TaxTMI 
TaxTMI 
2008 (3) TMI 631
X X X X Extracts X X X X
X X X X Extracts X X X X
....85 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. Brief facts leading to the writ petition are as follows: The petitioner-company is engaged in the manufacture of Indianmade Foreign Spirites (IMFS) and beer products in their industrial units located at By-pass Road, Poonamallee, Chennai 600 056 and Mount Thiruvallur High Road, Aranvoyal Village, Thiruvallur District, respectively. Initially, they have started their business with an authorised capital of Rs. 90 lacs and it was increased from time to time over the years. The authorised capital of the company as on March 31, 2006 was Rs. 225 crores. The petitioner's issued, subscribed and paid-up share capital as on March 31, 2006 was Rs. 1,12,63,84,600 comprising the following: Equity capital . . . Rs. 5,31,75,600 Preference capital 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 . . . Rs....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., based on the audited accounts for the year ending March 31, 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 November 2, 2006. The petitioner has further submitted that on July 13, 2006, as directed by the BIFR, they have filed their written submissions on July 28, 2006 and on the next hearing date, i.e., on December 20, 2006, the BIFR, after examination of facts, declared the company as sick industrial unit and formulated a scheme for rehabilitation, vide its communication dated December 28, 2006. IDBI was appointed as an operating agency and after conducting a detailed study, the Board has fixed the cut-off date as March 31, 2007, for the purpose of formulating a scheme of rehabilitation under the Sick Industrial Companies (Special Provisions) Act, 1985. The petitioner has further submitted that as per section 18 of the 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 section 18(1)(e), the operating agency has to include preventive, ameliorative and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n scheme for revival of the company. 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 March 31, 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, be 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. The Assistant Commissioner (CT), Fast Track Assessment Circle II, Chennai - 600 006, second respondent herein, vide its letter dated April 10, 2007, has rejected the petitioner's request and therefore it has now become ce....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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. 4,905.33 The petitioner-company, by preparing balance sheet for the year ending June 30, 2003, filed reference and the same was received by the BIFR on February 4, 2004 and got registered as case No. 103 of 2004. 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 March 31, 2004, the petitioner has filed reference under section 15(1) and got registered on October 12, 2004 as case No. 315 of 2004. In the form A filed for reference in case No. 315 of 2004, 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 of 2004 and 315 of 2004. The respondent has further submitted that the company is a running unit engaged in the manufacture of IMFL and beer, a flourishing tra....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r the month of April 2007 (March 2007 payable in April 2007) 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, March 31, 2007 mentioned in the summary record of the proceedings of the hearing held on December 20, 2006 by the BIFR, as cut-off date with reference to registration of reference of a sick industrial unit under section 15(1) of the Act, even though the cut-off date March 31, 2007 mentioned in the summary record of the proceedings of the hearing held on December 20, 2006 refers only to the date prescribed for the operating agency to prepare and submit a viability study report if feasible within an overall period of 16 weeks, i.e., before March 31, 2007. 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 April 12, 2007, the company obtained an interim stay and injunction. The order was received on April 16, 2007. The BIFR in the summary record of the proceeding dated December 20, 2007 has observed as follows: "Acc....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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. The respondents 1 and 2 have further submitted that the cut-off date did not refer to the period, i.e., (i) the period up to 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, 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. The second respondent in his counter-affidavit has further submitted that the High Court of Andhra Pradesh in the case of Sol Pharmaceuticals Lim....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ady in arrangement with ICICI, internally, before seeking reference to BIFR under section 15(i) and before registration of reference in case Nos. 103 of 2004 and 315 of 2004. May be under 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 petitionercompany has conveniently omitted the above facts from the grounds of the present writ petition. It is further submitted that from the conjoint reading of sections 15 and 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 refer to the period between registration of reference (commencement of inquiry) and pre-sanction of rehabilitation scheme and the State by legal fiction under the provisions of SICA and in the light of decisions reported in Core Healthcare Limited v. State of Gujarat [2005] 139 STC 116 (Guj), Sol Pharmaceuticals Limited v. Mandal Revenue Officer [2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aration 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 Limited v. Mandal Revenue Officer reported in [2007] 5 VST 580 (AP), Sri Ambal Mills Ltd. v. Commercial Tax Officer (FAC) Central II, Tiruppur reported in [2007] 6 VST 45 (Mad); [2006] 131 Comp. Cas 573 (Mad), Kanoria Dyechem Ltd. v. Sales Tax Officer reported in [2002] 125 STC 210 (Guj); [2002] 108 Comp Cas 620 (Guj) and Bharat Heavy Plate and Vessels Ltd. v. Assistant Commissioner of Central Excise, Division-II reported in [2006] 133 Comp. Cas. 41 (AP). Learned counsel for the petitioner fu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the SIC (SP) Act, 1985 and the record of proceedings of the Board dated December 20, 2006, submitted that the petitioner's company has misconstrued the cut-off date, i.e., March 31, 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. Learned Senior Counsel further submitted that the record of proceedings pertains to the balance sheet for the year ending June 30, 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 October 12, 2004 based on the audit accounts as on March 31, 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 of 2004 and 315 of 2004 for the period 2003-04, in the absence o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....heme and therefore, the State by legal fiction under the provisions of the Act and following the judgments reported in Core Healthcare Limited v. State of Gujarat [2005] 139 STC 116 (Guj), Sol Pharmaceuticals Limited v. Mandal Revenue Officer [2007] 5 VST 580 (AP), Deputy Commercial Tax Officer v. Corromandal Pharmaceuticals [1997] 105 STC 327 (SC) and Tata Davy Ltd. v. State of Orissa [1998] 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. By way of reply, Mr. Sathish Parasaran, the learned counsel for the petitioner, submitted that the decision in Core Healthcare Limited v. State of Gujarat [2005] 139 STC 116 (Guj), is contrary to the established principles of statutory interpretation that where a statute has to be interpreted from the plain words and when section 22 of the SIC (SP) Act does not in any manner state 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 Dep....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ial 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 Directors 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 become 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 bee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng 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) . . ." 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. Section 18 provides for preparation and sanction of the scheme for revival and rehabilitation of the sick company as expeditiously as ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 measures, including the winding up of the sick industrial company, as it may deem fit." 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. 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) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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: The reference made by the company on February 4, 2004 shows that the statutory liability to the Sales Tax Department as at February 2004, is Rs. 4,875.12 lakhs, which is the subject-matter of reference No. 103 of 2004. Form A submitted by the company in relation to reference dated October 11, 2004 includes the sales tax outstanding amount of Rs. 4,875.12 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 October 11, 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 up to March 2004 and for the subsequent months. The company in their letter, March 1, 2004, has requested the Board to reckon 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 l....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 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 rehabilitation of the petitioner-company in case No. 160 of 1988 in exercise of its powers under section 18(4) read with section 19(3) of the Act, after obtaining permission from the financial institutions on November 19, 1990. The 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....alf. It is in 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 or 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 se....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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." In the same judgment, honourable 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." In Tata Davy....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Commercial Tax Officer v. Corromandal Pharmaceuticals [1997] 105 STC 327; [1997] 10 SCC 649, on the facts of Tata Davy's case [1998] 111 STC 462 (SC); [1997] 6 SCC 669, the court declined to apply the said judgment as it was not appropriate. In Tata Davy's case [1998] 111 STC 462; [1997] 6 SCC 669, 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 coercive steps, if the consent is not secured from the Board. The apex court observed that the Corromandal's case [1997] 105 STC 327; [1997] 10 SCC 649 was inapposite to the facts of Tata Davy's case [1998] 111 STC 462; [1997] 6 SCC 669, but the said judgment has not been overruled. 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 sect....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to 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 proceed ngs against the assets are taken before any such decision is given by the BIFR for in case the company's assets are sold, or the company is 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.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ues 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 applicable to the facts of this case. In Industrial Cables (India) Limited, 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-cumExcise 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, which if not completed within 60 days, automatically lapses on expiry of the said period and therefore, also 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d 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. On facts, the petitioner contended that out of four project 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 [1998] 93 Comp Cas 26 (SC), 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. 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 up to 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. In so far as the period up to 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 th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 Additional Government Pleader 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 Corromandal case [1997] 105 STC 327; [1997] 89 Comp Cas 1, the apex court has held that the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erest 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 the rehabilitation package to be prepared by the BIFR or the operating agency which may be appointed by the BIFR." 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 July 7, 1998 under the provisions of SIC (SP) Act, 1985. Following Tata Davy's case [1998] 111 STC 462 this court set aside the demand holding that the authority cannot proceed without obtaining prior permission of BIFR. In the reported case, whethe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ched 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 the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mained suspended and therefore, the notice issued by the respondents was illegal and in contravention of the provisions of the SIC (SP) Act, 1985. The Andhra Pradesh High Court, after consideration of various decisions of the Supreme Court in Real Value Appliances [1998] 93 Comp Cas 26, Tata Davy [1998] 111 STC 462 (SC); [1997] 6 SCC 669, Corromandal Pharmaceuticals [1997] 105 STC 327 and Maharashtra Tubes Limited v. State Industrial and Investment Corporation of Maharashtra Limited [1993] 78 Comp Cas 893 (SC) and the provisions of the Act, held as follows (at page 587 of 5 VST): "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 paragraphs 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 a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 ind....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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. If the Board does not exercise its 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 the petitioner's company, for the sales t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the subject-matter of consideration, for the financial loss accumulated at the end of financial year ending with March 31, 2004 under reference Nos. 103 and 315 of 2004. It is evident from the pleadings that the petitioner-company has paid Rs. 411 crores for the assessment year 2005-06 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 substratum 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 March 1, 2004, has categorically restricted the outstanding liability up to March 31, 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and against the spirit of the statute in a business sense, should be avoided." In Corromandal's case [1997] 105 STC 327 (SC); [1997] 10 SCC 649, 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 [1998] 93 Comp Cas 26, 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 [1998] 111 STC 462 (SC); [1997] 6 SCC 669 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....overall period of 16 weeks from December 20, 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 abovesaid 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 guidelines makes it clear that the State Government is entitled to refuse tax relief or concessions or sacrifices fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d 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 nor 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 withheld by the company. 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....