1998 (4) TMI 518 - AT - VAT and Sales Tax

Summary

Issues Involved:
1. Legality of the seizure of files and documents by the tax authorities.
2. Applicability of Section 22(1) of the Sick Industrial Companies (Special Provisions) Act (SICA) to the seizure.
3. Validity of Memo No. 10486 issued by the tax authorities threatening prosecution for non-submission of returns.

Issue-wise Detailed Analysis:

1. Legality of the Seizure of Files and Documents:
The applicants contended that the seizure of files and documents by respondent No. 2 on March 7, 1997, was illegal as it was conducted without assigning any reason and without proper documentation. They alleged that the seizure receipt was not handed over to them initially and was only provided after they refused to deposit Rs. 5 lakhs as demanded by respondent No. 2. The respondents, however, argued that the seizure was conducted lawfully under the provisions of the West Bengal Sales Tax Act, 1994, due to the applicant's habitual default in tax payments and the suspicion of tax evasion based on the examination of books of accounts and gate passes. The Tribunal found that the reasons for the seizure were recorded in writing prior to the seizure, and the seizure was witnessed by two employees of the applicant, thus complying with the legal requirements. Therefore, the seizure was held to be valid.

2. Applicability of Section 22(1) of the SICA Act:
The applicants argued that as a sick industrial company under the SICA Act, they were entitled to protection under Section 22(1), which prohibits any proceedings for execution, distress, or the like against the properties of the company without the consent of the Board for Industrial and Financial Reconstruction (BIFR). They cited several judgments to support their claim that the seizure was a coercive action covered under Section 22(1). The respondents countered that the West Bengal Sales Tax Act, 1994, is an independent Act, and the provisions of Section 22 of the SICA Act do not apply to their actions. The Tribunal referred to the Supreme Court's judgment in Deputy Commercial Tax Officer v. Corromandal Pharmaceuticals, which clarified that the embargo under Section 22(1) applies only to actions that impede the implementation of the revival scheme for the sick company. The Tribunal concluded that the seizure of books of accounts did not obstruct the revival of the company and was not akin to distress or execution against the company's properties. Hence, Section 22(1) of the SICA Act did not apply to the seizure.

3. Validity of Memo No. 10486:
The applicants challenged the validity of Memo No. 10486 issued on December 30, 1996, which threatened prosecution for non-submission of returns and directed the applicant to appear before the tax authorities. The Tribunal found that this memo clearly constituted a coercive action aimed at realizing taxes under threat of prosecution, which falls within the scope of "proceedings for execution, distress or the like" as prohibited by Section 22(1) of the SICA Act. Therefore, the memo was held to be illegal and was quashed.

Conclusion:
The Tribunal allowed the application in part. The seizure of the documents and books of accounts on March 7, 1997, was held to be valid, while Memo No. 10486 dated December 30, 1996, was quashed as it violated the protection offered under Section 22(1) of the SICA Act. There was no order as to costs.