Madras High Court
M/S.Balaji Distilleries Ltd vs The Secretary To Governdment on 17 March, 2008
Author: S. Manikumar
Bench: S.Manikumar
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 17.03.2008
CORAM
THE HONOURABLE MR.JUSTICE S.MANIKUMAR
W.P.No.13461 of 2007
M.P.Nos.2, 3 and 4 of 2007
M/s.Balaji Distilleries Ltd.,
rep. By its General Manager ... Petitioner
vs.
1. The Secretary to Governdment,
State of Tamil Nadu,
Commercial Taxes Dept.,
Secretariat, Fort St. George, Chennai-9.
2. The Assistant Commissioner (CT),
Fast Tract Assessment Circle II,
Chennai-6.
3. The Managing Director,
Tamil Nadu State Marketing Corporation Ltd.,
4th Floor, CMDA, Tower II,
Gandhi Irwin Bridge Road,
Egmore, Chennai-8.
4. The Board for Industrial & Financial Reconstruction,
Jawahar Vyapar Bhavan, 1, Tolstoy Marg,
New Delhi 110 001.
5. Industrial Development Bank of India,
IDBI Towers,
Cuffe Parade, Mumbai. ... Respondents
Writ petition is filed under Article 226 of the Constitution of India for issuance of a Writ of Certiorarified Mandamus to call for the records of the second respondent in his impugned proceedings bearing reference in communication No.RC.196/04/A2, dated 10.04.2007, and quash the same as being arbitrary, illegal and contrary to the provisions of SIC(SP) Act, 1985 and the proceedings of the fourth respondent to seek to recover to take any coercive steps against the petitioner for recovery of any tax arrears for the period upto March 31, 2007 under the Tamil Nadu General Sales Tax Act, 1959 and the Tamil Nadu Value Added Tax Act, 2006, including by issuance of Form B-6 notice or by attaching properties or monies directly or otherwise through the third respondent till the sanction by the fourth respondent of the Scheme of Rehabilitation under SIC (SP) Act, 1985 and receive payments and enforce payments in respect of taxes strictly in accordance with the final orders to be passed by the fourth respondent in exercise of its powers under SIC(SP) Act.
For Petitioner : Mr.Sathish Parasaran
For Respondents : Mr.P.S.Raman
Additional Advocate General
assisted by Mr.Haja Naziruddin
Special Government Pleader
O R D E R
The petitioner has sought for a Writ of Certiorarified Mandamus to quash the order of the second respondent, in his impugned proceedings bearing reference in communication No.RC.196/04/A2, dated 10.04.2007, as being arbitrary, illegal and contrary to the provisions of SIC(SP) Act, 1985 and the proceedings of the fourth respondent to seek to recover to take any coercive steps against the petitioner for recovery of any tax arrears for the period upto March 31, 2007 under the Tamil Nadu General Sales Tax Act, 1959 and the Tamil Nadu Value Added Tax Act, 2006, including by issuance of Form B-6 notice or by attaching properties or monies directly or otherwise through the third respondent till the sanction by the fourth respondent of the Scheme of Rehabilitation under SIC (SP) Act, 1985 and receive payments and enforce payments in respect of taxes strictly in accordance with the final orders to be passed by the fourth respondent in exercise of its powers under SIC(SP) Act.
2. Brief facts leading to the Writ Petition are as follows:
The petitioner-company is engaged in the manufacture of Indian Made Foreign Spirits (IMFS) and beer products in their industrial units located at Bye-pass Road, Poonamallee, Chennai 600 056 and Mount Thiruvallur High road, Aranvoyal Village, Thiruvallur District respectively. Initially, they have started their business with an authorized capital of Rs.90 lacs and it was increased from time to time over the years. The authorized capital of the company as on 31st March, 2006 was Rs.225 crores. The petitioner has issued, subscribed and paid-up share capital as on 31th March, 2006 was Rs.1,12,63,84,600/-, comprising the following:
Equity capital Rs.5,31,75,600/-
Preference capital Rs.59,62,09,000/-
3. The petitioner has further submitted that as they were earning substantial profits on the distillery units, they decided to expand their business by setting up a brewery unit and accordingly, they obtained a licence from the State Government of Tamil Nadu in the year 1995. Immediately, the petitioner-company has availed financial assistance from various financial institutions and commenced their project. However, due to unforeseen circumstances, the project was delayed and finally, the company completed the brewery project and commenced the commercial operation in May, 2003.
4. The petitioner has further submitted that they have capitalized the plant, machinery and building etc., of the brewery project at Rs.110 Crores, employed over 1000 employees and contributed around Rs.1000 Crores from the above distillery and brewery units to the state exchequer by way of excise duty, sales tax etc. During the financial year 2000-01 onwards, the Company was suffering considerable loss, which resulted in heavy interest burden, delay in implementation of the brewery unit and higher input cost without any corresponding increase in the prices etc. The above factors leads to deterioration of the company.
5. The petitioner has further submitted that as per the mandatory requirement of Section 3(1)(o) r/w. Sec 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as "the SIC(SP) Act"), they have referred their sickness with the Board for Industrial and Financial Reconstruction (BIFR). On 04.02.2004, the petitioner has filed an application for first reference under Section 15 of the SIC (SP) Act and the same was registered as Case No. 103/2004 on 19.2.2004. On reference, an enquiry was initiated as per Regulation 19 of the SIC (SP) Act, 1985. The BIFR directed the petitioner to file Form A along with enclosures, by letter dated 11.03.2004 and the same was duly filed with BIFR on 17.03.2004. Similarly, a second reference was filed on 12.10.2004, based on the audited accounts as on 31.03.2004 and same was registered as case No.315 of 2004 by the BIFR on 18.10.2004. Here again, the BIFR, by letter dated 23.11.2004, directed the petitioner to file Form A alongwith enclosures and the same was filed on 25.11.2004. Based on the audited accounts for the year ending 31.03.2005, a third reference was filed on 24.8.2005 and the BIFR has not given any fresh reference, as both the earlier registrations were pending with the Bench. Fourth reference was filed on 27.10.2006, based on the audited accounts for the year ending 31st March, 2006 and no fresh reference was given, as the previous references were pending before the Bench and the same was informed to the petitioner by letter dated 2.11.2006.
6. The petitioner has further submitted that on 13.07.2006, as directed by BIFR, they have filed their written submissions on 28.7.2006 and on the next hearing date, i.e., on 20.12.2006, the BIFR, after examination of facts, declared the company as Sick Industrial Unit and formulated a scheme for Rehabilitation, vide its communication dated 28.12.2006. IDBI was appointed as an Operating Agency and after conducting a detailed study, the Board has fixed the cut off date as 31.03.2007, for the purpose of formulating a scheme of rehabilitation under the Sick Industrial Companies (Special Provisions) Act, 1985.
7. The petitioner has further submitted that as per Section 18 of SIC(SP) Act, the Operating Agency has to prepare a scheme with respect to the sick company, provide for one or more of the measures set out in the said Section. As per Sec.l8(l)(e), the operating agency has to include preventive, ameliorative and such other remedial measures, as may be appropriate in respect thereof. Section 19 further provides that where the scheme relates to preventive, ameliorative, remedial and other measures, the scheme may provide for financial assistance by way of loans, advances or guarantees or reliefs or concessions or sacrifices from the Central Government, State Government etc.
8. The petitioner has further submitted that in exercise of the powers conferred therein, the BIFR fourth respondent has issued directions, vide proceedings dated 20.12.2006, wherein the Operating Agency, namely, IBDI has been directed to prepare a viability study report and revival scheme keeping in view of the provisions of Section 18 of the Act. In the said order, it is specifically stated that the petitioner is not in a position to work out a scheme under Section 17(2) of the Act and therefore, Section 18 have to be explored in public interest.
9. According to the petitioner, the cut-off date is important for the reason that in the guidelines issued for preparation of the rehabilitation scheme, the company has been directed to furnish a detailed break-up of all liabilities as on the said date under several heads including dues towards Government and other statutory dues. It has also been provided that consequent upon furnishing all the required information, the Operating Agency has to submit a final report. Clause 9 specifically provides that the scheme has to take care of all the known liabilities of the company. Under Clause 15, the Company has been directed to continue to make dues that arise after 31.3.2007, since the same would not be covered in the proposed rehabilitation scheme.
10. The petitioner has further submitted that despite getting protection, pursuant to the order, dated 20.12.2006, they have consistently been paying their taxes every month towards sales tax and Value Added Tax. Considering the continued depletion of all of their resources and in view of the specific protection given to them as well as the direction of the fourth respondent that all their liabilities would be included in the scheme for rehabilitation, the petitioner-company has requested the second respondent, through its communications dated 02.03.2007 and 05.04.2007, not to take any coercive steps for recovery of sales tax arrears, till the Operating Agency prepares a rehabilitation Scheme for revival of the company.
11. The petitioner has further submitted that their liability, as on the cut off date, includes sales tax amount pertaining to January 2004 and February 2004 and Value Added Tax pertaining to March 2007 and the same are required to be included as part of the rehabilitation scheme, in accordance with the direction of the BIFR order and therefore they submitted the VAT returns for the Month of March' 2007 without payment of Tax, as the dues prior to 31.03.2007 would now have to be included and paid in accordance with the schedule, that would finally be sanctioned by the BIFR and make payments in terms of the consequential notification that would, if required, passed by the Government. Therefore a request was made to the second respondent to take the above facts into account and not to initiate any recovery steps in view of the orders of the BIFR, in terms of the Sick Industrial Companies (Special Provisions) Act, 1985.
12. The Assistant Commissioner (CT), Fast Track Assessment Circle II, Chennai - 600 006, second respondent herein, vide its letter dated 10.04.2007, has rejected the petitioners' request and therefore it has now become certain that the second respondent would initiate coercive steps to recover the arrears covered under the Scheme of Rehabilitation. The petitioner has further submitted that even on an earlier occasion, despite the pendency of the reference before the fourth respondent, when respondents 1 and 2 sought to enforce sales tax in respect of January and February' 2004, they had approached this Court in W.P.4862 of 2004 and by order dated 3.3.2004, this Court had granted interim orders in their favour. The second respondent also agreed not to take any coercive steps in respect of the tax covered under the said writ petition. To the contrary, the second respondent has taken a different stand in respect of their dues for the month of March 2007.
13. The petitioner has further contended that the impugned communication dated 10.4.2007 is wholly without any application of mind and has been passed arbitrarily, in as much as, the second respondent has clearly recognized that the earlier dues in respect of sales tax need not be paid and they would await orders from BIFR in respect of dues for the month of March 2007 and the VAT liability of Rs.53.07 crores. The basis for rejection of the request to await further orders in respect of the rehabilitation scheme is wholly inexplicable and there is every likelihood that respondents 1 and 2 would initiate coercive steps for recovery, which would make the efforts, before the BIFR, nugatory. The petitioner has further contended that the records were already before the second respondent as well as the Secretary to the Government and it would clearly prove that they are a sick industrial unit within the meaning of the Sec. 3(1) (o) r/w. Section 15 of the SIC (SP) Act, in which, the operating agency has been appointed and he has acted upon in terms of the BIFR order dated 28.12.2006.
14. The second respondent in his counter affidavit has submitted that the petitioner, Tvl. Balaji Distilleries Ltd., is a manufacturer of IMFL and beer and an assessee on the files of the Assistant Commissioner (CT), Fast Track Assessment Circle II, Chennai, the 2nd respondent herein. The Company has arrears upto March 2004 as follows:
(i) Part of tax collected in Jan' 04 payable in Feb' 04 (Rs. in Lakhs) Rs.1600.00
(ii)Part of tax collected in Feb' 04 payable in Mar' 04 Rs. 29.48
(iii) Interest levied for belated payment of tax due for 2001-02 and for 2002-03 Rs. 356.60 Total Rs.4905.33
15. The petitioner-company, by preparing balance sheet for the year ending 30.06.2003, filed reference and the same was received by the BIFR on 04.02.2004 and got registered as case No. 103/04. The company in Case No.103 of 2004, had included the arrears of Rs.356.60 Lakhs. Again, by preparing another balance sheet for the year ending 31.3.04, the petitioner has filed reference under Section 15(1) and got registered on 12.10.04 as case No. 315/04. In the Form A filed for reference in case No. 315/04, the arrears (i) to (iii) above, totalling Rs.49.05 Crores were included. The company is a viable and running unit. The company refrained themselves from paying taxes collected by them at Rs.16 Crores and Rs.29.49 Crores and interest levied for belated payment of tax at Rs.356.60 lakhs under the cover of BIFR in Case Nos. 103/04 & 315/04.
16. The respondent has further submitted that the company is a running unit engaged in the manufacture of IMFL & Beer, a flourishing trade and has been paying taxes regularly from April 04 to March 07. The company had paid Rs.411.00 crores from April 05 to March 06 and Rs.558.37 crores from April 06 to March 07. The company had also paid the tax dues in March 07(February 07 due in March 07) at Rs.52.57 crores. The second respondent has further submitted that the BIFR, in pursuance to the registration of reference in case Nos. 103/02 and 315/04, in the summary record of the proceedings of the hearing held on 20.12.06, declared the company as a sick industrial unit and by appointing IDBI as an operating agency directed IDBI to prepare a viability study report and a revival scheme for the said company, if feasible within an overall period of 16 weeks (from 20.12.06) and with cut off date as 31.3.07 (within the overall period).
17. The second respondent has further submitted that the company has been paying the monthly tax regularly from April 04 to March 07 and they have paid Rs. 52.57 in March 07 (Feb.07 due in March 07). As the company delayed the payment by Rs.14 crores upto 20.3.07 towards the taxes due for Feb. 07, payable in March 07, B6 notice dated 21.03.2007 was issued to TASMAC and to the banker of the petitioner company, and Rs.5.14 crores was collected from M/s TASMAC in the late evening on the same day 21.3.07. On payment of balance of Rs. 8.86 crores by the company on 22.3.07, B6 notice was withdrawn. The company, has been regularly making payments from April 04 to March 07.
18. It is further submitted that the company misconstrued the cut-off date, i.e., on 31.3.07, as equivalent to the reference date for registration of the company as a sick industrial unit Under Section 15(1) of the Act and the company is under wrong notion that the taxes due in April 07 (March 07 payable in April 07) need not be paid under the cover of protection under sec. 22 of SICA. Therefore, the request of the company in not to collect the current taxes, relating to the amount of taxes collected by them in March 07 in their sale bills, was rejected by the Assistant Commissioner (CT) Fast Track Assessment Circle-ll, dated 10.4.07 and the company was requested to make the current taxes. The company again in their letter dated 12.4.07, by filing their returns for the month of April 07 (March 07 payable in April 07) disclosed a taxable turnover of Rs.91,64,93,250/- and admitted a tax liability at Rs.53,06,97,604/-, refrained from making payment of taxes under the pretext date, 31.3.07 mentioned in the summary record of the proceedings of the hearing held on 20.12.06 by the BIFR, as cut off date with reference to registration of reference of a sick industrial unit u/s.15(1) of the Act, even though the cut off date 31.3.07 mentioned in the summary record of the proceedings of the hearing held on 20.12.06 refers only to the date prescribed for the operating agency to prepare and submit a viability study report if feasible with in an overall period of 16 weeks i.e. before 31.3.2007.
19. The company was requested to make the payment for which they assured that they shall pay the current taxes. However, to their shock and surprise, the company had moved this court and by order dated on 12.4.07, the company obtained an interim stay and injunction. The order was received on 16.4.2007. The BIFR in the summary record of the proceeding dated 20.12.07 has observed as follows.
"Accordingly, in terms of powers available under sec. 17(3) of the Act, the Bench appointed IDBI as the operating Agency (OA) with directions to prepare a viability study report and revival scheme for the company, if feasible within an over all period of 16 weeks. The OA was directed to keep in view the provisions of Section 18 of the Act and the enclosed guidelines while carrying out this exercise. The company was directed to make a payment of Rs. 5.00 lakhs to the IDBI as OA fee. The company was directed not to dispose of except with the consent of the Board, any of its assets as per section 22A of the Act. The cut off date (COD) for the scheme shall be taken as 31.03.2007".
20. It is further submitted that the cut off date, i.e., on 31.3.07, refers to only the "preparation of viability study report and revival scheme by the Operating Agency to the company, if feasible, within an overall period of 16 weeks with a cut off date as on 31.3.07. 16 weeks period from 20.12.06 extends upto 10.4.07 and the cut off date 31.3.07 refers to the overall period of 16 weeks and it has nothing to do with the registration of reference under Sec. 15 of SICA in case Nos. 103/04 & 315/04. Actually the cut of date 31.3.07 is no way specified as the cut off date by BIFR in relation to the references registered under Sec. 15 of SICA. The BIFR in the summary record of proceedings of the hearing held on 20.12.06 nowhere ordered or directed, the government to sacrifice the current taxes collected in March 07 by the petitioner. The respondents 1 and 2 have further submitted that when this position/fact could be well known and visualised even by an ordinary person it is not open to the petitioner-company to misconstrue, distort to gain undue advantage without any justification either under SICA or general law, much to the disadvantage of the revenue and that too, when the petitioner as a running concern had already collected the current taxes in March 07 at Rs.53.07 crores. The petitioner has projected a case to hamper the government in realizing legitimate dues from them, which amount is used for the developmental activities of the government.
21. It is further submitted that the High Court of Gujarat in the case of M/s Core Health Care Ltd. Vs. the State of Gujarat reported in 139 STC 116 while dealing with suspension of legal proceedings pending inquiry, consequent upon registration of reference under SICA, has raised the three important points with reference to cut off date and answered them as a source of jurisprudence of great value. According to the respondents 1 and 2 the decision rendered in the above reported case is applicable to the facts of the present case.
22. The respondents 1 and 2 have furthr submitted that the cut off date did not refer to the period i.e., (i) the period upto the date of registration of the company as a sick industrial company under sec. 15 of the Act, which is also the date of commencement of the inquiry (ii) the period commencing from the date of registration of the sick Industrial Company by the BIFR, till sanction of the rehabilitation scheme by the BIFR, enabling the Government to recover Rs. 53.07 crores without any sacrifice whatsoever. The company has misconstrued the cut off date and obtained interim order. Therefore, the claim made by the company is unwarranted, unjustified and arbitrary.
23. The second respondent in his counter affidavit has further submitted that the High Court of Andhra Pradesh in the case of Sol Pharmaceuticals Ltd., Vs. Mandal Revenue Officer and Another, reported in 5 VST 580, under similar set of facts and issue, held that when the company did not become defunct or non-productive or stopped its substratum activity before seeking reference under Section 15(1) of the SICA and continued to collect sales tax from others, the same has to be paid over to the Government. The respondents have further submitted that in view of the above judgment, the petitioner-company has to pay the tax collect for the month of March 2007 to the Government and they do not have any legal or statutory right to retain the same.
24. The second respondent has further contended that the cut off date 31.3.07, is nothing but a crucial date for the preparation of viability study report, if feasible, for the company and this has been misconstrued and distorted by the petitioner with an intention to gain undue advantage. The crucial date did not refer to the period prior to date of registration of reference, i.e., prior to registration of references in case Nos. 103/04 and 315/04. Therefore no blanket protection under Section 22 of SICA is available for the taxes collected by the petitioner company in March 07, in the post reference period and the State is entitled to collect the same, even without any consent from BIFR. Admittedly, the company did not become defunct or non-productive or stopped its substratum activity either before seeking reference under Section 15(i) of SICA or subsequently. In all probabilities, the petitioner company continues to collect taxes from TASMAC, but wantonly withheld the same, without paying it over to the Government. Hence, no protection under sec. 22 of SICA is available to the petitioner and the State is at full liberty to collect the taxes of Rs.53.07 Crores towards Sales tax collected by the company in March 07 during the period, after the date of registration of reference in Case Nos.103/04 and 315/04 and before the sanction of rehabilitation scheme. The Operating Agency, IDBI within an overall period of 16 weeks from 20.12.2006 and before the cut off date, i.e., 31.3.2007, has not come forward to prepare the viability study report. Because, the Operating Agency might have determined that the affairs of the company, might not be so conducive to prepare a viability study report especially, when the company had already in arrangement with ICICI, internally, before seeking reference to BIFR under sec. 15(i) and before registration of reference in case Nos.103/04 and 315/04. May be such circumstances, it is not even possible for IDBI to prepare viability study report and it is rather not feasible for IDBI without eliminating ICICI from seizing the control of the company as a fully secured creditor, in whose position, the affairs of the company is under control. The petitioner company has conveniently omitted the above facts in the grounds of the present Writ Petition. It is further submitted that from the conjoint reading of Section 15 & 16 of SICA, the date of registration is also the date of commencement of the inquiry under Section 16 of the Act. The current taxes collected by the company in March 2007 payable in April 2007 refers to the period between registration of reference (Commencement of inquiry) and pre sanction of rehabilitation scheme and the State by lega1 fiction under the provisions of SICA and in the light of decisions reported in 139 STC 116, 5 VST 580 105 STC 327(SC) and 111 STC 462(SC) is entitled to collect Rs.53.07 crores, without any sacrifice whatsoever and even without consent from BIFR. The averment of the petitioner is ill-conceived, distorted and unethical much against the force of law. In fact, there was no threat of attachment by the second respondent as evident from the reply in RC.1961/04/A2 dt: 10.4.2007. The retention of money Rs.53.07crores is grossly unjustified and detrimental to the state.
25. Mr.Sathish Parasaran, learned counsel for the petitioner submitted that on 04.02.2004, the company has filed an application under Section 15 of the Sick Industrial Companies (Special provisions) Act, 1985 and in view of its becoming a sick company, the said application was registered as case No.103 of 2004 and an inquiry was initiated. The second reference was filed on 12.10.2004 and registered as case No.315 of 2004. The third reference was filed on 24.8.2005 and no fresh reference was given. The fourth reference was filed on 27.10.2006. He further submitted that on 20.12.2006, the Board on examination, declared the petitioner-company as sick industrial company and directed the IDBI, the operating agency to prepare a viability study report and revival scheme for the company, if feasible within an overall period of 16 weeks. He further submitted that the Board had fixed the cut-off date for the scheme as 31.3.2007 and as per Clause 9 of the guidelines for the preparation of rehabilitation scheme, the operating agency has been directed to take care of all the liabilities of the company. Referring to Clause 15 of the guidelines of the Board for the preparation of scheme, he further submitted that it is suffice that the Company, makes payment of all its current dues arising after the cut-off date since the recovery of dues prior to the cut-off date shall be covered in the proposed rehabilitation scheme.
26. Placing reliance on Tata Davy Ltd, v. State of Orissa and others, reported in 1997 (6) SCC 669, learned counsel for the petitioner submitted that all the creditors seeking to recover the dues from sick industrial companies, in respect of whom an inquiry under Section 16 is pending or the scheme is under preparation or consideration or has been sanctioned, have to obtain the consent of the Board before resorting to any steps for recovery and therefore, the State Government, has no jurisdiction to resort to recovery by way of attaching the amounts due to the petitioner from the Tamil Nadu State Marketing Corporation, Chennai, the third respondent and that it would be amounting to infringement of the statutory protection granted under Section 22 of the SIC (SP) Act, 1985. In this context, he placed reliance on the decisions reported in Kiran Overseas Exports Ltd. v. Commercial Tax Officer, reported in 2002 (1) CTC 26, Dunlop India Limited v. Tahsildar reported in 2006 (4) MLJ 662, Sol Pharmaceuticals Ltd., Vs. Mandal Revenue Officer and Another, reported in 5 VST 580, Sree Ambal Mills Ltd., v. Commercial Tax Officer (FAC) Central II, Tiruppur reported in 2006 (131) Comp. Cas 573 (Mad), Kanoria Dyechem Ltd. v. STO reported in [2002] 125 STC 210 (Guj) and Bharat Heavy Plate and Vessels Ltd., v. Assistant Commissioner of Central Excise Division-II and another reported in 2006 (133) Comp. Cas. 41 (AP).
27. Learned counsel for the petitioner further submitted that the impugned action of the Assistant Commissioner (CT) Chennai, second respondent in rejecting the request of the petitioner not to take coercive steps, is arbitrary, inasmuch as under the provisions of the SIC (SP) Act, 1985 and the orders passed by the Board, all the dues and the liabilities prior to the cut-off date, i.,e 31.03.2007, form part of the scheme for rehabilitation and the very purpose and the object of the Act would be defeated, if payments in respect of that period are sought to be forcibly recovered.
28. Referring to Section 19 of the Act, learned counsel for the petitioner submitted that the scheme to be framed would include the remedial measures, such as reliefs and concessions, sacrifices to be made by the State Government, which would essentially include the tax dues and other dues. He further submitted that the impugned order is arbitrary and has the effect of rendering the entire rehabilitation scheme to be framed by the fifth respondent as nugatory and therefore, the same is liable to be set aside.
29. Learned counsel for the petitioner submitted that under the Value Added Tax, 2006, the responsibility to collect tax and make payments is on the registered dealer and therefore, the contention of the Government that the Tamil Nadu State Marketing Corporation, the Government body collects the sales amount together with the sales tax and pays it to the petitioner and therefore, the corporation should be permitted to retain the tax element, has no basis.
30. He further submitted that the petitioner has been regular in remitting the tax and for the last financial year alone, the petitioner has remitted tax dues in excess of Rs.1,000 Crores. Considering the fact that the petitioner has remitted dues of more than Rs.50 Crores and their bona fides, he submitted that if coercive steps are allowed to be initiated, the entire process of manufacturing activity would come to stand still and it would be contrary to public interest and State Exchequer. Non-payment of tax for one month i.e., from March 2007, which would be covered under the scheme under preparation, does not attract recovery and the respondents having not obtained any sanction/consent in terms of the SIC (SP) Act, 1985, cannot resort to recovery by coercive steps.
31. Mr.P.S.Raman, Learned Additional Advocate General, referring to the provisions of the SIC(SP) Act, 1985 and the record of proceedings of the Board dated 20.12.2006, submitted that the petitioner's Company has misconstrued the cut-off date, i.e., 31.03.2007 as equivalent to the reference date for registration of the company as a Sick Industrial Unit under Section 15(1) of the SIC (SP) Act, 1985.
32. Learned Senior Counsel further submitted that the record of proceedings pertains to the balance sheet for the year ending 30.06.2003 and the reference made by the Company was registered by the Board as Case No.103 of 2004. He further submitted that the Company in Form A has included the arrears of Rs.356.60 lakhs only. He further submitted that the case No.315 of 2004 pertains to a second reference filed on 12.10.2004 based on the audit accounts as on 31.03.2004 for arrears of Rs.49.05 Crores. He further submitted that the Company is a viable and running unit, engaged in manufacture of IMFL and beer, a flourishing trade and has been paying taxes regularly from April 2004 to March 2007. According to him, when the Board proceedings are referable only to the references 103/04 and 315/04 for the period 2003-04, in the absence of the registration of the reference submitted for the later years, the viability report and the scheme directed to be prepared by IDBI, the operating agency, can be restricted only to the loss or amounts due, to the secured creditors including the State Government for realizing the arrears of sales tax for the above mentioned period and does not cover the post reference period.
33. Learned Senior Counsel further submitted that when the Board by its order dated 20.12.2006, declared the Company as sick industrial unit and directed the IDBI, Operating Agency to prepare the viability study report and the revival scheme, it granted an overall period of 16 weeks (from 20.12.2006 with the cut-off date as 31.03.2007). He submitted that the cut off date is only for preparation of the scheme by IDBI, the operating agency and not for giving effect to the scheme under preparation.
34. Learned Senior Counsel further submitted that the company is fully aware of their legal liability to pay the revenue due to the Government and that is why, they have paid Rs.411/- Crores from April 2005 to March 2006 and Rs.558.37 Crores from April 2006 to March 2007. He further submitted that since the references under consideration by BIFR, relate only to the period before March 2004, the petitioner has been paying the monthly taxes regularly from April 2004 to March 2007 and that they also paid a sum of Rs.52.57 Crores in March 2007 and suddenly, on a misconstruction of the record of proceedings dated 20.12.2007, has failed to remit the current dues for the Month of March 2007, under the wrong notion that the same is under the cover of protection under Section 22 of the SIC (SP) Act, 1985.
35. Placing strong reliance on a decision of the Gujurat High Court in Core Healthcare Limited v. State of Gujarat, reported in 139 STC 116, Andra Pradesh High Court in the Sol Pharmaceuticals Ltd., Vs. Mandal Revenue Officer and Another, reported in 5 VST 580 and Sections 15 and 16 of the SIC (SP) Act, 1985, the learned Additional Advocate General submitted that as the date of registration of the reference is also the date of commencement of the inquiry under Section 16 and the current taxes collected by the Company, in March 2007, payable in April 2007, refers to the period between the registration of reference (commencement of enquiry) and pre-sanction of rehabilitation scheme and therefore, the State by legal fiction under the provisions of the Act and following the judgments reported in 139 STC 116, 5 VST 580, 105 STC 327 (SC), 111 STC 462 (SC), is entitled to recover Rs.53.05 Crores without any sacrifice whatsoever and the consent from the Board is not necessary.
36. By way of reply, Mr.Sathish Parasaran, learned counsel for the petitioner, submitted that the decision in Core Health Centre Limited v. State of Gujarat, (139 STC 116), is contrary to the established principles of statutory interpretation that where a statute has to be interpretated from the plain words and when Section 22 of the SIC (SP) Act does not in any manner states that dues arising after the period of reference would not be protected, the decision of the Gujarat High Court amounts to supplying words to Section 22 of the Act and therefore, the same is not applicable to the facts of this case. He further submitted that the judgment in Commercial Tax Officer v. Corromandal Pharmaceuticals (1997 (10) SCC 649), has already been distinguished by the Supreme Court in TATA Davy's case and therefore, once the scheme is admittedly under preparation and consideration by the BIFR, all the dues before the cut-off date, i.e., 31.03.2007, would be covered by the scheme to be prepared by the operating agency and therefore, the second respondent has no jurisdiction to initiate coercive action for recovery.
Heard the learned counsel appearing for the parties and perused the materials available on record.
37. Sick Industrial Companies (Special Provisions) Act, 1989 is an enactment made in the public interest, containing special provisions with a view to secure the timely detection of sick and potentially sick companies owning industrial undertakings, the speedy determination by a Board of experts of the preventive, ameliorative, remedial and other measures which need to be taken with respect of such companies and the expeditious enforcement of the measures so determined and for the matters connected therewith or incidental thereto.
38. In Navnit R. Kamani v. R.R.Kamani reported in 1998 (4) SCC 387, the Supreme Court in Paragraph 10 of the judgment explained the object of the SICA as follows:
"10. The Statement of objects and reasons reveals the purpose underlying the benevolent legislation as also the anxiety of the legislature to provide for preventive, ameliorative and remedial measures essential for reviving sick or potentially sick companies and for ensuring expeditious enforcement of the measures devised by the competent authority under the Act. The Statement of objects and reasons discloses the anxiety of the legislature at the alarming increase in the incidence of sickness of industrial companies and it also reveals that the legislation has been enacted with the end in view to: (1) afford maximum protection of employment; (2) optimise the use of funds of the companies etc.; (3) salvaging the production assets; (4) realising the amounts due to the banks etc; and (5) to replace the existing time-consuming and inadequate machinery by efficient machinery for expeditious determination by a body of experts."
39. Before adverting to the facts of this case, it would be relevant to extract few provisions of the Sick Industrial Companies (Special Provisions) Act, 1985. Section 15 of the Act deals with reference to the Board and it reads as follows:
"(1) Where an industrial company has become a sick industrial company, the Board of the Director of the Company, shall, within sixty days from the date of finalisation of the duly audited accounts of the company for the financial year as at the end of which the company has became a sick industrial company, make a reference to the board for determination of the measures which shall be adopted with respect to the company:
Provided that if the Board of Directors had sufficient reasons even before such finalisation to form the opinion that the company had become a sick industrial company, the Board of Directors shall, within sixty days after it has formed such opinion, make a reference to the Board for the determination of the measures which shall be adopted with respect to the company:
Provided further that no reference shall be made to the Board for Industrial and Financial reconstruction after the commencement of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, where financial assets have been acquired by any securitisation company or reconstruction company under sub-section (1) of Section 5 of that Act:
Provided also that on or after the commencement of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, where a reference is pending before the Board for Industrial Financial Reconstruct, such reference shall abate if the secured creditors, representing not less than three-fourth in value of the amount outstanding against financial assistance disbursed to the borrower of such secured creditors, have taken any measures to recover their secured debt under sub-section (4) of section 13 of that Act.
(2) Without prejudice to the provisions of sub-section (1), the Central Government or Reserve Bank or a State Government or a public financial institution or a State level institution or a scheduled bank, may, if it has sufficient reasons to believe that any industrial company has become, for the purposes of this Act, a sick industrial company, make a reference in respect of such company to the Board for determination of the measures which may be adopted with respect to such company:
Provided that a reference shall not be made under this sub-section in respect of any industrial company by-
(a) The Government of any State unless all or any of the industrial undertakings belonging to such company are situated in such State;
(b) A public financial institution or a State level institution or a scheduled bank unless it has, by reason of any financial assistance or obligation rendered by it, or undertaken by it, with respect to, such company, an interest in such company."
40. Section 16 deals with the inquiry into working of sick industrial companies and it is extracted hereunder:
"16. Inquiry into working of sick industrial companies.-(1) The Board may make such inquiry as it may deem fit for determining whether any industrial company has become a sick industrial company-
(a) upon receipt of a reference with respect to such company under section 15; or
(b)...............
(2) The Board may, if it deems necessary or expedient so to do for the expeditious disposal of an inquiry under sub-section (1), require by order any operating agency to enquire into and make a report with respect to such matters as may be specified in the order.
(3) The Board or, as the case may be, the operating agency shall complete its inquiry as expeditiously as possible and endeavour shall be made to complete the inquiry within sixty days from the commencement of the inquiry.
Explanation.-For the purposes of this sub-section, an inquiry shall be deemed to have commenced upon the receipt by the Board of any reference or information or upon its own knowledge reduced to writing by the Board. (4)................."
41. Under section 17, after completion of the inquiry whether it is practicable for the company to make its net worth exceed the accumulated losses within a reasonable time, the Board shall give such company time to make its net worth exceed the accumulated losses subject to appropriate restrictions and conditions. If the Board decides that it is not practicable for the company to do so within a reasonable time and that it is necessary or expedient in the public interest to adopt all or any of the measures specified in section 18, the Board may direct any operating agency to prepare a scheme providing for revival and rehabilitation of the company.
42. Section 18 provides for preparation and sanction of the scheme for revival and rehabilitation of the sick company as expeditiously as possible and ordinarily within a period of ninety days providing for various measures including the financial reconstruction of the sick industrial company, as may be appropriate.
43. Section 19, deals with rehabilitation by giving financial assistance and it reads as under:
"19. Rehabilitation by giving financial assistance.-(1) Where the scheme relates to preventive, ameliorative, remedial and other measures with respect to any sick industrial company, the scheme may provide for financial assistance by way of loans, advances or guarantees or reliefs or concessions or sacrifices from the Central Government, a State Government, any scheduled bank or other bank, a public financial institution or State level institution or any institution or other authority (any Government bank, institution or other authority required by a scheme to provide for such financial assistance being hereafter in this section referred to as the person required by the scheme to provide financial assistance) to the sick industrial company.
(2) Every scheme referred to in sub-section (1) shall be circulated to every person required by the scheme to provide financial assistance for his consent within a period of sixty days from the date of such circulation or within such further period, not exceeding sixty days, as may be allowed by the Board, and if no consent is received within such period or further period, it shall be deemed that consent has been given.
(3) Where in respect of any scheme the consent referred to in sub-section (2) is given by every person required by the scheme to provide financial assistance, the Board may, as soon as may be, sanction the scheme and on and from the date of such sanction the scheme shall be binding on all concerned.
(3A) On the sanction of the scheme under sub-section (3), the financial institutions and the banks required to provide financial assistance shall designate by mutual agreement a financial institution and a bank from amongst themselves which shall be responsible to disburse financial assistance by way of loans or advances or guarantees or reliefs or concessions or sacrifices agreed to be provided or granted under the scheme on behalf of all financial institutions and banks concerned.
(3B) The financial institution and the bank designated under sub-section (3A) shall forthwith proceed to release the financial assistance to the sick industrial company in fulfilment of the requirement in this regard.
(4) Where in respect of any scheme consent under sub-section (2) is not given by any person required by the scheme to provide financial assistance, the Board may adopt such other measure, including the finding up of the sick industrial company, as it may deem fit."
44. Section 20 provides that where the Board after making inquiry under section 16 and after considering all the relevant facts and circumstances and after giving an opportunity of hearing to all concerned parties, is of opinion that the sick industrial company is not likely to recover from sickness within a reasonable time and that the company is not likely to become viable in future and that it is just and equitable that the company should be wound up, it may record and forward its opinion to the concerned High Court which may proceed with the winding up of the sick industrial company in accordance with the provisions of the Companies Act.
45. The important section which has a bearing on the controversy dealing with the suspension of steps taken for recovery is as follows:
"22. Suspension of legal proceedings, contracts, etc.-(1) Where in respect of an industrial company, an inquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law, no proceedings for the winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof and no suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the appellate authority."
46. Subject matter of references before BIFR in case Nos.103 and 314 of 2004 is follows:
In the case on hand, upon finalisation of the accounts for the financial year 2003, the petitioner has submitted a first reference on 04.02.2004, under Section 15 of the SIC (SP) Act and the application has been registered Case No.103 of 2004 on 19.04.2004. An enqiry has been initiated as per Regulation 19 of SIC (SP) Act, 1985. As per the averments of the petitioner, Form A along with the enclosures, were submitted by the petitioner, vide letter dated 11.03.2004 and the same was duly filed on 17.03.2004. A second reference was filed on 12.10.2004, based on the audited accounts as on 31.03.2004 and the same was registered as Case No. 315 of 2004 by the BIFR on 18.10.2004. The BIFR directed the petitioner to file Form A along with enclosures by letter dated 23.11.2004 and the same was filed with the BIFR on 25.11.2004. Form A submitted by the company under Regulation 19 framed by the Board, contains the details of the informant, name of the company, registered office, factory office and the details of the statutory liabilities to the creditors and such other details. By letter dated 01.03.2004, the Company has requested the BIFR to reckon Rs.4875.12 lakhs as Sales Tax amount outstanding under statutory liabilities and consider the same for the purpose of the scheme. The details of the Sales Tax outstanding as at February, 2004 are as follows:
Dues for the Month of January, 2004 1600.00 Dues for the Month of February, 2004 2918.92 Interest on overdue sales tax 356
47. The reference made by the company on 04.02.2004 shows that the statutory liability to the Sales Tax Department as at February 2004, is Rs.4875.12 lakhs, which is the subject matter of reference No.103 of 2004. Form A submitted by the company in relation to reference dated 11.10.2004 includes the Sales Tax outstanding amount of Rs.4875.12 lakhs as at February 2004 and Sales Tax for the Month of March 2004, payable in April, 2004 (since paid) and an equivalent amount for subsequent month to be deferred. The reference made by the company on 11.10.2004 was registered as Case No.315 of 2004. Perusal of the Forms, submitted by the petitioner-company along with Reference Nos.103 and 314 of 2004 covers Sales Tax amount upto March 2004 and for the subsequent Months. The Company in their letter, 1st March 2004, has requested the Board to recokon the said amount and consider the same for the purpose of scheme to be framed by the Board in exercise of its statutory functions.
Now let me consider the decisions cited by the learned counsel for the parties and then applicability to the facts of the case.
48. In Gram Panchayat v. Shree Vallabh Glass Works Ltd., reported in 86 STC 41, the company was declared as sick company. A gram panchayat initiated coercive proceedings to recover the property tax and other dues from the company. When the proceedings were challenged, claiming protection under Section 22 of the SICA, the High Court accepted the plea of the company and restrained the Gram Panchayat from demanding tax. On appeal, the Supreme Court while interpreting Section 22(1) of the SICA, at Paragraphs 10 and 11, observed as follows:
"10. In the light of the steps taken by the Board under Sections 16 and 17 of the Act, no proceedings for execution, distress or the like proceedings against any of the properties of the company shall lie or be proceeded further except with the consent of the Board. Indeed, there would be automatic suspension of such proceedings against the company's properties. As soon as the inquiry under Section 16 is ordered by the Board, the various proceedings set out under Sub-section (1) of Section 22 would be deemed to have been suspended.
11. It may be against the principles of equity if the creditors are not allowed to recover their dues from the company, but such creditors may approach the Board for permission to proceed against the company for the recovery of their dues/outstandings/overdues or arrears by whatever name it is called. The Board at its discretion may accord its approval for proceeding against the company. If the approval is not granted, the remedy is not extinguished. It is only postponed. Sub-section (5) of Section 22 provides for exclusion of the period during which the remedy is suspended while computing the period of limitation for recovering the dues."
49. The facts of the case in Deputy Commercial Tax Officer v. Corromandal Pharmaceuticals and others reported in 1997 (10) SC 649, are that the petitioner company was an assessee to sales tax under the Andhra Pradesh General Sales Tax Act, 1957. It was assessed for the assessment years 1992-93, by order dated 3.1.1994 and for the years 1993-94, by order passed in 1995. The Sales Tax authorities initiated action under Section 17 of the Andhra Pradesh General Sales Tax Act for recovery of the said dues. Appeals were preferred from the assessment orders and the appellate authority granted a conditional order of stay to pay the tax assessed in instalments. Even then, there was default. The arrears of tax due from the company for the aforesaid period of two years, 1992-93 and 1993-94 was Rs.9,53,833/-. There was tax arrears of sales tax for the assessment years 1986-87 to 1992-93. The company was declared as a sick Industrial Company under the SICA. Industrial Reconstruction Bank of India (IRBI) was appointed as an operating agency. The BIFR sanctioned a scheme for rehabiliation of the petitioner company in Case No.160 of 1988 in exercise of its powers under Section 18(4) r/w. Section 19(3) of the Act, after obtaining permission from the financial institutions on November 19, 1990. Sanctioned scheme was brought into immediate effect and it was modified later, on December 29, 1993. The petitioner challenged the recovery proceedings for the sales tax dues for the assessment years 1992-93 and 1993-94 and sought for a Mandamus, directing the Commercial Tax Authorities not to proceed with the collection of balance of sales tax amount without the permission of the BIFR as required under Section 22 of the Act. The plea of the company was that the sanctioned scheme by BIFR for rehabilitation of the company was under implementation, and so, no proceedings for execution, distress or the like against the company, shall lie except with the consent of the Board. The Revenue contended that the arrears of sales tax in questin relate to the period after the sanctioned scheme was brought under implementation and that the legal embargo/bar under Section 22 of the Act is inapplicable since Section 22 of the Act can apply only in respect of sales tax dues included in the "sanctioned scheme". Only those dues which were included in "the package" in the sanctioned scheme will be governed by Section 22(1) of the Act. The High court considered the rival pleas in the light of the relevant statutory provisions, decisions of the Apex Court and of other High Courts, and held that there is no warrant to import the limitation as contended by the Revenue in applying Section 22 of the Act and that no coercive steps for the purpose of recovery of tax dues including action under Section 17 of the Andra Pradesh General Sales Tax Act can be taken by the Revenue without obtaining the consent of BIFR. The Writ Petition filed by the company was allowed. The Revenue moved the Supreme Court by way of SLP.
50. On appeal, while explaining the scope and extent of the provisions of the SICA, at Paragraph 10, the Apex Court summarised as follows:
"10. On a fair reading of the provisions contained in Chapter III of Act 1/1986 and in particular Sections 15 to 22, we are of the opinion that the plea put forward by the Revenue is reasonable and fair in all circumstances of the case. Under the statute, the BIFR is to consider in what way various preventive or remedial measures should be afforded to a sick industrial company. In that behalf, BIFR is enabled to frame an appropriate scheme. To enable the BIFR to do so, certain preliminaries are required to be followed. It starts with the reference to be made by the Board of Directors of the sick company. The BIFR is directed to make appropriate inquiry as provided in Sections 16 and 17 of the Act. At the conclusion of the inquiry, after notice and opportunity afforded to various persons including the creditors, the BIFR is to prepare a scheme which shall come into force on such date as it may specify in that behalf. It is implementation of the scheme wherein various preventive remedial or other measures, are designed for the sick industrial company, steps by way of giving financial assistance etc. by Government, banks or other institutions, are contemplated. In other words, the scheme is implemented or given effect to, by affording financial assistance by way of loans, advances or guarantees or reliefs or concessions or sacrifices by Government, banks public financial institutions and other authorities. In order to see that the scheme is successfully implemented and no impediment is caused for the successful carrying out of the scheme, the Board is enabled to have a say when the steps for recovery of the amounts or other coercive proceedings are taken against sick industrial company which, during the relevant time, acts under the guidance/control or supervision of the Board (BIFR). Any step for execution, distress or the like against the properties of the industrial company of other similar steps should not be pursued which will cause delay or impediment in the implementation of the sanctioned scheme. In order to safeguard such state of affairs, an embargo or bar is placed under Section 22 of the Act against any step for execution, distress or the like or other similar proceedings against the company without the consent of the Board or, as the case may be, the appellate authority. The language of Section 22 of the Act is certainly wide. But, in the totality of the circumstances, the safeguard is only against the impediment, that is likely to be caused in the implementation of the scheme. If that be so, only the liability or amounts covered by the scheme will be taken in, by Section 22 of the Act. So, we are of the view that though the language of Section 22 of the Act is of wide import regarding suspension of legal proceedings from the moment an inquiry is started, till after the implementation of the scheme or the disposal of an appeal under Section 25 of the Act, it will be reasonable to hold that the bar or embargo envisaged in Section 22(1) of the Act can apply only to such of those dues reckoned or included in the" sanctioned scheme. Such amounts like sales tax, etc. which the sick industrial company is enabled to collect after the date of the sanctioned scheme legitimately belonging to the Revenue, cannot be and could not have been intended to be covered within Section 22 of the Act. Any other construction will be unreasonable and unfair and will lead to a state of affairs enabling the sick industrial unit to collect amounts due to the Revenue and withhold it indefinitely and unreasonably. Such a construction which is unfair, unreasonable and against spirit of the statutes in a business sense, should be avoided."
51. At Paragraph 11 of the said judgment, the Supreme Court held as follows:
"It does not appear from the above two decisions of this Court nor from the decisions of the various High Courts brought to our notice, that in any one of them, the liability of the sick company dealt with therein itself arose, for the first time after the date of sanctioned scheme. At any rate, in none of those cases, a situation arose whereby the sick industrial unit was enabled to collect tax clue to the Revenue from the customers after the "sanctioned scheme" but the sick unit simply folded its hands and declined to pay it over to the Revenue, for which proceedings for recovery, had to be taken. The two decisions of this Court as also the decisions of High Courts brought to our notice are, therefore, distinguishable. They will not apply to a situation as has arisen in this case. We are, therefore, of the opinion that Section 22(1) should be read down or understood as contended by the Revenue. The decision to the contrary by the High Court is unreasonable and unsustainable. We set aside the judgment of the High Court and allow this appeal. There shall be no order as to costs."
52. In the same judgment, Hon'ble Justice Jeevan Reddy, while agreeing with the ratio, expressed his opinion as follows:
"We have come across cases where unfair advantage is sought to be taken of the provisions of Section 22 by certain industrial companies - and the wide language employed in the section is providing them a cover. We are sure Section 22 was not meant to breed dishonesty nor can it be so operated as to encourage unfair practices. The ultimate prejudice to public monies should not be overlooked in the process of promoting industrial progress. We are quite sure that the Government is fully alive to the situation and are equally certain that they must be thinking of necessary modifications in the Act. These few observations are meant merely to record the need for changes in the Act."
53. In Tata Davy Ltd., v. State of Orissa reported in 1997 (6) SCC 669, the State of Orissa initiated recovery against M/s.Aluminium Industries Ltd., under Section 13-A of the State Act. The High Court of Orissa was considering the question whether the steps to recover sales tax dues under Section 13-A of the State Act were in the nature of the proceedings by way of execution, distress or the like contemplated by Section 22(1) of the Central Act. The appellant (Tata Davy Ltd.,) was in arrears of sales tax under the Orissa Sales Tax Act, 1947 for the assessment years 1983-84 and 1984-85. They filed a reference before the BIFR and the same was declared as a sick industrial company on 09.02.1988. On a reference dated 23.12.1989 under the SIC (SP) Act, 1985, an inquiry under Section 16 was made and a scheme was sanctioned by the Board. The appellant intervened in the Writ Petition filed by M/s.Aluminimum Industries Limited. The High Court held that there was no irreconcilable conflict between Section 13-A of the State Act and Section 22(1) of the Central Act, as they operated in separate and distinct fields and therefore, both were capable of being implemented. The result was that Section 22(1) of the Central Act "would not protect the properties of industrial companies from being proceeded against in exercise of the power under Section 13-A of the State Act."
54. In the above reported judgment, the Supreme Court considering the enactments, both Central and State, at Paragraph 12 held as follows:
"The Central Act does not impair or interfere with the rights of the States to legislate with respect to sales tax under Entry 54 of List II of the Seventh Schedule. In the larger interest of the industrial health of the nation, Section 22 of the Central Act requires all creditors seeking to recover their dues from sick industrial companies in respect of whom an inquiry under Section 16 is pending or a scheme is under preparation or consideration or has been sanctioned to obtain the consent of the said Board to such recovery. If such consent is not secured and the recovery is deferred, the creditors' remedy is protected for the period of deferment and is, by reason of sub-section (5) of Section 22, excluded in the computation of the period of limitation."
55. Though the Supreme Court referred the case of Commercial Tax Officer v. Corromandal Pharmaceuticals (1997 (10) SCC 649), on the facts of Tata Davy's case, the Court declined to apply the said judgment as it was not appropriate. In Tata Davy's, the Apex Court held that the arrears of tax and sales tax dues from the Sick Industrial Companies, who satisfy the conditions set out in Section 22(1) of SIC (SP) Act, cannot be recovered by coercise steps, if the consent is not secured from the Board. The Apex Court observed that the Corramandal's case was inapposite to the facts of Tata Davy's case, but the said judgment has not been overruled.
56. In Real Value Appliances Ltd., v. Canara Bank reported in 1998 (93) Comp. Cas. 26 (SC) at Paragraph 23 held as follows:
"When Section 16(1) says that the BIFR can conduct the inquiry "in such manner as it may deem fit", the said words are intended only to convey that a wide discretion is vested in the BIFR in regard to the procedure it may follow for conducting an inquiry under section 16(1) and nothing more. In fact, once the reference is registered after scrutiny, it is, mandatory for the BIFR to conduct an inquiry. The Act under the Companies Act, 1956. Whether the Company seeks a declaration that it is sick or some other body seeks to have it declared as a sick company, it is necessary that the Company be heard before any final decision is taken under the Act. It is also any such decision is given by the BIFR for in case the Company's assets are sold, or the Company wound up it may indeed become difficult later to restore the status quo ante. It must, therefore, be held the the inquiry must be treated as having commenced as soon as the registration of the reference is completed after scrutiny and that from that time, action against the Company's assets must remain stayed as stated in Section 22 till final decisions are taken by the BIFR."
57. In the above reported case, the Supreme Court, after considering regulation 19(5) of the SIC (SP) Act, 1985, held that registration of the reference amounts to commencement of an inquiry under Section 16(1) for the purpose of protection under Section 22 of the Act. Regulation 19(5) is reproduced hereunder:
"19(5). If on scrutiny, the reference is found to be in order, it shall be registered, assigned a serial number and submitted to the Chairman or assigning it to a Bench. Simultaneously, remaining information/documents required, if any, shall be called for from the informant."
In the above judgment, the Supreme Court has further held as follows:
"Relying on the use of the word 'may' in Section 16(1) of the Act it has been contended in some High Courts that the word 'may' in that section shows that the BIFR has power to reject a reference summarily without going into merits and that it is only when the BIFR takes up the reference for consideration on merits under Section 16(1) that it can be said that the 'inquiry' as contemplated by section has commenced. It is argued that if the reference before the BIFR is only at the stage of registration under Section 15, then section 22 is not attracted. This contention, in our opinion, has no merit. In our view, when Section 16(1) says that the BIFR can conduct the inquiry "in such manner as it may deem fit", the said words are intended only to convey that a wide discretion is vested in the BIFR in regard to the procedure it may follow for conducting an inquiry under Section 16(1) and nothing more. In fact, Once the reference is registered after scrutiny, it is, in our view, mandatory for the BIFR to conduct an inquiry. ..........It is also the legislative intention to see that no proceedings against assets are taken before any such decision is given by the BIFR for in the case the Company's assets are sold, or the company wound up it may indeed become difficult later to restore the status quo ante. Therefore, in our view, the High Court of Allahabad in Industrial Finance Corporation v. Maharashtra Steels Ltd., (1990) 67 Comp. Cases 412 (All), the High Court of Andhra Pradesh in Sponge Iron India Ltd. v. Neelima Steels Ltd., (1990) 68 Comp. Cases 201 (AP), the High Court of Himachal Pradesh in Orissa Sponge Iron Ltd. v. Rishab Ispat Ltd., (1993) 78 Comp. Cases 264 are right in rejecting such a contention and in holding that the inquiry must be treated as having commenced as soon as the registration of the reference is completed after scrutiny and that from that time, action against the Company's assets must remain stayed as stated in section 22 till final decisions are taken by the BIFR."
58. In Kiran Overseas Exports Ltd., v. CTO, Chennai, reported in 2002 (1) CTC 26, this Court taking into consideration the pending proceedings before BIFR, set aside the demand of arrears. The question posed before this Court, in the present Writ Petition has not been dealt with in the above case and therefore, the said judgment is not applicable to the facts of the case on hand.
59. The Gujarat High Court in Kanoria Dyechem Ltd., Versus Sales Tax Officer and another reported in (2002) 125 STC 210 considered a case where the BIFR fixed the cutoff date for crystallization of the dues of the company as June 30th, 2001. Hence, by order dated 03.09.2001, the Gujarat High Court restrained the Government from making any recovery of sales tax dues only for the period till June 30th 2001, in accordance with such scheme for revival and rehabilitation, as may be framed by the BIFR, after obtaining prior approval of BIFR, subject to the condition that the petitioner-company pays its sales tax dues for the period from July 1, 2001 onwards regularly and in accordance with law and the Court also directed the petitioner-company to inform the respondent-authorities about the progress and/or failure of the scheme before the BIFR and the final outcome of the proceedings before the BIFR as and when they stand concluded. In the reported case, the BIFR has categorically fixed the cut off date for crystallization of the dues of the company upto a specified period, whereas in the case on hand, the reference before the BIFR was only for the period upto March, 2004 and the inquiry under Section 16(1) of the Act does not relate to the subsequent period. It should be noted in the said judgment that the Gujarat High Court has directed the company to pay the sales tax dues to the Government after the date mentioned in the scheme. The reported case does not deal with the specific issue relating to recovery of the sales tax arrears pertaining to the post-reference period. Therefore the said judgment is not be applicable to the facts of this case.
60. In Industrial Cables (India) Ltd., Rajpura v. State of Punjab, reported in (2001) 122 STC 187 the Punjab and Haryana High Court considered a case, where the demand notices issued by the Assessing Authority-cum-Excise and Taxation Officer was challenged on the ground that the authorities cannot resort to any coercive steps for recovery of dues, during the pendency of inquiry under Section 16(1) of the Act was not completed within 60 days, it automatically lapses on expiry of the said period and therefore, the protection guaranteed under Section 22(1) of the Act. Repelling the contentions, the Court held that as long as the inquiry is pending before the BIFR, coercive steps cannot be taken by the State and further held that failure of the operating agency to complete the inquiry within 60 days will not result in abrogation thereof. The reported judgment can be a preposition or a precedent only for the above said issue and does not apply to the facts of the present case.
61. In Singhal Strips Ltd., v. Sales Tax Tribunal reported in (2003) 113 Comp. Cas. 640, pursuant to the assessment, the Sales Tax authorities sought recovery of tax. The Haryana High Court having regard to the pendency of inquiry under Section 16 of the SIC (SP) Act, 1985, modified the impugned order not to resort to recovery proceedings. There is no quarrel over this general proposition, but the judgment is not applicable to the facts of the present Writ Petition, as the controversy raised is about the collection of sales tax for the post reference period.
62. The Core issue raised in this present Writ Petition has been extensively dealt with in the case of Core Healthcare Limited v. State of Gujurat, reported in 139 STC 116, a Division Bench of Gujarat High Court examined the powers of the State Government to recover the sales tax dues from the petitioner therein on the products sold by them. The petitioner claimed immunity from any coercive recovery of sales tax due on the ground that the Company was registered as a sick industrial unit under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985. Two important questions framed for adjudication by the Division Bench are (1) whether any inquiry was pending under Section 16(1), so as to entitle the petitioner to protection under Section 22 of the SICA ; and (2) if yes, whether the petitioner is entitled to the protection under Section 22 of the SICA in respect of the current sales tax dues which the petitioner was collecting from the purchasers for the period during pendency of the reference before the BIFR.
63. The facts of the case in nutshell are that on the basis of its financial position as on March 31, 2000, the company approached BIFR and a reference was registered as Case No. 149 of 2001, for the entire company, i.e., for all the projects at village Sachana in Ahmedabad (Rural) District and at village Rajpur in Mehsana District. By order dated January 24, 2002, the said reference was rejected by the BIFR on the ground that it was time-barred. Aggrieved by the said order, the company preferred an Appeal No. 74 of 2003 before the Appellate Authority for Industrial and Financial Reconstruction (AAIFR) under Section 25 of the SICA. The appeal was filed on February 24, 2003, and was listed for hearing on June 16, 2003. Thereafter the appeal was fixed for hearing on September 19, 2003. In the meantime, the company filed petitions on July 1 and 2, 2003, challenging the demand notices and orders for attachment of the bank accounts and also the subsequent notices issued by the sales tax department for recovery of the sales tax dues and for initiating criminal proceedings against the company and/or its directors for recovery of sales tax.
64. On facts, the petitioner contended that out of four projects at village Sachana in Ahmedabad (Rural) District, the petitioner was granted sales tax exemption for three projects, and as the fourth project was completed on August, 1998, instead of February, 1998, the company was not granted sales tax exemption, although the Company had made eligible investment. The State Government submitted that the application for sales tax exemption was already rejected on June 3, 2003. During the pendency of these petitions, the company submitted applications to the BIFR for registration as a sick industrial company even for the subsequent years 2001, 2002 and 2003 respectively and as per the communication, dated January 19, 2004, the petitioner-company was registered as a sick industrial company in Case Nos. 30, 31 and 32 of 2004.
65. The Government in their reply affidavit submitted that BIFR had already rejected the reference on January 24, 2002, there was no pending reference and, therefore, the protection under Section 22 of the SICA was not available to the company. It was further contended that the protection under Section 22 of the SICA would be available only in respect of those amounts of sales tax which were due on the date of filing of the reference before the BIFR, i.e., June 18, 2001. However, the current sales tax dues, after the date of registration before the BIFR, have to be paid over to the Government, as the company was collecting sales tax from the purchasers as a trustee of the State and therefore, the company has to pay over the sales tax amounts collected from the purchasers. It was further contended that even for the period prior to the date of registration before the BIFR, the company was required to pay the sales tax dues for which the company had obtained the benefit of sales tax deferment. It was also the contention of the State that the registration of the petitioner-company as a sick industrial company, by itself would not mean the commencement of inquiry under Section 16(1) of the Act because the BIFR has not called for any information or document while communicating the registration of the petitioner-company as a sick industrial company. Therefore, it was contended that unless any such information or document is called for, it cannot be said that enquiry under Section 16(1) of the SICA for the purpose of extending protection under Section 22(1) of the Act.
66. It was further contended that the company is not entitled to retain the sales tax collected after registration of the company as a Sick Industrial Company and the State Government cannot be expected to wait for the entire period till the scheme for rehabilitation and revival of the sick company may or may be finalised and sanctioned by the BIFR, which process ordinarily takes about two to three years.
67. After analysising the statutory provisions and the decisions relied on by the counsel appearing for the contesting parties and having regard to the registration of the company as a sick industrial company by the BIFR on January 19th, 2004, the Division Bench Court did not go into the debate as to whether any inquiry under Section 16(1) of the Act was pending on the date of adjudication. Following the decision in Real Value Appliance's case, the Court observed that there is no doubt, that the registration of the reference itself amounts to commencement of enquiry under Section 16(1) of the Act for the purpose of Section 22 of the SICA.
68. The Division Bench, examined powers of the State Government to recover sales tax dues vis-a-vis the protection available to a Sick Industrial Company under Section 22 of the SICA, with reference to three periods:
(i) the period upto the date of registration of the company as a sick industrial company under Section 15 of the Act, which is also the date of commencement of the inquiry.
(ii) the period commencing from the date of registration of the sick industrial company by the BIFR till sanction of the rehabilitation scheme by the BIFR; and
(iii) the period after the date of sanction of the rehabilitation scheme.
69. In so far as the period upto the date of registration of the company as a sick industrial company under Section 16 of the Act is concerned, Issue No.1, the Court observed that eventhough the Sick Industrial Company, a dealer registered under the Gujarat Sales Tax Act and the Central Sales Tax Act collects sales tax as an agent of the State, as far as the arrears of sales tax till the date of registration of the reference are concerned, the amounts received by the company have been intermingled with the other properties of the company and, therefore, the State is prohibited from recovering such arrears from any particular property of the company without obtaining prior consent of the BIFR. While answering the third issue, the Division Bench of the Gujarat High Court held that the amounts like the sales tax which the industrial company is enabled to collect after the date of the sanction of the scheme, legitimately belong to the Revenue and such amounts cannot be and could not have been intended to cover Section 22 of the Act.
70. While dealing with the very important question whether the same principle or protection will be available to a Sick Industrial Unit for the current period, i.e., after the date of registration of reference till the rehabilitation scheme is sanctioned by the BIFR, at Paragraphs 17, 18, 19, 21 and 26, held as follows:
"...... Before expressing any opinion on this aspect, it is necessary to carefully refer to the provisions of Section 19 of the SICA. Sub-section (1) of Section19 states that the scheme to be prepared for revival and rehabilitation of the sick industrial company may provide for financial assistance :
(a) by way of loans, advances or guarantees by public financial institutions or scheduled banks ; and/or
(b) reliefs or concessions or sacrifices from the Central Government, State Governments and other public financial institutions or scheduled banks ;
There is no dispute that the petitioner-company seeks reliefs or concessions from the State Government in respect of the sales tax dues.
Sub-section (2) specifically provides that such a draft scheme has to be circulated to every person required by the scheme to provide financial assistance for his consent within 60 days from the date of circulation or within such further period (maximum 60 days) as may be allowed by the Board and if no consent is received within such period or further period, it shall be deemed that consent has been given. Sub-section (4) provides that where consent is not given by any person required by the scheme to provide financial assistance, the Board may adopt such other measures, including winding up of the sick industrial company as it may deem fit.
The aforesaid provisions make it clear that the rehabilitation scheme cannot provide for any reliefs or concessions or sacrifices from the State Government without the consent of the State Government. Hence, it is open to the State Government to insist that although it will not make recovery of past sales tax dues without the consent of the BIFR, at least the industrial company is bound to pay over the sales tax amounts being collected by the company from the purchasers.
We, therefore, find substance in the submission made by the learned AGP that even if the State Government may have to wait for recovery of the past sales tax dues, but the State Government is not bound to wait for saying "we do not want to give any concessions or reliefs hereafter in respect of sales tax being collected by the company" till the rehabilitation scheme is considered, approved or rejected by the BIFR.
18. In the Corromandal case [1997] 89 Comp Cas 1 ; [1997] 105 STC 327, the apex court has held that the sales tax collected by the company after the date of sanction of the rehabilitation scheme legitimately belong to the State and, therefore, the State cannot be prevented from collecting such dues. The sales tax dues for the second period (i.e., till the date of sanction of the scheme) as such legitimately belong to the State.
In Kanoria Dyechem Ltd. v. STO [2002] 108 Comp Cas 620; [2002] 125 STC 210 (Guj), the draft scheme presented at the hearing held before the BIFR on January 3, 2001, provided for cut off date of June 30, 2001 for crystallization of the dues of the sick company. Hence, by order dated September 3, 2001, this court restrained the Government from making any recovery of the sales tax dues only for the period till June 30, 2001, except in accordance with such scheme for revival and rehabilitation as may be framed by the BIFR or after obtaining prior approval of the BIFR, subject to the condition that the petitioner-company shall pay its sales tax dues for the period from July 1, 2001, onwards regularly and in accordance with law and the court also directed the petitioner-company to inform the respondent-authorities about the progress and/or failure of the scheme before the BIFR and the final outcome of the proceedings before the BIFR as and when they stand concluded before the BIFR.
It is, therefore, clear that even before the scheme for revival and rehabilitation of the company is to be taken up for consideration and, therefore, even before it is sanctioned, a company registered as a sick industrial company can be required to pay current sales tax dues.
19. The contention urged on behalf of the petitioner is that the State Government must wait till the BIFR gets a draft revival scheme prepared and a cut off date is provided therein. The State Government's reply is that judicial notice has been taken in the Corromandal case [1997] 89 Comp Cas 1; [1997] 105 STC 327 (SC) that all this process takes many years and till then the company cannot be allowed to retain sales tax amounts being collected by it from the customers, just as the Gujarat Electricity Board cannot be compelled to supply electricity to a sick company without getting price for the same.
We do find considerable substance in the above reply of the State Government. The petitioner's obligation to pay the State Government current sales tax amounts being collected by the petitioner from its purchasers cannot be placed on a lower footing than the payment of price by the company to the suppliers of goods and services. We would hasten to add that when the incidence of tax is being passed on by the seller to its purchasers, whether by separately recovering sales tax or by including sales tax as a component of the sale price, the company has no right to retain such current sales tax amounts.
If the petitioner's contention is accepted, it would amount to the court directing the State Government to give the petitioner-company the benefit of sales tax deferment. It would be in the nature of relief or concession from the State Government. Section 22(1) grants protection in the nature of status quo regarding recovery of past dues, but the provision does not even purport to compel the State Government or any other creditor to grant such relief, concession or sacrifice for the current dues (i.e. dues for the current period) for which the consent of the creditor is absolutely necessary. Neither the court nor the BIFR has power to compel the Government to defer recovery of current sales tax amounts from the company which is collecting the sales tax from its own purchasers.
21. Having carefully considered the controversy, we are of the view that even though the industrial company which is a dealer registered under the Gujarat Sales Tax Act and Central Sales Tax Act collects sales tax as an agent of the State, as far as the arrears of sales tax for the past period are concerned, the amounts collected by the company having been intermingled with the properties of the company, it would not be possible for the State to recover such arrears from any particular property of the company on account of the prohibition contained in Section 22(1) of the SICA, but at least as far as the future period is concerned, the State Government is entitled in law to assert that henceforth the registered dealer shall not intermingle the sales tax amounts with the properties of the company. The provisions of Sub-section (2) of Section 19 of the SICA clearly entitle the State Government to refuse to give consent to provide any financial assistance to the sick industrial company in the form of tax deferment or any other reliefs. There is no reason why the State Government cannot say at the outset that the State Government does not want to give any relief or concession to the industrial company for the current tax amounts and, therefore, whatever sales tax is being collected has to be paid over by the company to the State Government.
26. While the BIFR can provide for a rehabilitation package which may contain one particular date as the cut off date for crystallization of the dues of one creditor or a group of creditors, it is equally open to the BIFR to provide for any other cut off date for the dues of any other creditor or group of creditors. Ordinarily, the BIFR may not provide for different cut off dates if the creditors belong to the same category such as banks and public financial institutions (in whose case all the dues are past dues and interest accruing on the past dues), but a creditor like the State Government on whose behalf the petitioner continues to collect sales tax amounts from the public at large is entitled to assert its right under Sub-section (2) of Section 19 at any stage even before the preparation of the draft scheme--while it may give consent for tax reliefs or concessions or sacrifices for the sales tax amounts already collected by the company in the past and interest accruing thereon from time to time, the State Government is entitled to refuse straightaway making any such reliefs, concessions or sacrifices for the future and to insist that whatever revival and rehabilitation package is to be prepared, as regards the recovery of such sales tax dues from a future cut off date which may be specified by the State Government, the BIFR will have to stipulate such cut off date for the sales tax dues in rehabilitation package to be prepared by the BIFR or the operating agency which may be appointed by the BIFR."
71. In Dunlop India Limited v. Tahsildar reported in 2006 (4) MLJ 662, this Court considered the case where the Company was assessed to urban land tax in respect of Fasile 1407 and 1408. Distraint proceedings were initiated for recovery of certain amount in respect of Fasile 1405 to 1410 including the Urban Land Tax arrears. The company was declared as a sick industry by BIFR on 07.07.1998 under the provisions of SIC (SP) Act, 1985. Following TATA Davy's case, this Court set aside the demand holding that the authority cannot proceed without obtaining prior permission of BIFR. In the reported case, whether the scheme to be prepared or under consideration relates to pre-reference or post of reference period has not been dealt with and therefore, with due respect, the same cannot applied as a precedent.
72. In Sree Ambal Mills Ltd., v. Commercial Tax Officer (FAC) Central II, Tiruppur reported in 2006 (131) Comp. Cas 573 (Mad), this Court considered the validity of the coercive steps taken by the Revenue for realisation of sales tax arrears. The company registered as a dealer under the TNGST Act, 1959 and Central Sales Tax Act, 1956, become sick and filed an application before the Board for Industrial and Financial Reconstruction (BIFR) under Section 15(1) of the SICA. The company was declared as sick Industrial Unit and an operating agency was appointed to examine the viability of the company and to formulate a rehabilitation scheme for its revival. The sales tax amount relating to the assessment 1993-94, 1995-96 and 1996-97 was included and the Commercial Tax Officer participated in the enquriy by the BIFR. However, the BIFR after considering the report of the operating agency took the view that the company was not in a position to revive and directed winding up of the company under Section 20(1) of the 1985 Act. The petitioner filed appeal before the appellate authority (AIFR) under Section 25 of the Act and the appeal was admitted and operation of the order of the BIFR was stayed. In the meanwhile, the Commercial Tax Authorities served a distraint order for auction of the properties of the petitioner. Following the TATA Davy's case, this Court quashed the proceedings, holding that the company should have approached the AAIFR and obtained its consent for initiating proceedings to recover the tax arrears. Here again, the controversy arisen in the present case has not been specifically dealt with and therefore, it is inapposite to the facts of the case.
73. The Division Bench of the Andra Pradesh in Bharat Heavy Plate and Vessels Ltd., v. Assistant Commissioner of Central Excise Division-II and another reported in 2006 (133) Comp. Cas 41 (AP), has dealt with a case where the Central Excise of Officials ordered for attachment of the properties of the company, which was declared as a sick industrial company under the Act. In the said case, the company ran into loss and ultimately, on August 23, 2004, it approached the BIFR under Section 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, (hereinafter referred to as "the Act") for a declaration that the company was sick and for grant of a scheme for rehabilitation. The company was declared a sick company within the meaning of the Act, on October 6, 2005. Attachments were ordered by the respondents on January 16, 2006, and January 27, 2006. The State Bank of India was appointed as operating agency under Section 17(3) of the Act, with a direction to prepare a viability study report and revival scheme for the company. The question before the Court was whether, after declaration of a company as a sick company and after appointment of an operating agency in terms of Section 17(3) of the Act, the respondents could invoke coercive methods in order to recover the dues on account of excise duty. The contention of the company was that after the declaration that the petitioner-company was a sick company, and after appointment of State Bank of India as operating agency, the respondents could not enforce their claims against the company, whereas the respondents therein claimed that there is nothing in the Act, which would stop them from enforcing the claim of excise, which, in any case, become due at the time of production itself. It was further contended by the respondents that the petitioner has informed the Board in its reference, only the liability of excise arrears payable as on July 31, 2004, whereas the petitioner has defaulted huge amounts even after that date, i.e., July 31, 2004. At Paragraph 19, the Court held that Corromandal's case was distinguished in another judgment in the case of Tata Davy's case and Section 22(1) of the Act can apply to such of those dues reckoned or included in the sanctioned scheme and in the case, the scheme is yet to be sanctioned.
74. In SOL Pharmaceuticals Ltd., v. Mandal Revenue Officer and another reported in 2007 (5) VST 580 (AP), a learned single of the Andhra Pradesh High Court considered the correctness of the notice of demand towards sales tax arrears for the year 1995-96 and a notice of attachment, dated 19.02.1999. The facts of the reported case are that the petitioner company engaged in manufacturing various pharmaceutical products, distributed, stored and marketed throughout India had its registered office in the State of Andhra Pradesh and sales office in the State of Uttar Pradesh. When the company failed to deposit certain amount towards trade tax under the U.P.Trade Tax Act, 1948 and Central Sales Tax Act, 1956 for the assessment years 1990-91 to 1997-98, inspite of several demands, action was initiated under the U.P. Revenue Recovery Act, 1890 and the Collector and District Magistrate, Gaziabad, sent recovery certificate, requesting the competent authority to recover tax arrears as arrears of land revenue. Notice dated 22.02.1999 was issued to the company demanding payment of certain sum towards trade tax arrears for the assessment years 1995-96 under the Andhra Pradesh Revenue Recovery Act, 1864. Meanwhile, the petitioner-company was declared as sick industrial company under the Sick Industrial Companies (Special Provisions) Act, 1985 under Section 15(1) of the Act in 1998. On February 19, 1999, notice of attachment was issued and thereafter, the petitioner-company filed Writ Petition and contended that when once the company was declared as sick industrial company by BIFR all proceedings for recovery of all amounts remained suspended and therefore, the notice issued by the respondents was illegal and in contravention of the provisions of the SIC (SP) Act, 1985.
75. The Andhra Pradesh High Court, after consideration of various decisions of the Supreme Court in Real Value Appliances, Tata Davy, Corromandal Pharmaceutical and Maharashtra Tubes and the provisions of the Act, held as follows:
"The analysis of all the sub-sections in Section 22 of SICA would show that the Parliament consciously did not prohibit the recovery of arrears due to the sovereign nor the provision prohibits recovery of the money from a sick company, which in effect does not belong to it."
At Paragraph 17 and 18 of the said judgment, the Supreme Court held as follows:
"17. The conspectus that results from a reference to various precedents is somewhat broadly as follows. If an industrial company after seeking reference under Section 15 of SICA or during consideration by BIFR under Sections 17 and 18 of SICA or implementation of the scheme formulated under Section 18(5) of the SICA is enabled to collect the provident fund, sales tax and other indirect taxes, which do not legitimately belong to it but belong legitimately and constitutionally to the State, the same are not covered within the ambit of Section 22 of SICA. If an industrial company seeking a reference had already become sick, defunct and non-productive much before seeking reference and sales tax arrears if any, formed part of the scheme framed by BIFR, Section 22 of SICA is a bar but not otherwise. Furthermore, as observed by the Supreme Court in Tata Davy Ltd., (1998) 111 STC 462; AIR 1998 SC 2928, the collection of tax due to Revenue from customers after sanctioned scheme is important facet of the applicability or non-applicability of protective measures in Section 22(1) of SICA.
18. In the present case, admittedly, the petitioner-company did not become defunct or non-productive or stopped its substratum activity before seeking reference under Section 15(1) of SICA in 1998. In all probability, it continued to collect sales tax from various customers throughout India where they were doing business and fell in arrears of sales tax to the State government of Uttar Pradesh for the assessment years 1990-91 to 1997-98. There is no evidence before this Court not any averment is made that the petitioner-company was not enabled to collect sales tax from the customers, which was to be passed on to the Revenue. Therefore, the ratio in Corromandal Pharmaceuticals (1997) 105 STC 327 (SC) : AIR 1997 SC 2027 applies to the facts of this case."
76. In Sri Venkata Narasimha Solvent Oils v. DCTO reported in 2007 (7) VST 737 (AP), the Division Bench of the Andra Pradesh High Court considered the case where the Deputy Commercial Tax Officer, Varangal issued a proceedings under Section 25 of the SICA proposing the sale of property belonging to the petitioner-company. On November, 16th 2004, a reference was made under Section 15 of the Act and after proper enquiry, the Board, by order dated 22.05.2006, declared that the petitioner-company is a sick company under Section 16(1) of the Act. When the recovery proceedings was challenged, the Division Bench at Paragraphs 6 to 8, held as follows:
"6. ............ Admittedly, no scheme as such has been framed in the present case. The proceedings under Section 17 of the SICA Act are still pending. No doubt, the BIFR would not rest its conclusions in framing the scheme, only on the information placed by the petitioner but also on information supplied by the other parties appearing before the BIFR.
7. Normally, the State is also put on a notice of the proceedings of the BIFR and it is open to the State to bring it to the notice of BIFR regarding the amounts of arrears due to the State, the idea being that BIFR, while deciding whether the industry should be rehabilitated or wound up, is required to take into consideration all relevant factors and the liabilities, to arrive at a proper conclusion whether it is possible to rehabilitate the industry or not.
8. In view of the fact that the scheme itself is not yet framed and the enquiry is still pending before the BIFR, the decision relied upon by the learned Government Pleader for Commercial Taxes, in our view, does not support the submission made by him. On the other hand, from the further observations made in the same paragraph on the basis of the facts of the case, we see that the Supreme Court only held that the amounts of taxes collected by the Sick Industrial Company after the sanctioned scheme are not covered by the embargo under Section 22 of the SICA Act. The submission of the learned Government Pleader for Commercial Taxes is, therefore, liable to be rejected."
77. No doubt, the BIFR would vest its conclusions in framing the scheme on the basis of the information furnished by the Sick Industrial Company and the secured creditors, including the State Government, but it should be noted that the information to be furnished by them cannot travel beyond the scope of reference and therefore, its conclusions could be restricted to cover only the subject matter of reference. Therefore, on facts, the above judgment is not applicable to the case on hand.
78. A "Sick Industrial Company" under Section 3(1)(o) of the 1985 Act is defined as an industrial company (being a company registered for not less than five years) which has at the end of any financial year accumulated loss equal to or exceeding its entire net worth. In order to qualify as a sick Industrial company, it is required that the balance sheet arrived in the annual general meeting of the company has to be filed along with the reference filed under Section 15 of the Act. If the reference is not based upon the audited accounts of the concerned year, then the reference is not registered. As per the procedure followed, the Secretary or the Registrar of the Board has the powers to decline a reference filed under Section 15 of the Act. In such an eventuality, it cannot be said that the Board is seized of the matter pertaining to the Industrial Unit and therefore, at this stage, the inquiry under Section 16 of the Act cannot be said to be pending. The BIFR is authorised to take cognizance of the sickness of the company only if the registered for the determination of the means to be adopted for revival and rehabilitation of the company. There is no provision in the SIC (SP) Act, 1985, empowering the BIFR or AAIFR to pass orders, without the reference being registered. Mere submission of a reference and its acknowledgment does not amount to registration of a reference by the Board. In the case on hand, the reference submitted by the petitioner-company for the years 2005 and 2006 have not been registered as case.
79. It is now well settled in Real Value Appliance's case that the proceedings before the Board can be said to have been commenced and inquiry under section 16(1) of the Act is pending from the date of registration and once the reference is registered, it is mandatory for the Board to simultaneously to call for information/documents from the informant and such a direction is given, then inquiry under Section 16(1) must for the purposes of Section 22 be deemed to have been commenced. Section 22 and the Prohibition contained in it shall immediately come into play.
80. If the Board does not exercise his powers in respect of any reference registered on its file, the question of exercise of its powers of making an inquiry or passing any orders for preparation of a scheme does not arise. Section 22, contemplates three stages: (1) where in respect of any industrial unit, an enquiry under Section 16 is pending (2) any scheme referred to under Section 17 is under preparation or consideration, and (3) a sanctioned scheme is under implementation or where an appeal under Section 25 relating to an industrial company is pending. None of the exigencies, is pending consideration before the Board attracting Section 22 of the Act, in respect of the liabilities of petitioner's company, for the sales tax dues for the years April 2004-March 2005 and April 2005 to March 2006. "Pending inquiry" under Sections 15 to 19 of 1985 Act, should be meant only if the reference is registered after scrutiny.
81. A relief prayed for by the petitioner-company cannot be granted by BIFR, if the transactions of the financial accounts of the company are not considered in the reference. If the reference is registered and taken on file, then the remedial measures and the safeguards provided under Section 22 of the Act would come into effect, by fixing a cut-off date. The cut off date to be fixed by the Board, when a scheme is under preparation, should relate back only to the date of reference, subject matter of which, an inquiry has already been ordered by BIFR. The date and the financial loss, said to have been incurred by the company that could be reckoned or included in the scheme to be prepared by the BIFR should confine only the matters, pending inquiry under Section 16(1) of the Act and it can only relate only to the date of registration of the reference.
82. It is evident from the materials enclosed in the typed set of papers that the reference filed for the financial year ending with 31.03.2004, was registered on 04.02.2004 and therefore, the cut off date for availing the bar or embargo envisaged under Section 22(1) of the Act would be the date of registration of the reference and all the arrears or taxes that may be payable or shall become due upto 04.02.2004 shall get inter-mingled with the assets of the company and therefore, the safeguard provided under Section 22(1) of the Act can be extended upto the period for which the BIFR has considered the financial accounts of the company. Therefore, the cut off date stipulated in the record of proceedings dated 20.12.2006, has to be understood with reference to the background in which such date came to be fixed. The Board in the said proceedings, dated 20.12.2006 has considered the claim of the various institutional creditors, the manner in which the liabilities have been rearranged and restructured between the banks and the sick company, while declaring of the petitioner-company as sick industry. As stated supra, the liability of the petitioner's company for payment of loans to the institutional creditors, the Government or local bodies for the later period (2004-05 and 2005-06) was not the subject matter of consideration, for the financial loss accumulated at the end of financial year ending with 31.03.2004 under reference Nos.103 and 315 of 2004.
83. It is evident from the pleadings that the petitioner-company has paid Rs.411/- Crores for the assessment year 2005-2006 and Rs.558.37 Crores for the assessment year 2005-06. An industrial unit declared as Sick Industrial Unit by the BIFR can revive from sickness depending upon the financial assistance, sale potentiality of the product, purchase by the dealers/customers and for other reasons. After filing of the references, which were registered as Case Nos.103 and 314 of 2004, the company has not become defunct or non-productive or stopped its sub-stratum activity on the date of filing of the Writ Petition. Pleadings and the materials on record further reveal that the petitioner-company having regard to the materials considered by the Board under Reference Nos.103 and 314 of 2004, by his letter dated 01.03.2004, has categorically restricted the outstanding liability upto 31.03.2004 and has made payment towards sales tax from April 2004 to February 2007. For the Month of February 2007, tax has to be paid in March 2007. The company has voluntarily paid Rs.52.75 Crores in March 2007 and as the company had delayed the payment of Rs.14 Crores upto 20.03.2007, for the taxes due for February 2007, B-6 notice was issued to TASMAC and the Banker of the company on 21.03.2007 and a sum of Rs.5.1 Crores has been collected from TASMAC on 21.03.2007. The petitioner has voluntarily paid the balance amount of Rs.8.83 Crores on 23.02.2007 and the B-6 Notice issued to TASMAC and the Banker was withdrawn. The conduct of the petitioner-company in remitting the sales tax from April 2004 to February 2007, without objections would categorically prove that the company is aware of their liabilities in the post reference period.
84. Mere making of a reference under Section 15 of the Act does not ipso facto mean that the Board has considered all the matters in accordance with the provisions under Sections 16 and 17 of the Act. The Board cannot make an inquiry or direct the operating agency appointed under the Act to prepare a scheme, to include subject matters which are not covered under reference and registered on file. Therefore, the ratio decided by the Supreme Court in Corromandal's case, (1997 (10) SCC 649), as extracted below is squarely applicable to the present case.
"If that be so, only the liability or amounts covered by the scheme will be taken in, by Section 22 of the Act. So, we are of the view that though the language of Section 22 of the Act is of wide import regarding suspension of legal proceedings from the moment an inquiry is started, till after the implementation of the scheme or the disposal of an appeal under Section 25 of the Act, it will be reasonable to hold that the bar or embargo envisaged in Section 22(1) of the Act can apply only to such of those dues reckoned or included in the" sanctioned scheme. Such amounts like sales tax, etc. which the sick industrial company is enabled to collect after the date of the sanctioned scheme legitimately belonging to the Revenue, cannot be and could not have been intended to be covered within Section 22 of the Act. Any other construction will be unreasonable and unfair and will lead to a state of affairs enabling the sick industrial unit to collect amounts due to the Revenue and withhold it indefinitely and unreasonably. Such a construction which is unfair, unreasonable and against spirit of the statutes in a business sense, should be avoided."
85. In Corromandel's case, there was no controversy about the current tax dues collected by the petitioner-company after the date of registration. It was only with regard to initiation of coercive steps to recover the dues of the creditors for the period prior to the date of registration of reference. In Real Value Appliance's case, the Apex Court explained as to when "inquiry" is said to have been commenced under the Act. The judgment has only a limited application to the facts of the present case and does not deal with a situation, where the petitioner-company has collected sales tax in the post reference period. Similarly TATA Davy's case also deals with a situation where protection under Section 22(1) of the Act was granted against the recovery of past sales tax dues for the period prior to the company's registration as a sick industrial unit. No doubt the Supreme Court has held that "Section 22 of the Central Act requires all creditors seeking to recover their dues from the Sick Industrial Companies in respect of whom an inquiry is under preparation or under consideration, or has been sanctioned, to obtain the consent of the Board, before initiating steps for recovery, with due respect, the Supreme Court was not posed with a specific question of the powers of the State Government in initiate recovery proceedings for collection of taxes by the Sick Industrial Unit in the post reference period. When the inquiry under Section 16(1) of the Act before the BIFR was restricted upto 01.03.2004, at the instance of the petitioner-company, the judgment in Real Value or TaTa Davy may not be of any assistance to the petitioner.
86. As the facts in Corromandal case was not similar, the Supreme Court in TATA Davy's, observed that it was inapposite. But the principles of law laid down in Corromandal's case still hold the field. Therefore, with due respect, this Court is of the considered opinion, the decision in TATA Davy is not authority for the proposition that the petitioner-company registered as Sick Industrial Company can collect and retain sales tax, during the post reference period also.
87. The reliance on by the petitioner to the case of Bharat Heavy Plate and Vessels Ltd., v. Assistant Commissioner of Central Excise Division-II and another reported in 133 Company Cases 41, is not applicable to the instant case. The only question before the Court in Bharat Heavy Plate's case was whether after declaration of the company as a sick company and after appointment of Operating Agency in terms of Section 17(3) of the SICA, the respondents could use coercive methods in order to recover the dues on account of excise duty which is a direct tax, which liability is borne by the company on manufacture from its corpus, unlike sales tax which is an indirect tax where an assessee is entitled to collect the tax and pass on the liability before remitting it to the Government.
88. The summary record of proceedings dated 20.12.2006 reveals that IDBI has been appointed as an operating agency to prepare the viability study report under the revival scheme for the company, if feasible within an overall period of 16 weeks from 20.12.2006. The Operating Agency was directed to keep in view the provisions of Section 18 of the Act and the guidelines, while carrying out the exercise of preparation of the report. As per Clause No.5 for preparation of rehabilitation scheme, the dues of the pressing creditors such as the State Electricity Board (SEBS) should be covered. In respect of Government/Statutory/Local Bodies, only those reliefs and concessions would be included which have reasonable prospects of being granted. If any sacrifices are expected from the workers, the same shall be discussed with them and their consent obtained. The above said Clause, is in consonance with sub-Section 2 of Section 19 of the Act, where a creditor, on receipt of the scheme referred to in Sub-Section 1 of Section 19 has a discretion to give its consent for tax relief or concessions or sacrifices in respect of the scheme which would cover the subject matter of reference or "pending enquiry". A conjoint reading of sub-Section 2 of Section 19 of the Act and Clause 5 of the guidlines makes it clear that the State Government is entitled to refuse tax relief or concessions or sacrifices for the period not covered under reference and therefore, the Government can insist payment of sales tax dues for the post reference period.
89. Though the Board had directed the operating agency to prepare a viability study report and revival scheme for the company within an overall period of 16 weeks, having regard to the contentions raised in the counter affidavit, filed on 19th April 2007 that the operating agency did not come forward to prepare the viability study report and in such circumstances, this Court, is bound to take note of the observations of the Supreme Court in Corromandal's case, at Paragraph 2, that "the proceedings before the Industrial and Financial Construction take a long time to conclude."
90. It is crystal clear from the pleadings that the petitioner company has been collecting sales tax from various customers and remitted Rs.411/- Crores for the assessment year 2005-2006 and Rs.558.37 Crores for the assessment year 2005-06 and therefore, it has not become defunct or non-productive or stopped its substratum activity either before seeking reference under Section 15 (1) of SICA or subsequently. As stated supra, when the government refuses to give the petitioner-company the benefit of sales tax deferment, as per Clause 5 of the guidelines, read with sub-Section 2 of Section 19 of the Act, extending the benefit to cover the post reference period would tantamount to approving the scheme to be prepared without any registration of the reference and considering the objections of the State Government,
91. The embargo or bar envisaged under Section 22(1) of the Act begins to operate, the moment the reference is registered and an inquiry is ordered and pending, and continues during the course of inquiry, when a scheme is under preparation or consideration, and still later when the scheme under implementation or even when an appeal under Section 25 is pending. If the bar under Section 22(1) of the Act is to cover the entire period of time, and to cover the post reference period also, the situation may lead to very unreasonable or unintended state of affairs and it would extend the scope of Section 15 to cover any period without any reference being registered and examination of the financial accounts submitted by the company. Therefore, the suspension of proceedings specified in Section 22(1) of the Act should be confined only to the matters included, in the pre-package state of affairs, i.e., in relation to the reference, subject matter of which, the Board has ordered an inquiry, and not post package matters, which would be outside the pale or area of the scheme to be prepared by the operating agency. Neither the Act or the BIFR can authorise the operating agency to traverse beyond the information furnished by the company under reference or inquiry. If the bar or embargo under Section 22(1) of the Act is held to cover all amounts collected by way of sales tax dues to the Government, including the post reference period and if the petitioner-company is permitted to retain the same, till the preparation or consideration or implementation of the scheme or the disposal of the appeal, it will result in a State of affairs enabling the assessee to retain the amounts due to the State for no reason, indefinitely and the Revenue will have to obtain the consent of the Board, even for realising the legitimate dues and withheld by the company.
92. As held by the Supreme Court, the immunity guaranteed under the Act is not absolute. The bar or embargo under Section 22(1) of the Act should not lead to such an undesirable state of affairs and it should be confined only for such of those pre-package dues reckoned or included in the scheme to be prepared in relation to the reference under Section 15(1) of the Act or the inquiry under Sections 15 to 19 of the Act. The Supreme Court in Paragraph 10 of the Corromandal's case, has been categorical in its judgment that the bar envisaged should be restrictive so as to cover the state of affairs upto the date of the application under Section 15 of the Act and the scheme to be framed thereof and the attempt to cover the post reference period would amount to diluting the import of Sections 15 to 19 of the Act. It is not in dispute that the operating agency, IDBI has been directed to prepare the viability report under the scheme only with reference the Case Nos.103/04 and 315/04, pertaining to the financial status of the Company for the financial years 2003-04 and not for the later period. The transactions after the the financial years cannot be said to be matters within the purview of the operating agency. Therefore, I have no hesitation to hold that the applicability of the scheme to the prepared can be restricted only to the dues and accounts under reference for the period as on the date of registration. The cessation of coercive steps mentioned in Section 22(1) of the Act can be only with reference to the subject matter of reference and not for the post reference period.
93. Therefore, if an sick industrial company after seeking reference under Section 15 of the SICA or during consideration by BIFR under Sections 17 and 18 of the SICA or implementation of the scheme collects sales tax, it belongs to the State Government and the petitioner company has legal or statutory right to withhold the same, under cover of preventive umbrella of Section 22(1) of the Act. There is no bona fide in the action of the petitioner company. Before parting with the case, I would like to reproduce the anguish expressed by Hon'ble Justice Jeevan Ready in Corromandal's case.
"We have come across cases where unfair advantage is sought to be taken of the provisions of Section 22 by certain industrial companies - and the wide language employed in the section is providing them a cover. We are sure Section 22 was not meant to breed dishonesty nor can it be so operated as to encourage unfair practices. The ultimate prejudice to public monies should not be overlooked in the process of promoting industrial progress. We are quite sure that the Government is fully alive to the situation and are equally certain that they must be thinking of necessary modifications in the Act. These few observations are meant merely to record the need for changes in the Act."
94. The other decisions relied on by the learned counsel for the petitioner deal only with the general proposition that coercive steps should not be taken when the inquiry is pending before BIFR and they do not deal the specific situation of collection and retention of taxes during the post operative period.
95. For the reasons stated supra, the cut off date fixed by the Board refers only to the preparation of the scheme and it cannot be construed to mean the date fixed for rehabilitation scheme, enabling the petitioner to collect tax upto 31.03.2007. The Government is not precluded from resorting to lawful methods to recover its statutory dues from the petitioner.
96. Having regard to the totality of the circumstances and considering the principles laid down by various judgments, I am of the considered opinion, despite the laudable preventive, ameliorative and remedial measures to be taken by the Board, for rehabilitation, the safeguard guaranteed under Section 22(1) of the Act against action for execution, distress, or like against the properties of the industrial unit etc., have been grossly misused by the petitioner.
97. In the result, the Writ Petition is dismissed. No costs. Consequently, connected Miscellaneous Petition are closed.
17.03.2008 skm To
1. The Secretary to Governdment, State of Tamil Nadu, Commercial Taxes Dept., Secretariat, Fort St. George, Chennai-9.
2. The Assistant Commissioner (CT), Fast Tract Assessment Circle II, Chennai-6.
S. MANIKUMAR, J.
skm
3. The Managing Director, Tamil Nadu State Marketing Corporation Ltd., 4th Floor, CMDA, Tower II, Gandhi Irwin Bridge Road, Egmore, Chennai-8.
4. The Board for Industrial & Financial Reconstruction, Jawahar Vyapar Bhavan, 1, Tolstoy Marg, New Delhi 110 001.
5. Industrial Development Bank of India, IDBI Towers, Cuffe Parade, Mumbai.
W.P.NO.13461 OF 2007 17.03.2008