1997 (8) TMI 78 - SC - VAT and Sales Tax

Whether the provisions of Section 22(1) of the Central Act overrode the provisions of Section 13A of the State Act? Held that - In the larger interest of the industrial health of the nation, Section 22 of the Central Act requires all creditors seeking to recover their dues from sick industrial companies in respect of whom an enquiry under Section 16 is pending or a scheme is under preparation or consideration or has been sanctioned to obtain the consent of the said Board to such recovery. If such consent is not secured and the recovery is deferred, the creditors remedy is protected for the period of deferment is, by reason of sub-section (5) of Section 22, excluded in the computation of the period of limitation. The words any other law in Section 22 cannot, therefore, be read in the manner suggested by learned Counsel for the respondents. We hold, in the premises, that the respondents cannot recover the aforementioned arrears of sales tax from the appellants without first seeking the consent of the said Board in this behalf.

Summary

Issues:
1. Interpretation of Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 in relation to recovery of arrears of sales tax under State Acts.
2. Application of the judgment in Gram Panchayat and Anr. v. Shri Vallabh Glass Works Limited & Ors. to the present case.
3. Examination of the scope of Section 22(1) of the Central Act in light of the exclusive power of States to legislate on sales tax under the Constitution.

Analysis:
The Supreme Court judgment involved a case where a company was declared a sick company under the Sick Industrial Companies (Special Provisions) Act, 1985. The primary issue revolved around the interpretation of Section 22(1) of the Central Act concerning the suspension of legal proceedings against sick industrial companies. The Court considered the case of Gram Panchayat and Anr. v. Shri Vallabh Glass Works Limited & Ors. where it was established that coercive recovery proceedings under a State Act were subject to the provisions of Section 22(1) of the Central Act. The Court emphasized that arrears of taxes due from sick industrial companies meeting the conditions of Section 22(1) could not be recovered without the consent of the Board. This highlighted the importance of seeking approval from the Board before pursuing recovery actions against such companies.

Furthermore, the judgment analyzed the constitutional aspects related to the Central Act and the exclusive legislative powers of States in matters such as sales tax. The Court clarified that the Central Act, enacted under Entry 52 of List I of the Seventh Schedule, aimed to promote industrial welfare without impeding State laws on sales tax under Entry 54 of List II. The Court emphasized that Section 22(1) of the Central Act was designed to protect the interests of sick industrial companies by requiring creditors to obtain Board consent for recovery actions. The judgment distinguished the Corromandal Pharmaceuticals case, highlighting that the circumstances differed from the present case and the Vallabh Glass Works case. Ultimately, the Court held that the respondents could not recover sales tax arrears from the appellants without prior approval from the Board, thereby allowing the appeals and setting aside the lower court's decisions.