Partner liability after firm dissolution upheld for tax dues, with statutory penalty treated as compensatory interest.

Partners of a dissolved firm remain jointly and severally liable for the firm's pre-dissolution sales tax dues, because the liability attaches to the partners under the Partnership Act and the recovery machinery under the Karnataka Sales Tax Act permits assessment and recovery as if dissolution had not occurred. The amount described as penalty under section 13(2) was treated as compensatory interest in substance, arising automatically on default and recoverable from the liable partners. Section 13(2A) was upheld as a valid remission provision, with the delegation held to be guided and the classification not violative of Article 14.

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Issues: (i) Whether partners of a dissolved firm are jointly and severally liable to pay the tax and penalty due from the firm on its pre-dissolution turnover. (ii) Whether the amount described as penalty under section 13(2) of the Karnataka Sales Tax Act, 1957 is in substance interest and can be recovered from the partners. (iii) Whether section 13(2A) of the Karnataka Sales Tax Act, 1957 suffers from excessive delegation or violates Article 14 of the Constitution of India.

Issue (i): Whether partners of a dissolved firm are jointly and severally liable to pay the tax and penalty due from the firm on its pre-dissolution turnover.

Analysis: The statutory scheme treated the firm as an assessable unit, but the liability incurred by the firm remained a liability of the partners under the Partnership Act. Section 25 of the Indian Partnership Act, 1932 makes every partner jointly and severally liable for acts of the firm while he is a partner. The amended recovery provision in section 15(2) of the Karnataka Sales Tax Act, 1957 expressly reinforced that, on dissolution, assessment and recovery could proceed as if no dissolution had taken place and the partners at the time of dissolution would be liable jointly and severally.

Conclusion: The partners were held liable for the firm's tax dues on its pre-dissolution turnover, and the challenge to recovery failed.

Issue (ii): Whether the amount described as penalty under section 13(2) of the Karnataka Sales Tax Act, 1957 is in substance interest and can be recovered from the partners.

Analysis: The provision imposed an automatic liability on default, without any discretion to waive, reduce, or individually quantify the amount. The Court treated the so-called penalty as a compensatory levy in the nature of interest for withholding tax due to the State. Since the liability was statutory and arose on default itself, it could be enforced against those liable for the tax debt.

Conclusion: The amount under section 13(2) was held to be interest in substance, and its recovery from the partners was upheld.

Issue (iii): Whether section 13(2A) of the Karnataka Sales Tax Act, 1957 suffers from excessive delegation or violates Article 14 of the Constitution of India.

Analysis: The remission power conferred on the State Government was a beneficial provision for assessees and was to be exercised under prescribed conditions and legislative control. The Court held that the delegation was not unguided or uncontrolled and that the provision did not create unconstitutional discrimination or arbitrariness.

Conclusion: Section 13(2A) was upheld as valid and not violative of Article 14.

Final Conclusion: The statutory provisions governing default, recovery, and remission under the Karnataka Sales Tax Act were upheld, the partners' liability after dissolution was affirmed, and the writ petitions were rejected.

Ratio Decidendi: Where a sales tax statute makes default liability automatic and provides a machinery for recovery after dissolution, the partners of the dissolved firm remain jointly and severally liable for the firm's unpaid tax-related dues, and the levy described as penalty may be construed as compensatory interest if the statutory context so requires.

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