Court Clarifies Burden of Proof in Recovery Cases Under KVAT Act
The Kerala High Court, in a recent judgment, partially allowed an appeal by the Commercial Tax Officer and others, modifying the directions issued by a Single Judge regarding tax recovery procedures under Section 39 of the Kerala Value Added Tax (KVAT) Act, 2003. The Division Bench comprising Justices Devan Ramachandran and Basant Balaji addressed the issue of recovery proceedings against Vardhanan P.R., alleged to be a Director of a defaulting company.
The court clarified that under Section 39, recovery from a Director can only proceed if it is established that the Director was in position when the tax became due. Moreover, the Director has the right to demonstrate that non-recovery is not due to any negligence, misfeasance, or breach of duty on their part. The burden of proof lies on the Director, not the Revenue.
The earlier judgment by the learned Single Judge was challenged by the appellants on the grounds that it misallocated the burden of proof, suggesting that the Revenue needed to establish the Director's fault. The High Court, acknowledging this concern, reframed the directions to ensure clarity and adherence to statutory mandates.
Justice Ramachandran, delivering the judgment, emphasized the necessity for the Principal Secretary, Department of Taxes, to ascertain the assets of the defaulting company before proceeding against the Director's personal assets. The court directed the Department to issue a reasoned order after considering the Director's assertions regarding his position and responsibility at the time the tax became due.
The judgment underscores the court's commitment to ensuring procedural fairness while balancing the statutory obligations of tax recovery. The decision provides a clear framework for authorities to follow, ensuring that Directors are not unfairly held accountable without due process.
Bottom line:-
Section 39 of the KVAT Act mandates that recovery against the Director for the alleged dues from an assessee Company can be done only if he was in such position at the time when the tax and other amounts became due, and further that the Director has the right to prove that the non-recovery cannot be attributed to any negligence, misfeasance, or breach of duty on his part.
Statutory provision(s): Section 39 of the Kerala Value Added Tax Act, 2003
Commercial Tax Officer v. Vardhanan P.R., (Kerala)(DB) : Law Finder Doc id # 2949366
