2012 (3) TMI 392 - HC - VAT and Sales Tax

Constitutional validity of sub-section (4A) of section 47 of the Gujarat Sales Tax Act, 1969 challenged on the ground as violative of articles 14, 19(1)(g) and 300A of the Constitution of India Whether liability of the company to pay sales tax on sale of goods effected by the company cannot be fastened on the directors personally or on the personal properties of the directors? Held that - The dues of the Government of a State being the dues of the entire people of the State, there is a valid basis for differentiation between dues of the Government of a State and dues of an individual. Whereas the State Government utilises its funds for public welfare, an individual ordinarily uses money for his private purposes. Hence, the Legislature was justified in treating the State Government as a separate class and providing for a higher rate of interest on the dues of the Government of the State. Thus the prayers challenging the constitutional validity of the provisions of sub-section (4A) of section 47 of the Gujarat Sales Tax Act, 1969 are hereby rejected. The respondents are not in a position to point out any statutory provision empowering the sales tax authorities to fasten the liability of company on its directors in the matter of payment of sales tax dues. There appears to be substance in the submission made on behalf of the petitioners 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 dealer 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.

Summary

Issues:
1. Constitutional validity of sub-section (4A) of section 47 of the Gujarat Sales Tax Act, 1969.
2. Liability of directors for sales tax dues of their respective companies.

Constitutional Validity of Sub-section (4A) of Section 47:
The judgment challenges the constitutional validity of sub-section (4A) of section 47 of the Gujarat Sales Tax Act, 1969, on the grounds of violation of articles 14, 19(1)(g), and 300A of the Indian Constitution. The court refers to a previous decision in Ashapura Mineral Company v. State of Gujarat, where a similar challenge was raised and dismissed. The court holds that the provision for payment of interest under section 47(4A) is not arbitrary or unreasonable. It emphasizes that the liability to pay interest arises when tax becomes due, and the rate of interest is fixed by the Legislature itself. The court rejects the challenge to the constitutional validity of sub-section (4A) of section 47.

Liability of Directors for Sales Tax Dues:
The judgment addresses the issue of whether the liability of a company to pay sales tax can be imposed on its directors personally or on their personal properties. The petitioners argue that since the company and its directors are separate legal entities, such liability cannot be fastened on the directors. They rely on legal precedents to support their stance. On the other hand, the respondents argue that if sales tax arrears cannot be recovered from the companies, the authorities are justified in pursuing the directors' properties. However, the court notes that no specific order was passed to fasten the liability on the directors in the cases under consideration. It highlights the absence of statutory provisions empowering the authorities to impose the company's sales tax liability on its directors. The court rejects the respondents' contentions and concludes that there is no provision in the Sales Tax Act holding directors personally liable for the company's sales tax dues.

Conclusion:
The judgment rejects the challenges to the constitutional validity of sub-section (4A) of section 47 of the Gujarat Sales Tax Act, 1969. It allows the petitions to the extent that the respondents are restrained from proceeding against the petitioners or their personal properties for the recovery of sales tax dues of the respective companies in which they are directors. The court emphasizes the separation between the liability of a company and its directors, highlighting the absence of legal provisions holding directors personally liable for the company's tax obligations.