Compensatory interest levy and corporate separateness upheld, but directors were shielded from personal recovery of company tax dues.

A statutory interest levy on delayed sales-tax payment was upheld as compensatory rather than penal, and the classification between interest payable by a defaulting dealer and the rate applicable to State refund claims was held to rest on a valid basis. The constitutional challenge under Articles 14, 19(1)(g) and 300A therefore failed. A company's sales-tax dues could not, however, be recovered from its directors personally or from their personal properties in the absence of express statutory authority; the provisions invoked dealt only with specified liabilities and company offences, and there was no factual basis for lifting the corporate veil.

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Issues: (i) Whether sub-section (4A) of Section 47 of the Gujarat Sales-tax Act, 1969 was unconstitutional as violative of Articles 14, 19(1)(g) and 300A of the Constitution of India; (ii) Whether the directors of a company could be proceeded against personally or against their personal properties for recovery of the company's sales-tax dues in the absence of a specific statutory provision.

Issue (i): Whether sub-section (4A) of Section 47 of the Gujarat Sales-tax Act, 1969 was unconstitutional as violative of Articles 14, 19(1)(g) and 300A of the Constitution of India.

Analysis: The provision levied interest on delayed payment of tax at a fixed statutory rate. The validity of the same provision had already been upheld in earlier binding authority, which treated the levy as compensatory in character and not penal. The differentiation drawn between interest payable by a defaulting dealer and the rate applicable on refund claims by the State was also found to rest on a valid classification.

Conclusion: The constitutional challenge failed and sub-section (4A) of Section 47 was upheld.

Issue (ii): Whether the directors of a company could be proceeded against personally or against their personal properties for recovery of the company's sales-tax dues in the absence of a specific statutory provision.

Analysis: The Act contained provisions for liability in specified situations, but no provision fastening a company's sales-tax liability on its directors personally. Section 78 dealt only with offences by companies and criminal liability, not recovery of tax dues from directors' personal assets. The doctrine of lifting the corporate veil was not attracted because there was no specific factual foundation or express order imposing personal liability on the directors.

Conclusion: The directors could not be made personally liable, and recovery from their personal properties was impermissible.

Final Conclusion: The constitutional challenge to the interest provision was rejected, but the recovery proceedings against the directors and their personal properties were restrained for want of statutory authority.

Ratio Decidendi: A statutory interest levy on delayed tax payment, if compensatory and not penal, is valid; in the absence of express statutory authority or a factual basis justifying veil piercing, a company's tax dues cannot be recovered from its directors personally or from their personal properties.

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