1993 (3) TMI 319 - HC - VAT and Sales Tax

Summary

Issues:
1. Interpretation of Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985.
2. Whether recovery of arrears of sales tax from a sick industrial company is barred under Section 22(1) of the Act.

Analysis:

1. The case involved a show cause notice issued regarding the recovery of arrears of sales tax from a company declared a sick industrial company under the Sick Industrial Companies (Special Provisions) Act, 1985. The central issue was whether Section 22(1) of the Act prohibits the recovery action. The Board of Industrial and Financial Reconstruction (BIFR) had declared the company as a sick industrial company, and the Industrial Credit and Investment Corporation of India Ltd. (ICICI) was appointed to examine the viability for revival. The main contention was whether the distress sale of the company's properties for sales tax dues was permissible under Section 22(1) of the Act.

2. The petitioners argued that the recovery action for sales tax dues was barred under Section 22(1) of the Act due to the pending scheme for the company's revival. The respondents, on the other hand, contended that the recovery of legitimate dues was not prohibited under the Act. The court analyzed the provisions of Section 22(1) which suspends legal proceedings against an industrial company under certain conditions, including when a scheme for revival is under consideration. The court noted that a scheme for the company's rehabilitation was being prepared, as evidenced by the report submitted by ICICI to BIFR, thus attracting the bar under Section 22(1).

3. The court examined the nature of the recovery action taken by the respondents for sales tax dues. It was observed that the actions, including issuing notices under the Land Revenue Code and garnishee orders to banks, constituted proceedings for execution or distress against the company's properties. The court referred to precedents and legal definitions to determine that such actions fell within the scope of Section 22(1) prohibition on distress actions against sick industrial companies.

4. Relying on a Supreme Court decision and principles of equity, the court concluded that the recovery actions for sales tax dues against the sick industrial company were indeed barred under Section 22(1) of the Act. The court allowed the petition, quashed the recovery notices and orders, and prohibited the respondents from employing coercive recovery processes. However, the court clarified that the respondents could seek permission from BIFR to proceed with the recoveries, as provided under Section 22(1) of the Act.

In summary, the judgment centered on the interpretation of Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, and determined that recovery actions for sales tax dues against a sick industrial company were prohibited under the Act, given the pending scheme for the company's revival. The court allowed the petition, quashed the recovery notices and orders, and directed the respondents to seek permission from BIFR for further recovery actions.