TaxTMI 
TaxTMI 
2017 (12) TMI 455
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....t respondent, hereafter "Gujarat") was dismissed. 2. The facts of the case are that the Board for Industrial and Financial Reconstruction ("BIFR"- set up under SICA) sanctioned a scheme for revival of the sick company, Narmada Cement Company Ltd. ("NCCL") known as SS-06 by its order dated 15.05.2006. The revival scheme, inter alia, provided merger of NCCL with a healthy company namely Ultratech Cement Ltd ("UCL"), i.e. the appellant with effect from 01.10.2005. Accumulated losses of NCCL were erased a result of the merger. The petitioner's net worth, positive prior to the merger, remained so after the merger and continued to be so during the entire period of the scheme. In other words, the sick company lost its identity and ceased to exist w.e.f the date of its merger; the merged entity UCL remained a healthy company before and after the said merger. Accordingly the BIFR discharged the sick company from the purview of SICA by its order dated 19.12.2007. 3. The sanctioned scheme was in force for 7 years, i.e. upto 30.09.2012; it provided certain reliefs and concessions from Gujarat and GOM, in terms of paras 12.1 and 12.2. The relevant part of these paragraphs pertaining to exempt....
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....o. BIFR also said that the petitioner company did not avail the exemption and, therefore, such amount of VAT/Sales Tax under Section 60 of VAT Act, 2002 had become public money which could not be refunded by the government. Moreover, the respective buyers of the company from whom the company collected VAT/Sales Tax had already claimed input tax credit on their corresponding purchases. BIFR also noted the State Government's submissions made by their Sales Tax Departments that any refund or retention of tax under above situation is against the doctrine of „unjust enrichment' as held by the Supreme Court of India in Mafatlal Industries v. Union of India 1997 (5) SCC 536 that if the burden of a duty/tax is passed on to the customers, the claimant cannot seek refund under any allowed/granted exemption and the person who bears the burden of tax can only claim such refund, and if such person does not come forward for refund, it is just appropriate that such amount is retained by the government. 6. In the light of the above, BIFR was of the view that the company itself did not avail the benefit of exemption under para 12.2(b) of SS-06 and continued to collect VAT/Sales Tax from its ....
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....ant provisions of the rehabilitation scheme. This does not fall under the category of deemed consent as such. Section 19(4) of SICA provided that in the absence of consent by any person, the Board may adopt such other measures including winding-up of the sick industrial company as it might deem fit. AAIFR was of the view that the BIFR could not override or completely ignore the requirement of consent required under Section 19(2) of SICA as such a proposition would render that provision totally redundant. The AAIFR rejected as untenable, the argument that as there existed a provision for appealing, the order of BIFR (Section 25) it could ignore the mandate under Section 19(2) of SICA and sanction a scheme against the wishes or consent of a person required to provide the financial assistance. It was held that there was no reasoning to show why BIFR thought it fit to reject Gujarat's objections against the proposed scheme. AAIFR held that the sanctioned scheme providing reliefs and concessions from Gujarat was without jurisdiction and unenforceable. It was held, however, that the Government of Maharashtra did not file any objection to the rehabilitation scheme and is deemed to have co....
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....n equivalent credit in its account to be adjusted in future as and when it starts paying output taxes. In this scenario, no tax burden is passed from A to its downstream consumers. However, consumer B having not paid any input tax is not entitled for any set-off against its output taxes. As such, it pays the full VAT to the State on its sales. Thus, the State exchequer receives its full VAT from B and compensates A to the extent of input taxes paid by it. Thus, there is no loss to the public exchequer and the person A benefits not only by getting the reimbursement/credit for its input taxes but also gets the flexibility in pricing of its products in the market as it does not contain any element of VAT/Sales Tax. 12. The petitioner company had failed to produce evidence on the discussions/proceedings before BIFR or meetings of Operating Agency as part of preparation of sanctioned scheme in support of clauses 12.1(b) and 12.2(b), which intended to give the appellant the benefit of collecting taxes from consumers and retaining the same for its use. The clauses of the scheme have to be interpreted in the context in which they were formulated and in the absence of such context, in term....
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....and hold that refund of taxes, collected and paid by the appellant to the concerned States is not legally permissible.'' Parties' contentions 14. It is argued by the petitioner that AAIFR and BIFR, while passing the impugned order failed to take into consideration the applicability of the provisions of the sanctioned scheme which is final and binding on the parties in terms of Section 18(8) read with Section 19(3) of SICA wherein parties cannot be permitted to wriggle out of their obligations. Mr. Huzeffa Ahmadi, learned senior counsel, argued that while making the order, AAIFR erroneously concluded that the provisions of the Scheme are not binding on the Gujarat government. The petitioner stepped out to invest in the sick company for its revival on the basis of reliefs as envisaged in the sanctioned scheme and on legitimate expectation that parties would perform their part of the obligations. Gujarat was aware about the provisions of the sanctioned scheme and is guilty of willful disobedience. It never filed appeal against the sanctioned scheme despite communicating its intention to the Petitioner. AAIFR's letter of 30.11.2011 establishes the fact that no appeal was fil....
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....he Sanctioned Scheme. 17. Mr. Ahmadi relied upon and cited the Calcutta High Court in ACC Cement Ltd. v. Assistant Commissioner, Commercial Tax (2011) 46 VST 244 (Cal) to state that while upholding the terms of the sanctioned scheme as final and binding on parties in terms of Sections 18(8), 19(3) and 32 of SICA refund of tax collected by the Government in violation of the terms of the sanctioned scheme was directed. It was submitted that the settled legal position is that in cases where there is no liability to pay the tax and tax has been paid, retained, the same is eligible for refund by the State as retention of the same would be unjust and wrongful on part of the State. 18. Counsel argued that the Scheme provides for "exemption from payment" of VAT/Sales Tax and Electricity Duty. AAIFR has erroneously proceeded on the premise that the Scheme does not permit the Petitioner to collect tax from its purchaser and not to pay taxes to the State on its sales. This would enable it to either lower prices of its products to generate higher demand and sale or alternatively realize higher profit margin without reducing its prices. It was stressed that on plain reading of the provisions ....
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....Sales Tax, non-payment of Sales Tax/VAT at the stage of purchase of raw materials and sale of finished goods, tax holidays etc. The grant of reliefs to UCL under the scheme, therefore, was reasonable. None of the respondents had either submitted or pleaded that the relevant clauses of the sanctioned scheme are void ab initio. Thus, AAIFR's conclusion that clauses 12.1(b) & (d) and 12.2 (b) and (d) did not serve public purpose was erroneous. It was also argued that AAIFR, despite concluding that the scheme was binding on the Government of Maharashtra held the provisions of the scheme inapplicable to it declaring it to be void ab initio. 20. It was submitted that the present case is not one of unjust enrichment as there was a duly sanctioned BIFR scheme, binding on all concerned. SICA was enacted to give effect to the policy of the State towards securing principles enshrined in Article 39 (b) & (c) of the Constitution of India. Learned senior counsel argued that the unjust enrichment cannot be presumed merely because the burden of the tax has been passed on. It was argued that unjust enrichment is inapplicable for electricity duty paid by UCL. The refund of electricity duty was reje....
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....ed scheme. UCL duly approached BIFR during subsistence of the scheme period and sought for directions to implement the remaining part of the operative period of the scheme. The provisions of the State VAT laws and Electricity Duty laws are inapplicable as the BIFR and AAIFR are the sole authority having jurisdiction to order refund of amount collected by Respondents contrary to the provisions of the sanctioned scheme. 23. Mr. Ahmadi argued that the respondents could not contend that the consent of the two or either State was not forthcoming; he drew attention of the court to the order dated 15.05.2006 of the BIFR which stated that "all parties concerned had given their consent under Section 19 (2)". If there were any doubts about that order, the correct method would have been to approach BIFR itself. In this regard, counsel relied on State of Maharashtra v Ramdas Shrinivas1982 (2) SCC 463 and Commissioner of Customs v. Bureau Veritas 2005 (3) SCC 265 in support of the submission. It was also urged that in the absence of any appeal (to the sanctioned scheme), the legal consequence of the order cannot be escaped. Counsel relied on Dakshin Gujarat Bij Company v Amardeep Association 2....
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....axes by way of common order dated 11.03.2013, i.e. the impugned order of the BIFR. The view that it could not modify the original scheme since it did not have power of review was erroneous. It is pointed out that a bare reading of Section 18(5) of SICA read with Clause 33 of BIFR Regulations clearly proves that the BIFR has power to review any sanctioned scheme and make necessary modifications to it or the BIFR may direct the OA to prepare a fresh scheme. It is also pointed out that Section 18(9) of SICA confers BIFR with the power to remove difficulties in giving effect to the sanctioned scheme. This power could, therefore, be used to modify the scheme appropriately. It is argued that Section 32 only provides that the provisions of the Act shall prevail over other provisions of the law. In the present case, however, the scheme was contrary to the provisions of the Act itself specifically Section 19. The non-obstante clause in Section 32 of SICA does not enable the BIFR to pass orders arbitrarily and completely ignores other provisions of SICA. 26. It is argued that the writ petition is based on an erroneous interpretation of the sanctioned scheme. Whereas the provisions of the sc....
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....L chose not to approach the BIFR for 6 years. UCL was aware of State Government's objections to the scheme. However, it remained silent and did not seek any remedies. It is urged that the principle of unjust enrichment as enunciated by the Supreme Court and the High Courts applied squarely to bar the relief claimed in the present case by UCL. The interpretation by UCL means, in effect, that UCL is entitled to levy, collect, realize and appropriate the taxes. The power of taxation is a sovereign function that cannot be given up or delegated by the State in favour of a private corporation.The sanctioned scheme was sanctioned in 2006. Within one year, i.e. in the year 2007, UCL turned net-worth positive and is a profit making concern. Further, UCL was discharged from the purview of SICA in 2007. Therefore, there was absolutely no requirement to refund the duly collected taxes and duties. SICA aims to help only in rehabilitating a sick company. 29. The State of Maharashtra argued that till 24.10.2011, its Sales Tax Department was not aware of any Rehabilitation Scheme sanctioned by BIFR. The department was not party to the summary proceedings dated 15.05.2008. The copy of the summary ....
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....to GOM incurring twofold losses to the State exchequer. 31. It is argued that BIFR, while passing its order had no intention to allow the dealer to collect taxes. If the BIFR upholds the requests made by the company in the MA. It would have amounted to a direct violation of the principle of unjust enrichment as enunciated by the Supreme Court in a number of cases, notably in the Mafatlal Industries (supra), since refund of the amount would amount to unjust enrichment of the dealer. Analysis and Conclusions 32. The issues that arise for consideration in the present writ petition, is 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. 33. It is crucial to analyze Section 19 of SICA, which deals with Rehabilitation by giving of Financial Assistance. It reads as follows- "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 guaran....
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.... clarifies that the rehabilitation scheme cannot provide for any reliefs or concessions or sacrifices from the State Government without its consent. 35. The State of Gujarat complains that its objections, when responding to notice of Section 19 (2) - after it was asked to consent to the DRS went unheeded and rather BIFR ignored it and went ahead by sanctioning the scheme without assigning any reason. This act of BIFR is in clear violation of Section 19(2) of SICA, which mandates the consent of the person required to provide the financial assistance. Since the scheme providing for exemption from payment of VAT/Sales Tax has been sanctioned in violation of the mandatory provision of Section 19(2) of SICA, the same is void and without jurisdiction and, therefore, not binding on the Government of Gujarat. 36. The High Court of Delhi in Union of India v. Cimmco Ltd. 2015 (193) Com Cases 289 determined the scope of Sections 18 and 19 of SICA. The relevant paragraphs are quoted below- "As regards the first two questions, the Court notes that the provisions of Section 18 and 19 are complementary, and dealing with different spheres of action. Section 18(8) states that the scheme sanction....
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....cribed by the statutory provisions and cannot be held to be plenary. A statute has to be read as a whole and no provisions of a statute can be ignored. Section 19(3) envisages consent for framing a scheme covered under section 19(1) of SICA, which may contemplate giving of financial assistance. In absence of such consent, the only course open to BIFR is to frame a scheme under section 18(4) by including measures specified in section 18(1) or other measures than directions for giving financial assistance, including winding up. The impugned Scheme, is thus clearly ultra vires the powers of BIFR under section 19(1) read with Section 19(3). Not only the petitioner did not give its consent to the draft scheme, the petitioner put forward its objections vide letters dated 21/6/2001 and 31/8/2003, which have not been in any manner discussed by the BIFR, which cannot be upheld as proper judicial approach. No judicial or quasi-judicial authority or even administrative authority can act arbitrarily and pass an order affecting a party without considering the view by ignoring altogether objections of the petitioner state. No doubt, Section 32 of the SICA contains a non-obstante clause; even the....
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....the Sanctioned Scheme to the State of Maharashtra, it cannot be held to have given its ascent to the said scheme. In the light of these circumstances, this court is of the view that UCL took it for granted that it is entitled for availing such relief in respect of the reliefs envisaged under the scheme without intimating the concerned authorities within the prescribed time as envisaged under the statute. 41. This Court further observes that under Section 19, BIFR read with Regulation 33 does not have any power to direct, in the absence of specific consent, the State Government to grant any incentive, which is not part of the policy of the State Government. In view of the decision of the Supreme Court in State of UP v UPTRON Employees Union (2006) 5 SCC 319, no direction can be given by the BIFR directing any State to grant or not to grant any incentive or to relieve the Petitioner of any statutory liability. In Ambuja Cements Ltd & Anr. v State & Ors (DB W.P. No. 3233-38/2014, decided on 19.12.2014), the Rajasthan High Court observed as follows: "63. We may observe here that the BIFR under section 19 of the Sick Industrial Companies (Special Provisions) Act, 1985 read with Regula....
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....concept of set-off for the tax paid earlier (input tax credit). This input tax credit for any period means setting-off the amount of input tax by a registered dealer against the amount of his output tax. The structure and world of VAT along with input tax credit is based on documentation of tax invoice, cash memo or bill. VAT is collected in bills at each stage in chain and paid after taking set-off of the amount of input tax credit (tax paid on purchases supported with tax invoices). 44. The State of Maharashtra explains its incentive schemes declared as linked to industrial promotion in the State. The first scheme exempts the dealer from payment of tax on sales upto a fixed period or up to monetary limit. The second scheme is tax deferment, where the dealer is allowed to postpone the payment of tax on sales. These are based on entitlement certificates granted under Section 89 of MVAT Act, 2005. In the case of exemption, the company does not collect tax from consumers on sale of exempt goods, and is governed by a notification dated 01.04.2005. Here, the exempt company does not collect tax from sale to consumers of exempt goods; there is no obligation to pay tax. The scheme- it is....
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....Scheme on 15.05.2006. The Government of Gujarat subsequently filed a review application dated 12.10.2006 seeking modifications in the reliefs envisaged from Gujarat Govt. in SS-06. The Bench observed that the objections filed by Govt. of Gujarat, were apparently not considered when the Board sanctioned the SS06 on 25.05.2006, whereas the same are available in the Bench file. Bench was informed that review application of GOG dated 12.10.2006 is also available on record and has apparently remained unheard and undecided. Therefore, the Bench considered it even more necessary that opportunity is provided to Government of Gujarat for filing reply to Misc. Application- 122 filed by the company...." "3. Having considered the submissions made during the hearing and materials on record the Bench noted that the review application dated 12.10.2006 of Govt. of Gujarat is on records of BIFR, which is yet to be decided, hence the review application dated 12.10.2006 need to be heard and decided before taking any decision in MA No.122 of 2012. The Ld. Advocate of the company intervened and submitted that they may also be given an opportunity to file a reply to the review application of Govt. of ....
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....ircumstances would be a windfall to UCL. Clearly, this was not the intent and purport of the sanctioned scheme; rather the object of directing exemption was to ensure that there was relief from the burden of taxation for its duration, to ensure the sick unit's viability. The scheme worked itself out; UCL did not sustain losses and reported positive net-worth at the end of the stipulated period; it was discharged from the operation of SICA. In these circumstances, the argument of the States that refund was not contemplated and that if granted, it would result in aggrandizement of the petitioner, is substantial and justified. 48. Exemption from tax to encourage industrialization cannot be equated with refund of tax. They are two different legal and distinct concepts. An exemption is a concession allowed to a class or individual from general burden for valid and justifiable reason. The underlying intention of exemption is to incentivize production and economic activity. VAT is an indirect tax passed on to the consumer. If an industry is exempt from tax the ultimate beneficiary is the consumer. The industry is allowed to overcome its teething period by selling its products at comparat....
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....les tax which was due shall be contrary to the statute. To illustrate it the appellant claimed refund of sales tax paid by it to the State Government of sale made by it of its finished products. But the tax paid is not an amount spent by the appellant but realised on sale by it. What is deposited under this head is tax which is otherwise due under provisions of the Act. Return of refund of its or its equivalent, irrespective of from is repayment or refund of sales tax. This would be contrary to Constitution." 49. In a subsequent judgment, i.e. State of Bihar v Kalyanpur Cements (supra), it was held by the Supreme Court that refund could not be given, in somewhat similar circumstances: "During the interregnum the company has been collecting the amount equivalent to the tax from the consumers. According to Dr. Rajiv Dhawan, Mr. Dwivedi during this period the company has collected more than Rs. 60 crores on the sale of cement by virtue of the directions issued by this Court in the Order dated 18.11.2002. In view of the law laid down by this Court in Amrit Banaspati (supra) the company cannot be permitted to retain the amount collected from the customers. This would amount unjust enr....
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....challenged, it becomes final and binding and the consequences of that order cannot be termed illegal, without a challenge to the basic determination. There cannot be any dispute with that enunciation of principle. However, in this case, what is noteworthy is that the petitioner took no steps absolutely till 22.03.2012, when it moved an application. By that time the tenure of the scheme had ended. The petitioner did not seek remission or exemption; rather it was a demand for refund. 51. This Court concurs with the view of the AAIFR that since it is not in dispute that the Government of Gujarat did not give its consent in terms of Section 19(2) above and instead filed its objections to the relevant provisions of the rehabilitation scheme, there was no question of deemed consent. 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 ig....