IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR WEDNESDAY, THE 9TH JANUARY 2008 / 19TH POUSHA 1929 OP.No. 39383 of 2002(L) ----------------------- PETITIONER: ------------ 1. JOSE KURIAN, PANAMKUZHAKKAL HOUSE, S.R.M.ROAD, ERNAKULAM. 2. JOSE CYRIAC, PANAMKUZHAKKAL HOUSE, S.R.M.ROAD, ERNAKULAM. 3. P.C.ROY, PANAMKUZHAKKAL HOUSE, S.R.M.ROAD, ERNAKULAM. BY ADV. SRI.S.ABDUL SALAM RESPONDENTS: ------------- 1. THE DEPUTY TAHSILDAR (RR), KANAYANNUR TALUK, ERNAKULAM. 2. THE SALES TAX OFFICER-II, KALAMASSERY, ERNAKULAM. 3. THE STATE OF KERALA, REPRESENTED BY THE CHIEF SECRETARY, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM. BY SHRI.K.P.PRADEEP, GOVERNMENT PLEADER THIS ORIGINAL PETITION HAVING BEEN FINALLY HEARD ON 09/01/2008, ALONG WITH O.P.NO. 39760/2002, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: O.P.NO. 39383/2002 ORDER ON CMP NO. 66183/2002 IN O.P.NO. 39383/2002 DISMISSED. 09/01/2008 SD/- (C.N.RAMACHANDRAN NAIR, JUDGE) APPENDIX PETITIONER'S EXHIBITS P1 : COPY OF CERTIFICATE OF INCORPORATION OF M/S. KURIAN'S INKS AND CHEMICALS PVT. LTD. DATED 19/11/1985 ISSUED BY REGISTRAR OF COMPANIES KERALA. P2 : COPY OF REVENUE RECOVERY NOTICE NO.E6642/ST/02-03 DATED 05/12/2002 ISSUED BY FIRST RESPONDENT TO PETITIOENRS. // TRUE COPY // PA TO JUDGE. jg C.N.RAMACHANDRAN NAIR, J. ----------------------------------- O.P. Nos. 39383 & 39760 of 2002 ------------------------- Dated, this the 9th day of January, 2008 J U D G M E N T Petitioners are challenging recovery proceedings initiated for recovery of arrears of tax payable by the company of which petitioners were directors. The defaulter company is a family concern and the beneficiaries are father and two sons. Learned counsel contended that Section 26C, which authorizes personal recovery from directors, is introduced in the statute with effect from 01/04/1999 and therefore, arrears of tax pertaining to the period prior to that cannot be recovered from directors personally. Petitioner has also relied on a decision of this Court in Kasim Vs. Sales Tax Officer reported in 2007(4) KLT 538, wherein this Court authorizes recovery of tax and other amounts due under Section 26C of the Act for the periods after 01/04/1999. However, learned Government Pleader pointed out that the decision does not apply to the case of a family concern, wherein the creation of the company itself is to evade payment of tax. Learned Government Pleader relied on two decisions of the Supreme Court in Commissioner of Income Tax, Madras Vs. Sri.Meenakshi Mills Ltd. & Others , reported in 63 ITR 609 and in McDowell & Co. Limited Vs. O.P.Nos. 39383 & 39760/2002 -2- Commercial Tax Officer, reported in 154 ITR 148, wherein the Supreme Court has held that the actual beneficiary can be proceeded against if the company was formed to evade payment of tax. The principle behind Section 26C is to recover tax liability from the beneficiaries of the company. In this case, the petitioners have no case that the company has any other shareholder other than the directors. Admittedly, petitioners were the sole beneficiaries of the company. Therefore, even without reference to Section 26C, recovery can be made from the directors, who are the exclusive beneficiaries of the business transactions of the company based on the principle laid down by the Supreme Court. Above all, sales tax is collected tax and petitioners have no case that sales have been made without collecting tax. In other words, tax collected on behalf of State is misappropriated by petitioners themselves. If petitioners have any grievance against assessment, it is for the petitioners to file appeal against assessments. Recovery, in any case, has to be limited to the actual tax sustained in appeals. In the circumstances, recovery against petitioners is only to be upheld and I do so. However, since these original petitions are pending for the last five years and in between amnesty scheme was introduced for clearing O.P.Nos. 39383 & 39760/2002 -3- arrears of tax in 2004, I give an opportunity to petitioners to clear balance arrears of tax with 50% interest payable under Section 23(3) of the Act, if petitioners make such payment within one month from receipt of this judgment. However, if petitioners do not made payment voluntarily, recovery can be continued and in that event full interest can be recovered from petitioners. I make it clear that the above findings do not stand in the way of petitioners’ right to challenge the assessment orders or to claim any other benefits granted by Government for settlement. These original petitions are disposed of as above. (C.N.RAMACHANDRAN NAIR, JUDGE.) jg