1997 (3) TMI 452 - SC - VAT and Sales Tax

SUSPENSION OF LEGAL PROCEEDINGS - RECOVERY OF TAX SICK INDUSTRIAL COMPANY - CONSENT OF BOARD FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTION

Summary

Issues Involved:
1. Applicability of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985.
2. Scope of the legal embargo under Section 22 on recovery of sales tax dues.
3. Interpretation of the term "sanctioned scheme" under the Act.

Issue-wise Detailed Analysis:

1. Applicability of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985:
The core issue revolves around whether Section 22 of the Act applies to sales tax dues accruing after the implementation of a sanctioned scheme. The petitioner, a sick industrial company under the Act, argued that no proceedings for recovery of sales tax dues could proceed without the consent of the Board for Industrial and Financial Reconstruction (BIFR). The revenue contended that Section 22's legal embargo should only apply to dues included in the sanctioned scheme and not to post-sanctioned dues.

2. Scope of the Legal Embargo under Section 22 on Recovery of Sales Tax Dues:
Section 22(1) of the Act stipulates that no proceedings for execution, distress, or the like against the properties of a sick industrial company shall lie or be proceeded with further without the consent of the BIFR. The petitioner-company contended that this provision imposes an absolute bar on such proceedings during the implementation of a sanctioned scheme. The revenue argued that this broad interpretation would allow the company to unfairly withhold amounts due to the State, as the sales tax dues in question were collected after the scheme's sanction date.

3. Interpretation of the Term "Sanctioned Scheme" under the Act:
The court examined whether the term "sanctioned scheme" under Section 22 should include liabilities arising after the scheme's sanction. The revenue argued for a narrower interpretation, suggesting that the legal embargo should only apply to liabilities included in the scheme. The petitioner-company opposed this, asserting that the embargo under Section 22(1) is absolute and applies to all proceedings for recovery of dues during the scheme's implementation.

Judgment Analysis:

Applicability of Section 22:
The court acknowledged that the language of Section 22 is broad and covers various stages from inquiry to the implementation of a sanctioned scheme. However, it noted that the primary purpose of Section 22 is to prevent any impediment to the implementation of the scheme. The court reasoned that the section should be interpreted to apply only to liabilities included in the sanctioned scheme, thereby excluding post-sanctioned dues like the sales tax in question.

Scope of the Legal Embargo:
The court found that extending the embargo to post-sanctioned dues would lead to unreasonable outcomes, enabling the company to retain amounts legitimately due to the State indefinitely. It emphasized that the suspension of proceedings under Section 22 should only cover pre-package dues included in the scheme, ensuring that the company does not misuse the provision to withhold payments collected after the scheme's sanction.

Interpretation of "Sanctioned Scheme":
The court held that the term "sanctioned scheme" should be understood to cover only those liabilities included in the scheme. It concluded that the sales tax dues for the years 1992-93 and 1993-94, which arose after the scheme's sanction, were not covered by the embargo under Section 22. The court reasoned that such an interpretation aligns with the spirit of the statute and prevents unfair advantages to the sick industrial company.

Conclusion:
The Supreme Court set aside the judgment of the Andhra Pradesh High Court, ruling that Section 22(1) does not apply to sales tax dues arising after the sanction of a rehabilitation scheme. The court allowed the appeal, enabling the revenue to proceed with the recovery of the sales tax dues without the consent of the BIFR. The judgment underscores the need for a balanced interpretation of statutory provisions to prevent misuse and ensure fairness in the implementation of rehabilitation schemes for sick industrial companies.