2006 (3) TMI 709 - HC - VAT and Sales Tax

Issues Involved:
1. Legality of the demand notice under the A.P. Revenue Recovery Act, 1864.
2. Applicability of Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) to the recovery proceedings.
3. Interpretation of Section 22(1) of SICA in relation to sales tax recovery.
4. Impact of the company's status as a sick industrial company on the recovery of sales tax dues.

Detailed Analysis:

1. Legality of the demand notice under the A.P. Revenue Recovery Act, 1864:
The petitioner, a company registered under the Companies Act, 1956, engaged in manufacturing pharmaceuticals, was assessed to sales tax by the Assistant Commissioner (Tax Assessment), Gaziabad, for the assessment year 1995-96. The company received a demand notice from the first respondent under the A.P. Revenue Recovery Act, 1864 ("the R.R. Act") for Rs. 1,59,05,995 towards trade tax arrears. The petitioner contested this demand, claiming it was illegal and arbitrary, and sought a writ of mandamus to declare the action of the respondents as such. The court found no infirmity in the issuance of the demand notice, stating that the petitioner was bound to pay the amount to discharge its statutory liability.

2. Applicability of Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) to the recovery proceedings:
The petitioner argued that under Section 22(1) of SICA, all proceedings for recovery of amounts remain suspended once a company is declared a sick industrial company. The court examined the provisions of Section 22(1) of SICA, which states that no proceedings for execution, distress, or the like against the properties of the industrial company shall lie or be proceeded with except with the consent of the Board or the appellate authority. However, the court concluded that Section 22(1) does not bar the recovery of sales tax dues and that the statutory bar applies only to dues included in the sanctioned scheme for rehabilitation.

3. Interpretation of Section 22(1) of SICA in relation to sales tax recovery:
The court referred to several precedents, including Gram Panchayat v. Shree Vallabh Glass Works Ltd. [1992] 86 STC 41 (SC) and Deputy Commercial Tax Officer v. Corromandal Pharmaceuticals [1997] 105 STC 327 (SC), to interpret Section 22(1) of SICA. It was held that Section 22(1) does not bar recovery of sales tax dues, which are legitimately belonging to the Revenue and not to the sick company. The court emphasized that the provision temporarily prohibits the enforcement of mutual rights and obligations between a debtor and creditor but does not apply to the recovery of sales tax, which is the money of the State.

4. Impact of the company's status as a sick industrial company on the recovery of sales tax dues:
The court noted that the petitioner-company did not become defunct or non-productive before seeking reference under Section 15(1) of SICA and continued to collect sales tax from various customers. The court found no evidence or averment that the petitioner-company was not enabled to collect sales tax from customers, which was to be passed on to the Revenue. Therefore, the court concluded that the recovery of sales tax dues was not barred by Section 22(1) of SICA, and there was no merit in the petitioner's claim.

Conclusion:
The writ petition was dismissed with costs, as the court found no merit in the petitioner's arguments against the recovery proceedings initiated under the A.P. Revenue Recovery Act, 1864, and the applicability of Section 22(1) of SICA to the recovery of sales tax dues.

← Previous Next →