TaxTMI 
TaxTMI 
2016 (3) TMI 1
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....icantIDBI Bank Limited, taking out judges summons for the following relief: "(A) The respondent may be directed to disburse and pay with permission of this Hon'ble Court the amount found due and payable to secured creditors under Sec 530 of Companies Act from the Balance amount Rs. 5.5 crores approximately plus accruing interest out of total sale proceeds i.e. Rs. 6 Crores realized from the sale of the Assets and Properties of the Vatwa unit of M/s Satnam Exports Ltd in appropriate proportion between secured creditors of the company or the amount which is found due and payable." 3. Both the aforesaid matters are connected and therefore are taken up for a hearing together and by way of this common order, the same are disposed of together. 4. Heard learned advocate Mr.J.S.Yadav for Official Liquidator, learned advocate Mr.B.H.Bhagat for IDBI Bank Limited, learned Senior Counsel Mr.R.J.Oza for Central Excise Department, learned advocate Mr.U.T.Mishra for Kamdar Hit Rakshak Union. 5. Learned advocate Mr.J.S.Yadav appearing for the Official Liquidator in Official Liquidator Report No.12 of 2015 mainly submitted that by an order dated 16.01.2001 rendered by this Court in ....
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....bmitted before this Court by Official Liquidator by filing Company Application No.268 of 2011. This Court passed an order on 17.08.2011 and 19.09.2011 in the aforesaid application, whereby, the Official Liquidator was directed to disburse an amount of Rs. 5.11 Crores received from the sale of movable and immovable properties of Chhatral Unit of the company. Out of the said amount of Rs. 5.11 Crores, Rs. 8 Lacs was disbursed to the workers of both the units of the company in liquidation i.e. Unit at Chhatral and unit at Vatva. Balance amount of Rs. 4,30,06,500/was disbursed to Indian Bank, whereas, Rs. 72,93,500/was disbursed to IDBI Bank. 7. By way of order dated 17.08.2011 passed in Company Application No.268 of 2011, this Court further directed the Official Liquidator to again invite claims from secured and unsecured creditors and the workers, so that before final decision with regard to disbursement of the amount available with Official Liquidator received from sale proceeds of assets of Vatva Unit of the company is taken the picture about the claims of secured, unsecured creditors and workers may become clear. In view of the said direction given by this Court, Official Liqui....
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....ed have raised objection, regarding verification of their claim and distribution of ratio. Official Liquidator therefore sent copies of the objection letters received from the aforesaid authorities and company to the concerned Chartered Accountant for reverification with a request to submit supplementary report. The said Chartered Accountant submitted supplementary report with regard to the objection raised by the Central Excise Department, Ahmedabad. The Chartered Accountant has stated that as per Section 530, if a tax becomes due and payable within 12 months, next before the relevant date, then only it can be treated as preferential debt. The Chartered Accountant further stated that the raising of demand by Excise Department, which is contested by assessee cannot be treated as debt which has become due and payable. The excise duty becomes due and payable only with the adjudication order passed in favour of the departments. Therefore, as per the Chartered Accountant, the debt becomes due and payable on the day of the order. Supplementary report sent by Chartered Accountant was also forwarded to Central Excise Department, Ahmedabad and Lloyds Finance Limited for their comments and ....
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....5 15,01,387 16,25,73,228 100 10. At this stage, learned counsel Mr.Yadav submitted that the Official Liquidator had not received the claim from Income Tax Department in pursuance to the advertisement issued in the newspaper. The Official Liquidator therefore requested M/s.Kiran Shah and Associates, Chartered Accountant, to inform the income tax liability/capital gain tax of the company in liquidation. The said firm of Chartered Accountant determined a tax liability of Rs. 3,32,00,000/( approx.) on account of sale proceeds of the company. The Official Liquidator therefore deducted an amount of Rs. 3,32,00,000/towards future expenses. Rs. 3,03,677/is deducted towards miscellaneous (contingent) expenses. Thus, out of Rs. 6,57,58,637/, Rs. 3,22,55,000/remains with the Official Liquidator. 11. Learned advocate Mr.Yadav appearing for the Official Liquidator further submitted that Incometax Department has issued various notices and letters to the Official Liquidator, invoking various provisions of the Incometax Act, whereby, the Official Liquidator is called upon to file the returns and pay Incometax on realization of the sale of the assets of the company. The Official Liqu....
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....or in rejecting the claim of Excise Duty, penalty and interest submitted by affidavit of debt dated 30.10.2003, 27.12.2002 and 17.02.2003 without looking into the relevant material and evidence. Learned counsel further contended that Chartered Accountant has wrongly ignored Section 11E of the Central Excise Act under the said provision, amount of duty, penalty and interest recoverable from the company in liquidation as first charge in preference to any other charge which may be created under any Central Act or State Act. 13. Learned Senior Counsel Mr.Oza further referred to Section 3 of the Central Excise Act and Rule 7 and Rule 9 of Central Excise Rules and submitted that Central Excise Duty is leviable by applying Section 3 of the said Act. Such type of excise duty was payable by the company in liquidation immediately after manufacturing of the goods and before removal of the said goods from the registered factory premises. The company in liquidation has not paid excise duty according to the provisions of the Act and the Rules, removed the goods without payment of duty and sold the said goods by recovering excise duties from the consumers. Collection of duties made by the comp....
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.... contended that claim of municipal corporation and proposal to make payment of Incometax Department in preference to claim of answering respondent has also not capable of being considered in preference in view of Section 11E of Central Excise Act, 1944. 15. In support of his contention, learned counsel has placed reliance upon the decision rendered by the Hon'ble Supreme Court in case of Shree Synthetics Ltd. v. Union of India & Ors., reported in 1999 (113) E.L.T. 774 (S.C.) as well as in case of Wallace Flour Mills Company Ltd. v. Collector of C. EX., reported in 1989 (44) E.L.T. 598 (S.C.). 16. Learned Senior Counsel Mr.Oza has also placed reliance on the decision rendered by the Hon'ble Supreme Court in case of Central Bank of India v. State of Kerala, reported in (2009) 4 SCC 94 and mainly relied upon the observations made in para 157, 177, 178, 180 and 185 of the said decision. The said paragraphs reads as under: "157. Section 11 of the Central Excise Act, which was considered by the twojudges Bench in SICOM case, does not contain a provision similar to those in Central legislation like Section 14A of the Workmen's Compensation Act, 1923, Section 11 of the EPF....
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....ow the remaining amount of Rs. 5.5 Crores with interest may be disbursed under Section 530 of ies Act. 18. In response to the Official Liquidator's Report No.12 of 2015 and in response to the arguments canvassed on behalf of learned Senior Counsel Mr.Oza for Central Excise Department, learned advocate Mr.B.H.Bhagat submitted that incometax dues cannot fall under Section 530 of the Companies Act. IncomePage tax Department has not passed any order under the provisions of the Incometax Act and therefore, the disbursement ratio fixed by the concerned Chartered Accountant, which is reproduced at page 16 of the Official Liquidator Report report No.12 of 2015 may be confirmed and as per the said ratio, the Official Liquidator be directed to disburse the amount amongst unsecured creditors under Section 530 of the Companies Act. Learned advocate Mr.Bhagat further submitted that this Court delivered a judgment on 30.06.2014 in Company Application No.245 of 2012 and allied matters, wherein, this Court has discussed about the priorities of dues of the Income Tax Department under the provisions of the Companies Act. The issue before this Court was as under: "10. In light of the rival ....
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.... count it is relevant to mention that this Court is given to understand that so as facilitate this process, the Department has nominated one officer as Nodal Officer who may be informed about the appointment of liquidator and/or about the process of sale of properties or about disbursement of sale proceeds. In this view of the matter, it appears appropriate to direct, inter alia, that as and when the Court passes an order appointing liquidator in any matter and so also when the process of disbursement in accordance with section 529A commences and at the stage when the process of disbursement under section 530 begins, the Official Liquidator shall give proper intimation to the Nodal Officer. It is clarified that such intimation is not a substitution of the obligation under section 178 of Income Tax Act. It is also clarified that by law the liquidator is obliged to regularly file the returns and that, therefore, the liquidator shall take necessary action in all cases. 32. As a result of the above discussion and this decision, the Official Liquidator may, after seeking appropriate permission and directions, proceed, according to the directions by the Court, to make the payments in ....
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....tched from the sale of the movable property of Vatva unit has been disbursed to IDBI Bank limited because the said bank is having exclusive charge of the said movable property. Undertaking was obtained from IDBI Bank by the Official Liquidator. E. So far as remaining amount of Rs. 5,49,36,000/is concerned, the said amount is fetched from sale of immovable property of Vatva unit. IDBI or Indian Bank is having no charge over the said property. F. Claims were invited from the creditors of the company in liquidation under Section 530 of the Companies Act by issuing advertisement. The claims which were received from the creditors were sent to M/s.J.M.Parikh Associates, Chartered Accountant, for verification. The said Chartered Accountant sent verification report dated 22.03.2012. The said report was sent to the concerned creditors for their comments and acceptance of the recommendation. IDBI Bank and Indian Bank have accepted the recommendation whereas Central Excise Department, Ahmedabad Municipal Corporation and Lloyd Finance Limited raised objections regarding the verification of their claim and distribution ratio. G. Said objections were sent for reverification to the conce....
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....ould be leviable under Sec. 12 of the Customs Act, 1962 on like goods produced or manufactured outside India if imported into India, and where the said duties of customs are chargeable by reference to their value, the value of such excisable goods shall, notwithstanding anything contained in any other provisions of this Act, be determined in accordance with the provisions of the Customs Act, 1962 and the Customs Tariff Act, 1975." 23.1. Rule 7 of the Central Excise Rules of 1944 reads as under: "7.RECOVERY OF DUTY.Every person who produces, cures or manufactures any excisable goods,or who stores such goods in a warehouse, shall pay the duty or duties, leviable on such goods, at such time and place and to such persons as may be designated, in, or under the authority of these Rules, whether the payment of such duty or duties is secured by bond or otherwise.] [Provided that nothing contained in this rule shall apply to molasses produced in a Khandsari sugar factory.]" 23.2. Rule 9 of the Central Excise Rules of 1944 reads as under: "9. TIME AND MANNER OF PAYMENT OF DUTY.(1) No excisable goods shall be removed from any place where they are produced, cured or manufactured....
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.... specify in this behalf.] (2) If any excisable goods are, in contravention of subrule (1), deposited in, or removed from, any place specified therein, the producer or manufacturer thereof shall pay the duty leviable on such goods upon written demand made [within the period specified in Sec. 11A] of the Act by the proper officer, whether such demand is delivered personally to him or is left at his dwelling house, and shall also be liable to penalty which may extend to two thousand rupees, and [such goods] shall be liable to confiscation.] [Explanation :For the purposes of this rule, excisable goods produced, cured or manufactured in any place and consumed or utilized (i) as such or after subject to any process or processes; or (ii) for the manufacture of any other commodity. Whether in continuous process or otherwise, in such place or any premises appurtenant thereto, specified by the [Commissioner] under subrule( 1), shall be deemed to have been removed from such place or premises immediately before such consumption or utilisation.]" 24. It is further the contention of learned Senior Counsel Mr. Oza that the excise duty was payable by the company in liquidation im....
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....essee cannot be treated as debt which has become due and payable. The excise duty becomes due and payable only when the adjudication order is passed in favour of the Department. The debt becomes due and payable on the date of the order. In the opinion of this Court the opinion given by the Chartered Account is correct. Thus, this Court is of the opinion that the debt becomes due and payable only on the day on which the officer passes an order in favour of the department. If such type of order is passed within the twelve months next before the relevant date then and then such type of debt of revenue taxes, etc. can be considered in priority to all other debt and that too subject to the provisions of Section 529A of the Companies Act. In the present case the winding up order was passed on 24.01.2001. Hence, any excise duty/debt which becomes due between 24.01.2000 to 23.01.2001 shall be considered and treated as preferential debt under the provisions of Section 530 of the Companies Act, 1956. 29. In the present case the objection raised by the department was considered twice by the concerned Chartered Accountant and thereafter he was of the opinion that one order in original passe....
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....of the Companies Act provides that: "529A. Overriding Preferential Payments (1) Notwithstanding anything contained in any other provision of this Act or any other law for the time being in force, in the winding up of a company ( a) workmen's dues; and (b) debts due to secured creditors to the extent such debts rank under clause (c) of the proviso to subsection (1) of section 529 pari passu with such dues, shall be paid in priority to all other debts. (2) the debts payable under clause (a) and clause (b) of subsection (1) shall be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions." 33. Thus, under Section 529A of the Companies Act, dues of the workmen and debts due to secured creditors have priority over the claim of other persons or authorities. Subsection (1) of Section 529A of the Companies Act specifically provides that "notwithstanding anything contained in any other provisions of this Act or any other law for the time being in force, in the winding up of a company............" 34. Thus, the dues of the secured creditors including the banks and the workers are having priority over all other debt....
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....rt in the case of Shree Synthetics Ltd. (Supra) as well as in case of Wallace Flour Mills Company Ltd. (Supra). In the said cases, Hon'ble Supreme Court held that even though the taxable event is the manufacture or production of an excisable article, the duty can be levied and collected at a later stage for administrative convenience. However, the words "due and payable" as well as "relevant date" used in Section 530 of the Companies Act are relevant. Thus, as per the provisions of Section 530 of the Companies Act, date of winding up order is required to be seen and the period of twelve months next before that date is required to be seen and if the debt is due and payable within the said period then and then the same can be considered to be debt due and payable under Section 530 of the Companies Act. Hence, the aforesaid decisions are not helpful to the Excise Department in the facts and circumstances of the present case. 38. Thus, in view of the aforesaid no interference is required in the opinion given by the concerned Chartered Accountant with regard to the objections raised by the Excise Department. 39. Now, the submissions of learned Mr. B.S.Bhagat appearing for IDBI....