Compensatory interest and director liability under sales tax law: delayed tax interest upheld, but personal recovery from directors rejected.

Section 47(4A) of the Gujarat Sales Tax Act, 1969 was treated as constitutionally valid because the interest on delayed tax payment was characterised as compensatory rather than penal, with the rate fixed by the Legislature and no discretion left to tax authorities. The Court also held that, absent an express statutory provision or factual basis to lift the corporate veil, a company's sales tax dues cannot be recovered from its directors personally or from their personal properties. Provisions governing dealer liability and offences by companies did not extend personal recovery to directors on the facts stated.

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Issues: (i) Whether section 47(4A) of the Gujarat Sales Tax Act, 1969, levying interest on delayed payment of sales tax, is constitutionally valid; (ii) Whether the sales tax dues of a company can be recovered from its directors personally or from their personal properties in the absence of an express statutory provision.

Issue (i): Whether section 47(4A) of the Gujarat Sales Tax Act, 1969, levying interest on delayed payment of sales tax, is constitutionally valid.

Analysis: The provision had already been upheld in prior binding precedent. The interest liability was treated as compensatory in character, arising from the dealer's failure to pay tax within the prescribed time, with the Legislature fixing the rate and leaving no discretion to the tax authorities. The provision was held not to be penal in substance, and the differentiation from the lower rate of interest applicable to refunds by the State was found to rest on a valid basis.

Conclusion: The constitutional challenge to section 47(4A) fails and the provision is upheld as valid.

Issue (ii): Whether the sales tax dues of a company can be recovered from its directors personally or from their personal properties in the absence of an express statutory provision.

Analysis: The Court found no specific order fastening the company's liability on the directors and no statutory provision authorising recovery of the company's sales tax dues from directors personally. Section 26 dealt with specified contingencies of dealer liability but did not cover directors of a company, and section 78 concerned only criminal liability for offences by companies. The doctrine of lifting the corporate veil was not attracted on the facts because no factual foundation had been laid for such an approach.

Conclusion: The directors cannot be made personally liable, and recovery cannot be proceeded against their personal properties for the company's sales tax dues.

Final Conclusion: The challenge to the levy of interest was rejected, but the recovery proceedings against the directors in their personal capacity were disallowed, so the petitions succeeded only to the extent of protection against personal recovery.

Ratio Decidendi: In the absence of an express statutory provision or a factual basis justifying lifting of the corporate veil, the sales tax dues of a company cannot be fastened on its directors or recovered from their personal properties; a statutory interest provision may be sustained as compensatory where it is linked to delayed payment of tax and not shown to be penal or arbitrary.

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