1996 (2) TMI 505 - AT - VAT and Sales Tax

Summary

Issues:
Recovery of penal interest under section 24(3) of the Tamil Nadu General Sales Tax Act, 1959 for assessment years 1984-85 to 1986-87. Compliance with the rehabilitation scheme framed by the Board of Industrial and Financial Reconstruction. Distress action against the petitioner's industrial company under section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985.

Analysis:
The petitioner, a sick industrial company under Central Act 1 of 1986, sought relief from the recovery of penal interest under section 24(3) of the Tamil Nadu General Sales Tax Act, 1959, for arrears from 1984-85 to 1986-87. A rehabilitation scheme required the petitioner to remit Rs. 34 lakhs in monthly instalments towards sales tax arrears, with Rs. 24.12 lakhs already paid by November 4, 1994, leaving the interest portion outstanding. The respondent demanded interest through a notice threatening distress proceedings for non-payment within 30 days, contrary to the provisions of section 22 of the Sick Industrial Companies Act, which mandates consent for such actions during scheme implementation.

The Government Pleader argued that non-compliance with the scheme terms rendered the petitioner ineligible for its benefits, allowing distress action for the entire arrears. However, the Tribunal noted that section 22 prohibits distress actions against companies under a rehabilitation scheme without the Board's consent. The purpose of distress actions is typically for recovery, but in this case, the arrears were primarily interest under section 24(3), which could only be recovered after complying with section 22.

The Tribunal emphasized that the rehabilitation scheme's purpose is to aid sick industries, and distress actions should not impede this process without the Board's consent. As the distress proceedings lacked the Board's approval, the Tribunal set aside the notice demanding interest for the mentioned assessment years. It directed that any distress action must adhere to the provisions of section 22 of the Sick Industrial Companies Act.

In conclusion, the Tribunal allowed the petition, highlighting the importance of following legal procedures and obtaining necessary approvals before initiating recovery actions against sick industrial companies under rehabilitation schemes.