1998 (8) TMI 577 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the order of attachment and notice for recovery of sales tax dues against a sick industrial company can be sustained under the provisions of section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA).
2. The impact of the sanctioned rehabilitation scheme by the Board for Industrial and Financial Reconstruction (BIFR) on the recovery of sales tax dues.
3. Applicability of the Supreme Court decisions in Corromandal Pharmaceuticals and Tata Davy Ltd. cases to the present case.

Issue-wise Detailed Analysis:

1. Order of Attachment and Notice for Recovery of Sales Tax Dues:
The petitioner, a public limited company declared as a sick industrial company under SICA, seeks quashing of the order of attachment and notice dated October 28, 1997, issued by the sales tax authorities. The petitioner argues that under section 22 of SICA, coercive measures for recovery of dues cannot be taken while a rehabilitation scheme is under implementation. The court noted that the assessment orders for sales tax liability were not under challenge in these petitions, and the sole issue was whether coercive recovery measures could be initiated.

2. Impact of the Sanctioned Rehabilitation Scheme:
The court examined the provisions of SICA, particularly sections 15, 16, 17, 18, and 19, which deal with the identification, inquiry, and rehabilitation of sick industrial companies. It was established that the BIFR had sanctioned a rehabilitation scheme for the petitioner company, which was in the stage of implementation. Section 22 of SICA suspends legal proceedings, including execution and distress against the properties of a sick industrial company, while a scheme is under preparation or implementation. The court confirmed that the sanctioned scheme covered the petitioner company and thus section 22 applied, preventing the recovery of sales tax dues through coercive measures without BIFR's consent.

3. Applicability of Supreme Court Decisions:
The respondents relied on the Supreme Court decision in Deputy Commercial Tax Officer v. Corromandal Pharmaceuticals, where it was held that section 22 does not cover dues arising after the sanctioned scheme. However, the court distinguished this case, noting that the dues in the present case related to periods before the sanctioned scheme (1989-90, 1991-92, and 1992-93). The court referred to Tata Davy Ltd. v. State of Orissa, where the Supreme Court held that section 22 requires creditors to obtain BIFR's consent for recovery, even if the dues arose before the scheme. The court also cited Maharashtra Tubes Limited v. State Industrial and Investment Corporation of Maharashtra Limited, emphasizing that section 22 aims to protect the properties of sick companies from coercive actions during the rehabilitation process.

Conclusion:
The court concluded that the petitioner is entitled to the benefits of section 22 of SICA, and the impugned order of attachment and notice cannot be sustained. The court suggested that the respondents could approach BIFR for consent to recover the dues if they believe the petitioner is not complying with the rehabilitation scheme or if its performance is unsatisfactory. The court clarified that section 22 does not eliminate the tax liability but suspends recovery proceedings until the scheme is fully implemented. The writ petitions were allowed, and the impugned order and notices were quashed.

Judgment:
The writ petitions were allowed, and the impugned order of attachment and notices were quashed, subject to the observations made regarding the possible approach to BIFR for consent to recover the dues. No order as to costs was made.