G. Srinivasa Raju and Others vs Commercial Tax Officer, Somajiguda Circle and Others

Ramesh Ranganathan, J.—Heard Sri Bhaskar Reddy Vemireddy, learned counsel for the petitioners and Sri M. Govind Reddy, learned Special Standing Counsel for Commercial Taxes and with their consent, this Writ Petition is disposed of at the stage of admission. The proceedings under challenge in this Writ Petition is a garnishee notice dated 14.03.2014 issued under Section 29 of the Andhra Pradesh Value Added Tax Act, 2005 ("the Act" for brevity) calling upon the garnishee to make payment of the outstanding arrears of tax of Rs. 24,86,118/-. Petitioners 1 and 2 are the directors of M/s. Foster Infin & Trading Pvt. Ltd., and the third petitioner is their daughter with whom they claim to have a joint bank account.

Sri Bhaskar Reddy Vomireddy, learned counsel for the petitioners, would submit that in view of Section 24(5) of the Act, as long as the company, incorporated under the Companies Act, 1956, continues to function, and has not been wound up, no garnishee proceedings can be issued to recover tax arrears of the company from the bank accounts of its directors. Section 24(5) of the Act reads thus.

"When any private company is wound up and any tax assessed on the company under the Act for any period, whether before or in the course of or after its liquidation, cannot be recovered, then every person who was a director of the private company at any time during the period for which the tax is due, shall be jointly and severally liable for the payment of such tax, unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the company."

It is evident from the aforesaid provision that it is only when a private company is wound up and the tax assessed on the company for any period, whether before or in the course of or after its liquidation, cannot be recovered, are persons, who are the directors of the said company during the period for which the tax was due, jointly and severally liable for payment of such tax.

A similar provision under Section 16-B of the A.P.G.S.T. Act fell for consideration in Shri Ramnarayan Shahu Vs. Commercial Tax Officer (FAC), Mehdipatnam 1990 (10) APSTJ 197 (Judgment in W.P. Nos. 18277 and 18168 of 1988 dt. 03.04.1989) and a Division Bench of this Court set aside the garnishee proceedings holding that no demand could have been forwarded to the bank for recovery of arrears of tax against the directors, except in the manner provided under Section 16-B of the A.P.G.S.T. Act. The impugned garnishee notice, to the limited extent the tax arrears were sought to be recovered from the bank accounts of the directors, is therefore set aside. It is made clear that the first respondent is entitled to recover tax arrears from the bank accounts of the company i.e., M/s. Foster Infin & Trading Pvt. Ltd. The Writ Petition is, accordingly, disposed of. There shall be no order as to costs. Miscellaneous petitions, if any, pending shall stand closed.