2017 (12) TMI 455 - HC - Companies Law

Court rules scheme not binding on States; refunds denied under unjust enrichment doctrine. Seek enforcement from tax authorities.

The High Court upheld AAIFR's decision, ruling that the sanctioned scheme was not binding on the State Governments due to lack of consent. The ... Rehabilitation by giving financial assistance - whether the sanctioned scheme in this case was binding on the States of Gujarat and Maharashtra as far as UCIL’s claim for refund of VAT/Sales Tax and electricity duty in terms of clauses 12.1 and 12.2 - Held that:- As is evident from Section 19(4) of SICA, it is in the absence of consent by any person, the Board may adopt such other measures including the winding up of the sick industrial company as it may deem fit. Likewise, the Maharashtra State had no notice of the scheme and became aware of it later. In its case too, its consent cannot reasonably be deemed. Therefore, BIFR could not have overridden or completely ignored the requirement of consent required under Section 19(2) of SICA. The argument that since there is a provision for filing an appeal against the order of BIFR (under Section 25 of SICA), the BIFR can ignore the mandate of Section 19(2) of SICA and sanction a scheme in the absence of consent without intimation to any state, or contrary to its object is an untenable proposition. To admit of this eventuality is to countenance any order of BIFR contrary to the law as it can be challenged in an appeal. There is nothing to indicate to why the BIFR thought it fit to reject the State of Gujarat’s objections, to the proposed scheme. In the circumstances mentioned above, this Court is of the opinion that the sanctioned scheme was not binding on both the States for want of consent on part of the State authorities rendering financial assistance. In the present case, the previous discussion clearly reveals that SICA was not followed, in that one State had objected to the scheme; the other was not even aware of it. Therefore, there was no consent, but opposition in one case and lack of knowledge: both contingencies could not have attracted the provision for “deemed consent”. In such event the scheme, being violative of SICA, could not have prevailed, by virtue of Section 32. This Court is further of the opinion that the petitioner’s grievance was to be redressed by it, within reasonable time of the denial of exemption, i.e. within one or two years of the sanction for the BIFR scheme. By not seeking recourse, firstly by pursuing with the State authorities for notifications or directions, to grant the needed exemption, on the one hand, and proceeding to recover VAT and other levies on the other, after the duration of the scheme, the petitioner has approached the Court after an inordinate delay. The idea of granting exemption was to incentivize growth and ensure commercial viability. The petitioner effectively gave up that relief by its inaction (in not seeking exemption or approaching BIFR or the courts in a timely manner) and by collecting taxes and depositing them. Issues Involved:1. Challenge to AAIFR's order dismissing the petitioner's claim for refund of VAT and Electricity Duty.2. Binding nature of the sanctioned scheme on the State Governments.3. Jurisdiction of BIFR and AAIFR to order refunds.4. Applicability of the doctrine of unjust enrichment.5. Interpretation of exemption from tax versus refund of tax.Issue-wise Detailed Analysis:1. Challenge to AAIFR's Order:The petitioner challenged the AAIFR's order dated 22.01.2016, which dismissed its claim for a refund of VAT and Electricity Duty from the Governments of Maharashtra and Gujarat. The petitioner argued that it was entitled to refunds under the sanctioned scheme for the period from October 2005 to March 2011. However, AAIFR held that the petitioner did not avail the exemption during the scheme period and continued to collect and deposit VAT/Sales Tax, making the refund claim untenable.2. Binding Nature of the Sanctioned Scheme:The sanctioned scheme, approved by BIFR, provided for exemptions from VAT/Sales Tax and Electricity Duty for seven years. However, the State of Gujarat objected to the scheme, and BIFR sanctioned it without considering these objections, violating Section 19(2) of SICA, which mandates consent from the State Government. The AAIFR concluded that the scheme was not binding on Gujarat due to the lack of consent. The State of Maharashtra was not aware of the scheme until much later, and thus, its consent could not be deemed either.3. Jurisdiction of BIFR and AAIFR to Order Refunds:The AAIFR held that BIFR and AAIFR had no jurisdiction to order refunds. The petitioner should have sought enforcement of the scheme's provisions from the relevant state tax authorities. The AAIFR emphasized that the scheme provided for exemptions, not refunds, and the petitioner’s claim for refunds was a new relief not included in the scheme.4. Applicability of the Doctrine of Unjust Enrichment:The AAIFR and BIFR applied the doctrine of unjust enrichment, stating that the petitioner collected VAT/Sales Tax from customers and deposited it with the State. Since the burden of tax was passed on to the customers, the petitioner could not seek a refund. The Supreme Court’s ruling in Mafatlal Industries v. Union of India was cited, which held that if the burden of a tax is passed on to customers, the claimant cannot seek a refund.5. Interpretation of Exemption from Tax versus Refund of Tax:The AAIFR distinguished between exemption from tax and refund of tax. Exemption means relief from paying tax, while refund involves returning tax already paid. The AAIFR noted that the scheme only provided for exemptions, not refunds. The Supreme Court in Amrit Banaspati Co. Ltd v. State of Punjab and State of Bihar v. Kalyanpur Cements held that refund of tax is not permissible if the tax was lawfully collected and paid.Conclusion:The High Court upheld AAIFR’s decision, stating that the sanctioned scheme was not binding on the State Governments due to lack of consent. The petitioner’s claim for refunds was not part of the sanctioned scheme and was barred by the doctrine of unjust enrichment. The court also emphasized that the petitioner should have sought timely enforcement of the scheme’s provisions and approached the relevant state tax authorities for any relief. The writ petition was dismissed.