1990 (3) TMI 332 - HC - VAT and Sales Tax

Issues Involved:
1. Power of States to recover sales tax from industrial companies governed by the Sick Industrial Companies (Special Provisions) Act, 1985.
2. Application of Section 22(1) of the Central Act to Section 13-A(1) of the State Act.
3. Constitutional validity and legislative competence under Article 246 of the Constitution.
4. Doctrine of pith and substance and federal supremacy.

Issue-wise Detailed Analysis:

1. Power of States to recover sales tax from industrial companies governed by the Sick Industrial Companies (Special Provisions) Act, 1985:
The court examined whether the States have the power to recover sales tax from industrial companies governed by the Sick Industrial Companies (Special Provisions) Act, 1985 (Central Act). The legality of notices issued under Section 13-A(1) of the Orissa Sales Tax Act, 1947 (State Act) was challenged based on Section 22(1) of the Central Act, which suspends legal proceedings against sick industrial companies. The court found that the garnishee proceedings under Section 13-A(1) of the State Act are in the nature of execution against the properties of the industrial company and thus violate the ban imposed by Section 22(1) of the Central Act.

2. Application of Section 22(1) of the Central Act to Section 13-A(1) of the State Act:
Section 22(1) of the Central Act suspends legal proceedings against sick industrial companies, including execution, distress, or the like, without the consent of the Board or appellate authority. The court rejected the argument that Section 22(1) applies only to winding-up proceedings, stating that the garnishee proceedings under Section 13-A(1) of the State Act fall within the scope of "execution, distress or the like." The court emphasized that the language of Section 22(1) does not satisfy the rule of ejusdem generis, which would limit its scope to winding-up proceedings.

3. Constitutional validity and legislative competence under Article 246 of the Constitution:
The court considered whether Section 22(1) of the Central Act overrides Section 13-A(1) of the State Act based on Article 246 of the Constitution, which deals with the distribution of legislative powers between the Union and the States. The court noted that the power to levy tax includes the power to provide machinery for recovery of tax, and this power is plenary under Entry 54 of List II (State List). The court referred to the principle of federal supremacy, which operates only when there is an irreconcilable conflict between Union and State laws. The court found no such conflict in this case, as both provisions operate in separate and distinct fields.

4. Doctrine of pith and substance and federal supremacy:
The court applied the doctrine of pith and substance, which allows incidental encroachment on a forbidden field if the Act is primarily within the legislative competence of the enacting body. The court found that Section 13-A(1) of the State Act is an ancillary provision related to the recovery of sales tax and falls within the competence of the State Legislature under Entry 54 of List II. The court also discussed the principle of colourable legislation, which refers to disguised encroachment on a prohibited field, but found no such issue in this case. The court concluded that there is no irreconcilable conflict between Section 22(1) of the Central Act and Section 13-A(1) of the State Act, and both provisions can operate harmoniously.

Conclusion:
The court dismissed the petitions, holding that Section 22(1) of the Central Act does not protect the properties of industrial companies from being proceeded against under Section 13-A(1) of the State Act. The court acknowledged the adverse impact of garnishee proceedings on sick industrial companies but found no legal basis to stop such proceedings under the current legislative framework.

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