SICA rehabilitation scheme consent and tax refund limits: exemption cannot override State non-consent or justify unjust enrichment

A rehabilitation scheme under SICA binds State Governments only if the statutory consent mechanism in Section 19 is satisfied; where consent is withheld or not properly obtained, the exemption from VAT, sales tax and electricity duty is not enforceable against the States, and Section 32 cannot override that requirement. The scheme also distinguished exemption from refund: it did not permit recovery of taxes already collected from customers and deposited with the State, and such a claim was defeated by unjust enrichment. The article therefore states that refund was not available on the facts and the scheme could not be used to reclaim collected taxes.

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Issues: (i) Whether the rehabilitation scheme, insofar as it granted exemption from VAT, sales tax and electricity duty, was binding on the States in the absence of consent under SICA; (ii) Whether the petitioner could, after collecting and depositing the taxes during the scheme period, seek refund under the sanctioned scheme and Section 32 of SICA.

Issue (i): Whether the rehabilitation scheme, insofar as it granted exemption from VAT, sales tax and electricity duty, was binding on the States in the absence of consent under SICA.

Analysis: Section 19 of the Sick Industrial Companies (Special Provisions) Act, 1985 contemplates circulation of the draft rehabilitation scheme to every person required to provide financial assistance, reliefs or concessions, and the scheme becomes binding only when consent is received or deemed to have been received under sub-section (2). Where consent is expressly withheld, the Board may proceed only under sub-section (4) by adopting other measures. On the facts, Gujarat had objected to the proposed concessions and did not consent, while Maharashtra had not been shown to have been given proper notice or an opportunity to consent. The requirement of consent was therefore not satisfied, and Section 32 could not be used to override the mandatory scheme of Section 19.

Conclusion: The scheme was not binding on the States for want of consent, and the concessions were not enforceable against them.

Issue (ii): Whether the petitioner could, after collecting and depositing the taxes during the scheme period, seek refund under the sanctioned scheme and Section 32 of SICA.

Analysis: Exemption from tax and refund of tax are distinct concepts. The scheme spoke of exemption from payment, not a post facto refund of sums already collected from customers and deposited with the State. Once the petitioner collected the tax, the claim for refund raised the bar of unjust enrichment, and the delayed invocation of the remedy after the scheme period had substantially run its course further weakened the claim. The Court held that the scheme did not authorize the petitioner to retain tax collected from customers and then recover the same from the State as refund.

Conclusion: The refund claim was not legally maintainable, and the petitioner was not entitled to recover the amounts claimed.

Final Conclusion: The writ petition failed because the scheme was unenforceable against the States for lack of consent and, in any event, it did not support a claim for refund of taxes already collected and paid.

Ratio Decidendi: A rehabilitation scheme under SICA can bind a State Government only upon compliance with the statutory consent mechanism under Section 19, and an exemption from tax cannot be converted into a claim for refund of tax already collected where such refund would result in unjust enrichment.

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