PANKAJ KRISHNAVADAN MASHRUWALA vs. STATE OF GUJARAT

C/SCA/17890/2018 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 17890 of 2018

FOR APPROVAL AND SIGNATURE:

HONOURABLE MS.JUSTICE HARSHA DEVANI

and HONOURABLE MR. JUSTICE BHARGAV D. KARIA

================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? ================================================================ PANKAJ KRISHNAVADAN MASHRUWALA Versus STATE OF GUJARAT ================================================================ Appearance: UCHIT N SHETH(7336) for the Petitioner(s) No. 1,2 MR SOAHAM JOSHI, ASSISTANT GOVERNMENT PLEADER for the Respondent(s) No. 1,2 ================================================================ CORAM: HONOURABLE MS.JUSTICE HARSHA DEVANI and HONOURABLE MR. JUSTICE BHARGAV D. KARIA

Date : 11/04/2019

ORAL JUDGMENT (PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) Page 1 of 9

C/SCA/17890/2018 JUDGMENT 1. The learned advocate for the petitioners has tendered a purshish to place on record communication dated 29.12.2007 of the petitioners, addressed to the Bank of India, Ahmedabad. The same is taken on record. 2. Rule. Mr. Soaham Joshi, learned Assistant Government Pleader waives service of notice of rule on behalf of the respondents. 3. Having regard to the controversy involved in the present petition which lies in a very narrow compass, with the consent of the learned advocates for the parties, the matter is taken up for final hearing today. 4. In this petition under Article 226 of the Constitution of India, the petitioners have challenged the notice of attachment dated 22.12.2017 on the residential property of the first petitioner located at Radha Krishna Housing Association, Paldi, Ahmedabad (hereinafter referred to as “the said property”) for alleged dues under the Central Sales Tax Act, 1969 of the business run by the second petitioner – Company, viz., Asim Pharmachem Industries. 4.1 The petitioner No.1 is the Director of one M/s Asim Chemicals Pvt. Ltd., who is the proprietor of the petitioner – Asim Pharmachem Industries. The petitioner No.2 carried on the business of manufacture and sale of pharmaceuticals and chemicals under the trade name of “ASIM Pharmachem Industries” and is duly registered under the provisions of the Sales Tax Act and the Central Sales Tax Act with effect from Page 2 of 9

C/SCA/17890/2018 JUDGMENT 20.2.1998. The petitioners regularly filed returns and paid the tax under the Sales Tax Act. 4.2 It is the case of the petitioner that in November, 2006, two workers of the petitioners’ factory accidentally consumed hazardous substances used as raw materials in the factory, resulting into their death, which led the petitioners getting embroiled in litigation and consequently, closure of the business of petitioners. 4.3 It is further the case of the petitioners that in December, 2007, recovery notices came to be issued to the second petitioner for alleged dues under the Sales Tax Act for the years 1998-99, 2002-03 and 2003-04; however, as the petitioners were not aware of any orders, they requested the respondents to provide copies of the orders passed, if any, but there was no response whatsoever received from the respondent authorities. Thereafter, again in October, 2009 and January, 2010, notices for recovery of the same dues were received by the petitioners. The petitioners again requested the respondent authorities to supply the copies of such orders, but there was no response from the respondents. It is the case of the petitioners that in fact, no recovery proceedings were conducted against the petitioners for many years. 4.4 It is further the case of the petitioners that thereafter, suddenly on 24.10.2017, a notice was received by the petitioners under section 152 of the Bombay Land Revenue Code, 1879 (hereinafter referred to as “the Code”), requiring the petitioners to clear the dues in respect of the aforesaid three years under the Sales Tax Act and the Central Sales Tax Page 3 of 9

C/SCA/17890/2018 JUDGMENT Act. In response thereto, the petitioners wrote a letter dated 6.11.2017 to the jurisdictional officer again asking him as to on what basis the orders for the amount demanded from the petitioners were passed as the petitioners did not receive any assessment orders. Vide letter 14.11.2017, the respondent No.2, Sales Tax Officer-5, Ahmedabad informed the petitioners that the petitioners were aware of the assessment orders and were asked to pay the outstanding dues. Thereafter, vide letter dated 24.11.2017, the petitioners again requested to provide copies of the assessment orders. Thereafter, the petitioner No.1 was informed on 13.1.2018 by the impugned notice dated 22.12.2017 that the respondents had entered the charge on the personal residential property owned by the first petitioner, viz., the said property, for alleged outstanding dues in respect of the aforesaid three assessment years. 4.6 It is further the case of the petitioners that the petitioner vide letter dated 22.1.2018, immediately objected to such action on part of the respondents and requested them to provide copies of the assessment orders, on the basis of which the recovery proceedings were being undertaken by the respondent No.2. The petitioners also sent reminder on 31.1.2018, but there was no response from the respondents. 4.7 It is further the case of the petitioners that since there was no response from the respondents, the petitioners applied for the copies of the assessment orders under the Right to Information Act, 2005, seeking copies of the assessment orders pursuant to which the recovery proceedings were being undertaken. Since there was no response even to the application made by the petitioners under the RTI Act, the Page 4 of 9

C/SCA/17890/2018 JUDGMENT petitioners again sent two reminder letters dated 15.3.2018 and 27.4.2018 to the respondents; however, there was no response to the same from the respondents. 4.8 It is the case of the petitioners that since there was no reply from the respondents, the petitioners requested the respondent authorities to delete the charge entered on the said property of the petitioner No.1 as the assessment orders were not made available to the petitioners. It was also contended that the personal property of the first petitioner who was only a Director in the second petitioner – Company, was not liable for attachment for the alleged dues of the business run by the second petitioner – Company. Inspite of the aforesaid repeated reminders and requests made by the petitioners to the respondents, neither the charge on the personal residential property of the petitioner No.1 was deleted, nor the copies of the assessment orders were supplied to the petitioners and therefore, the petitioners have filed the present petition seeking the relief noted hereinabove. 5. Heard Mr. Uchit Sheth, learned advocate for the petitioners and Mr. Soaham Joshi, learned Assistant Government Pleader for the respondents. 6. The learned advocate for the petitioners submitted that inspite of repeated requests and reminders made by the petitioners to the respondent authorities to supply the copies of the assessment orders, the respondent authorities did not supply such assessment orders to the petitioners. It was submitted that the petitioners also submitted to the respondent authorities that for recovery of the dues of the Page 5 of 9

C/SCA/17890/2018 JUDGMENT Private Limited Company, personal properties of the Director of the Company cannot be attached under the provisions of the Code. 6.1 In support of his submissions, the learned advocate placed reliance upon the decision of this court in the case of M. R. Chokshi v. State of Gujarat, 51 VST 73 (Guj.), wherein this court has held that in the absence of any provision permitting the sales tax authority to fasten the liability of tax of the company on its directors in the matter of payment of sales tax dues, the respondents cannot recover the dues of the Company from the Directors. The court observed that section 26 containing the said provision regarding liability to pay tax in certain cases covers several contingencies, such as, the liability in respect of the business carried on by an individual dealer after his death, the liability in respect of the dues where the deal was an HUF and there is partition amongst various members or group of members; there is dissolution of a partnership firm and also in case of transfer of business in whole or in part. Unlike section 179 of the Income Tax Act, 1961, there is no provision in the Sales Tax Act fastening the liability of the company to pay its sales tax dues on its directors. The said decision is also followed in case of C. V. Cherian v. C. A. Patel, [2012] 51 VST 71 (Guj.), wherein this court after referring to the above decision in M. R. Chokshi v. State of Gujarat (supra), has held that the respondents cannot attach for sale the private property of the Directors of the Company for realisation of the dues from the Company. 7. On the other hand, Mr. Soaham Joshi, learned Assistant Government Pleader for the respondents submitted that it has Page 6 of 9

C/SCA/17890/2018 JUDGMENT clearly come on record that under section 152 of the Bombay Land Revenue Code, the notice was issued on 11.12.2007 for the purpose of attachment on the properties of the petitioner No.2 and the sale transaction was made on 28.12.2007. Therefore, such a sale transaction lacks bona fide and is with a clear intention to deprive the department of its legitimate dues. It was further submitted that the department considering the registered sale document, had no option at that point of time but to lift the attachment. It was submitted that therefore, at the same time the petitioner No.1 who is Director of the petitioner No.2 cannot run away from the liability arising out of the tax dues under the Sales Tax Act / Central Sales Tax Act and therefore, the attachment in question on the residential property of the first petitioner has been effected. 7.1 It was further submitted that as per the record of the department, the details furnished at the time of registration, there are two Directors, (1) Mr. Pankaj Krisanvadan Mashruwala and (2) Mrs. Jayshree Pankaj Mashruwala, and therefore, it cannot be said that the Company has any Directors outside their family and considering the fact that at a given point of time, a clear fraud has been played by the petitioners and the property in the name of the petitioner No.1 – Asim Pharmachem Industries was attached and has been disposed of and hence, the contention raised in the petition with regard to the service of the assessment orders with reference to the orders for the aforesaid years is only with a view to avoid payment of the outstanding dues of the petitioner No.2 Company. It was submitted that the department tried its best to search the record and some record appears to be untraceable at this point of time; however, from Page 7 of 9

C/SCA/17890/2018 JUDGMENT the record, the service of such assessment orders and demand notice can be briefly indicated. It was, therefore, submitted that the petitioners having knowledge of the outstanding dues payable to the respondent State, had evaded for payment of the same and therefore, the attachment upon the property of the petitioner No.1 is valid in order to recover the outstanding dues of the respondent State. 8. On a careful consideration of the submissions advanced by both the learned advocates for the parties as well as considering the settled legal position as stated hereinabove, and the documents produced on record, it is not in dispute that the property which is attached by the impugned notice is of the ownership of the petitioner No.1, who is the Director of the petitioner No.2 Company and therefore, as held by the Supreme Court in M. R. Chokshi v. State of Gujarat (supra), no attachment can be made. There is no provision in the Act fastening the liability of the Company to pay its sales tax dues to its Director and therefore, the impugned attachment notice dated 27.12.2017, is required to be quashed and set aside as the controversy in question is squarely covered by the above referred decision of this court. Other contentions raised by the learned advocates for the respective parties are not gone into in view of the settled position of law that the dues of the Private Limited Company cannot be recovered from the personal property of the Director in absence of any provisions to that effect in the Sales Tax Act. 9. For the foregoing reasons, the petition succeeds and is, accordingly, allowed. The impugned notice of attachment dated 22.12.2017, whereby charge is entered on the Page 8 of 9

C/SCA/17890/2018 JUDGMENT residential property of the first petitioner located at Radha Krishna Housing Association, Paldi, Ahmedabad, is hereby quashed and set aside. Rule is made absolute accordingly with no order as to costs. (HARSHA DEVANI, J) (BHARGAV D. KARIA, J) B.U. PARMAR Page 9 of 9