1995 (11) TMI 396 - HC - VAT and Sales Tax

Issues Involved:
1. Implementation of the rehabilitation scheme under the Sick Industrial Companies (Special Provisions) Act, 1985.
2. Recovery of sales tax arrears under the Andhra Pradesh General Sales Tax Act, 1957.
3. Applicability of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, to the recovery proceedings.
4. Whether the petitioner can be exempted from paying sales tax dues incurred after the implementation of the sanctioned scheme.

Issue-wise Detailed Analysis:

1. Implementation of the Rehabilitation Scheme:
The petitioner-company, engaged in manufacturing and marketing bulk drugs and formulations, was declared a sick industrial company under the Sick Industrial Companies (Special Provisions) Act, 1985 ("the Act"). The Board for Industrial and Financial Reconstruction ("the BIFR") sanctioned a rehabilitation scheme on November 19, 1990, which was modified on December 28, 1993, granting additional reliefs. The scheme aimed to make the company's net worth positive by 1995-96 and wipe out accumulated losses by 1997-98. The implementation of the scheme faced delays, and modifications were under consideration by the BIFR and the Industrial Reconstruction Bank of India (IRBI), indicating that the sanctioned scheme was still under implementation.

2. Recovery of Sales Tax Arrears:
The petitioner defaulted on sales tax payments for the assessment years 1992-93 and 1993-94 under the Andhra Pradesh General Sales Tax Act, 1957 ("the APGST Act"). Sales tax authorities initiated recovery action under Section 17 of the APGST Act. The petitioner appealed against the assessments and sought a stay of tax collection, which was pending. The third respondent granted six bi-monthly instalments for payment of arrears, but the petitioner defaulted after the first instalment. Notices were issued under Section 17 of the APGST Act and the Andhra Pradesh Revenue Recovery Act, 1864, for the recovery of sales tax arrears amounting to Rs. 10,35,671 and Rs. 10,39,730.

3. Applicability of Section 22 of the Act to Recovery Proceedings:
The petitioner sought a writ of mandamus to prevent recovery proceedings without BIFR's permission, as required under Section 22 of the Act. The court examined whether Section 22(1) of the Act, which suspends legal proceedings against a sick industrial company during the implementation of a sanctioned scheme, applied to the recovery of sales tax dues. The court concluded that Section 22(1) interdicts all proceedings for recovery of tax dues by the State without BIFR's consent, as it suspends "proceedings for execution, distress or the like against any of the properties of the industrial company."

4. Exemption from Paying Sales Tax Dues:
The learned Government Pleader argued that the petitioner must pay sales tax dues incurred after the sanctioned scheme's implementation, as the scheme did not provide for sales tax concessions from the State Government. The court disagreed, stating that Section 22(1) prohibits coercive proceedings for tax collection during the implementation of the scheme, regardless of when the tax dues were incurred. The court emphasized that Section 22(1) creates an embargo against distress action, not against the demand for payment.

Conclusion:
The court held that no coercive steps for the recovery of tax dues, including action under Section 17 of the APGST Act, could be taken without BIFR's consent. This view was supported by precedents, including decisions from the Supreme Court and other High Courts. The writ petition was allowed, and the court directed the respondents not to proceed with the collection of the balance tax without BIFR's permission. The emphasis was on the speedy implementation of remedial measures and the overall control of BIFR during the rehabilitation process.

Judgment:
The writ petition was allowed, and no costs were awarded.

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