the Revenue Authorities relates to sales tax dues payable as per best judgment assessments further period 1994-95, 1995-96 and 1996-97. 3. According to the petitioners they resigned from the position as Directors of the Company with effect from 02.08.1996 and therefore there was no reason for the W.P.(C). NO. 14565 OF 2012 **2** Revenue Authorities to recover any amount payable by the Company as sales tax dues from the private property of the petitioners. 4. Another contention raised is regarding a claim for exemption from payment of sales tax which was not extended to the Company by the Sales Tax authorities. Petitioners refer to Ext.P2 sales tax exemption order issued by the Government as per SRO No. 571/1992. According to the petitioners the unit was a Medium Scale Industrial Unit and it was entitled for exemption from payment of Sales Tax up to an amount of 100% of the fixed capital investment of the unit. The eligibility certificate is to be issued by the Kerala State Industrial Development Corporation (KSIDC), who is the financing partner of the Company. Ext. P3 is the certificate so issued by the General Manager of the KSIDC. But despite having claimed such an exemption, the Deputy Commissioner, (General) Commercial Taxes had rejected the claim for exemption as per Ext. P4 order dated 23.04.2003. Petitioners filed an appeal before the State W.P.(C). NO. 14565 OF 2012 **3** Level Committee which also stood rejected as per Ext. P16. Therefore petitioners challenge Ext. P4 and Ext. P16 as well. 5. The ground for challenging the revenue recovery against the personal property of the petitioners is based on the judgment of this Court in **Kassim vs. Sales Tax Officer [2007 (4) KLT 538]** wherein this Court had held that recovery pursuant to Section 26C of the Kerala General Sales Tax Act (hereinafter referred to 'KGST Act') can be made against the Director of a Company only in respect of demands that had arisen after the coming into force of Section 26C which was with effect from 01.04.1999. The contention is that insofar as the assessments are made to assessment years prior to the coming into force of Section 26C, the Directors in their personal capacity has no obligation to discharge the said liability. 6. In regard to the second contention regarding the claim for exemption, reference is made to Ext.P5 a shop inspection report conducted by the Agricultural Income Tax and Sales Tax Department to indicate that during the W.P.(C). NO. 14565 OF 2012 **4** inspection conducted on 12.03.1996 there was enough material to show that the unit was carrying on manufacturing process. Ext. P6 judgment is relied upon to contend that similar situation had arisen in the present case as well. According to the petitioners the certificate issued by KSIDC alone was enough for the purpose of giving the exemption and further enquiry was not contemplated. Therefore according to the petitioners Ext. P4 and P16 orders has been passed overlooking the actual state of affairs which existed as on the said date. 7. Counter affidavit is filed by the 2[nd] respondent refuting the allegations and supporting Ext. P4 and Ext. P16 orders. 8. Heard the learned counsel for petitioners and the learned Senior Government Pleader for respondents. 9. The learned Senior Government Pleader contended that the relevant notification which applies for exemption is not Ext. P2, but SRO No. 1729/1993 which had come into force with effect from 01.01.1994. Even according W.P.(C). NO. 14565 OF 2012 **5** to the petitioners commercial production commenced on 22.12.1994 and therefore the relevant notification for exemption was SRO No. 1729/1993. The argument is that exemption has been granted in respect of tax payable to medium scale industries, on the turnover of sale of goods manufactured and sold by them within the State. Therefore according to the learned Senior Government Pleader manufacturing process is a mandatory requirement for the purpose of availing exemption and if it was just a case of packing and selling products the exemption will not be available. Still further it is contended that though the eligibility certificate for such units are to be given by the Assisting Organisations like KSIDC, still the order of exemption has to be issued by the Deputy Commissioner (General) Commercial Taxes, Thiruvananthapuram. According to the respondents, no such order of exemption had been granted and the claim for exemption had been rejected as per Ext. P4. 10. In regard to the contention on Section 26C of W.P.(C). NO. 14565 OF 2012 **6** KGST Act it is submitted by the learned Senior Government Pleader that a learned Single Judge of this Court had referred the matter to a Division Bench as per Reference Order dated 01.08.2012 in W.P.(C). No. 6599/2005 forming an opinion that Section 26C is a provision which takes care of an existing company as well as a company already wound up or under liquidation and merely for the reason that the provision had been introduced only from 01.04.1999, it does not mean that the recovery against the Directors is bad. Section 26C of the KGST Act reads as under:- ## “ **26C. Liability of Directors of a Private Company** :- Subject to the provisions of the Companies Act 1956 (Central Act 1 of 1956) 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.” The very concept of a limited company is limited liability. The directors or shareholders of that company cannot be made liable for any liability of the company unless W.P.(C). NO. 14565 OF 2012 **7** a statutory provision is made in that regard. Section 26C is incorporated in the statute only with effect from 01.04.1999. That being the situation the Section will be effective only from that date when the Directors are put to notice that they will become liable for a debt relating to Sales Tax dues that will be payable by the Company. When a deeming provision or a fiction is created under a statute it cannot have any retrospective operation unless otherwise stated. If an interpretation other than what is stated in Kassim's case is taken the Directors who were not aware of such a provision would become liable for a debt for which they were not aware of. 11. Such being the position I am in respectful agreement with the judgment of the learned Single Judge in **Kassim vs. Sales Tax Officer,** and therefore I do not think that there is a situation which requires a reference to a Division Bench as held by the learned Single Judge in W.P. (C). No. 6599/2005. 12. In regard to the next question of exemption as W.P.(C). NO. 14565 OF 2012 **8** rightly contended by the learned Senior Government Pleader, the relevant exemption notification that applied was SRO No. 1729/1993 and merely on production of a certificate from KSIDC will not enable the company to get any exemption from payment of sales tax dues and it had to be followed by an order of exemption by the Deputy Commissioner (General) Commercial Taxes which is apparently not available. When Ext. P4 order was passed there is specific reference in the said order to indicate that the company was purchasing refined oil from other states such as Karnataka and Andhra Pradesh and marketing them and the only process done is refilling and no manufacturing or conversion process were done within the state for sales tax exemption. No materials were produced to show otherwise. Petitioners relies upon Ext. P5 which was considered by the State Level Committee and found that in view of the specific findings by the Deputy Commissioner (General) Commercial Taxes the same cannot be taken into consideration for the purpose of giving the exemption. The W.P.(C). NO. 14565 OF 2012 **9** authorities under the statute have already considered the matter in great detail and had formed an opinion and therefore it may not be possible for this Court to exercise jurisdiction under Article 226 to come to a different finding. The learned counsel for the petitioners however relies upon Ext.P6, a Division Bench judgment of this Court. The said judgment came to be passed in a case where exemption was claimed under a notification G.O.MS.No. 74/80/TD, which situation is totally different from the one now available in the case. That apart, in that case the Division Bench had come to a finding that on the facts highlighted by the Revenue it was clear that the assessee refined the raw oil received from the outside state in their SSI Unit. In other words the Division Bench came to a conclusion that there was a manufacturing process and therefore there was nothing wrong with the assessee claiming exemption. According to the learned Senior Government Pleader appearing, the Directors have a personal liability if they have executed a bond (Form 6) in favour of the Department. W.P.(C). NO. 14565 OF 2012 **10** In the light of the aforesaid factual situation, I do not think that the orders passed as Ext.P4 and Ext. P16 can be modified to any extend. Accordingly the writ petition is disposed of as follows:- i) The revenue recovery proceedings initiated against the petitioners shall stand quashed on account of the fact that they are not entitled to be proceeded under Section 26C of the KGST Act. ii) Disposal of this writ petition shall not preclude the Department from invoking the bond conditions, if any, executed by the petitioners. Sd/- **A.M. SHAFFIQUE JUDGE** DCS