2004 (6) TMI 642 - HC - VAT and Sales Tax

Summary

Issues involved:
1. Constitutional validity of sub-section (4A) of Section 47 of the Gujarat Sales-tax Act, 1969.
2. Liability of Company Directors for sales-tax dues.

Constitutional Validity of Sub-section (4A) of Section 47:
The judgment addressed challenges to the constitutional validity of sub-section (4A) of Section 47 of the Gujarat Sales-tax Act, 1969. The court referred to a previous decision in Ashapura Mineral Company vs. State of Gujarat & Ors. (1993) 89 STC 289 where a similar challenge was raised. The court upheld the provision, stating that interest payment under this section is a method of revenue collection, and the rate of interest is fixed by the legislature, not the discretion of tax authorities. It was clarified that the provision is not penal in nature and serves the purpose of compensating the government for delayed payments. The court also rejected claims of discriminatory treatment regarding interest rates for different entities, emphasizing the state's right to decide on revenue collection methods.

Liability of Company Directors for Sales-tax Dues:
The judgment also analyzed the issue of the liability of Company Directors for sales-tax dues. Petitioners argued that since the Company and its Directors are separate legal entities, the liability of the Company should not extend to the Directors personally or their personal properties. They cited cases to support their argument. On the other hand, respondents contended that if sales-tax arrears could not be recovered from the Companies, authorities were justified in pursuing the Directors' properties. They referred to Section 78 of the Gujarat Sales-tax Act, suggesting that the corporate veil could be lifted to hold Directors accountable. However, the court noted that there was no statutory provision empowering authorities to impose the Company's tax liability on its Directors. It highlighted that Section 78 deals with criminal liability, not personal liability for tax dues. The court emphasized that the corporate veil should only be lifted with a strong factual basis, which was lacking in the present case. Consequently, the court allowed the petitions to the extent that authorities were restrained from pursuing Directors or their personal properties for Company sales-tax dues.

In conclusion, the judgment upheld the constitutional validity of sub-section (4A) of Section 47 of the Gujarat Sales-tax Act, 1969. It clarified that the liability to pay interest under this provision is not penal but a method of revenue collection. Regarding the liability of Company Directors for sales-tax dues, the court ruled in favor of the petitioners, stating that there was no statutory basis to hold Directors personally liable for Company tax obligations. The court emphasized the importance of a clear legal basis before lifting the corporate veil to impose personal liability on Directors.