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TMI Blog2004 (3) TMI 426X X X X Extracts X X X X X X X X Extracts X X X X ..... by this common judgment. 2. Both the petitions raise a common question about powers of the State Government in the Sales-tax Department to recover sales-tax dues from the petitioner-Company on the products being sold by it. The petitioner claims immunity from any coercive recovery of sales-tax dues on the ground that the petitioner is registered as a sick industrial Company under the provisions of the Sick Indus trial Companies (Special Provisions) Act, 1985 ("the SICA" or "the Act" for short). The petitions involve two controversies ( i )whether any inquiry is pending under section 16(1) so as to entitle the petitioner to protection under section 22 of the SICA; and ( ii )if yes, whether the petitioner is entitled to the protection under section 22 of the SICA in respect of the current sales-tax dues which the petitioner is collecting from the purchasers for the period during pendency of the reference before the BIFR. 3. On the basis of its financial position as on 31-3-2000, the petitioner approached the BIFR and a reference was registered as Case No. 149 of 2001 which is for the entire Company i.e., for all the projects at village Sachana in Ahmedabad (Rural) Dist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f sales-tax which were due on the date of filing of the reference before the BIFR i.e., 18-6-2001. On that day, the following sales-tax amounts were payable by the petitioner to the State Government : Assessment Year SCA No. 9027/03 in (Rs.) SCA No. 9028/03 in (Rs.) 1992-93 54,67,000 1993-94 21,54,394 1994-95 86,27,240 1998-99 74,33,331 1999-2000 1,27,04,666 2000-01 24,27,321 Total 2,25,65,318 1,62,48,634 Rounded off (2.26 Crores) (1.62 Crores) Total Rs. 3.88 Crores However, the current sales-tax dues which are payable after the date of registration before the BIFR are payable by the petitioner and that no protection is available to the petitioner for the current sales-tax dues as the petitioner is collecting sales-tax from the purchasers as a trustee of the State, and the petitioner has to pay over the sales-tax amounts collected from the purchasers. It is further submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing submissions : 8.1 When the petitions were filed, only the petitioner s appeal before the Appellate Authority (AAIFR) was pending under section 25 of the Act, but pendency of such appeal did not mean that inquiry under section 16(1) of the Act was pending and, there fore, the petitioner was not entitled to suspension of the recovery proceedings under the Sales-tax Act. Strong reliance is placed on the decision of the Delhi High Court in IDBI v. Surekha Coated Tubes Sheets Ltd. [1996] 85 Comp. Cas. 594. 8.2 Even otherwise, registration of the petitioner-Company as a sick industrial Company by itself does not mean commencement of inquiry under section 16(1) because in the facts of the instant case, the BIFR has not called for any information or document while communicating the registration of the petitioner-Company as a sick industrial Company. The letters dated 19-1-2004 clearly indicate that no such information/documents is called for. Hence, the ratio of the decision in Real Value Appliances Ltd. will not apply unless any such information or document is called for, in which case alone it can be said that there was commencement of inquiry under section 16(1) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Spl. CA No. 9028 of 2003 The petitioner enjoyed the benefit of sales-tax deferment and paid five instalments, but defaulted in the sixth instalment of Rs. 8,33,304 which was due on 31-5-2001. 8.5 The Gujarat Electricity Board is not bound to supply electricity without demanding charges for current supply. Similarly, the State cannot be deprived of the amounts of sales-tax being collected by the petitioner either by separately collecting the same from the purchasers or by including sales-tax as a component of the sale price charged from its purchasers. 9. Before dealing with the rival submissions, it is necessary to make a brief reference to the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985. There is no dispute about the definition of "Sick Industrial Company" as defined by section 3( o ) and various other expressions, Chapter III covers references, inquiries and schemes. Sub-section (1) of section 15 requires the Board of Directors of a sick industrial Company to make a reference to the BIFR within two months from the date of finalization of the audited accounts of the Company for the financial year in which the Company has become a sick in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sures with respect to any sick industrial company, the scheme may provide for financial assistance by way of loans, advances or guarantees or reliefs or concessions or sacrifices from the Central Government, a State Government, any scheduled bank or other bank, a public financial institution or State level institution or any institution or other authority (any Government bank, institution or other authority required by a scheme to provide for such financial assistance being hereafter in this section referred to as the person required by the scheme to provide financial assistance) to the sick industrial company. (2) Every scheme referred to in sub-section (1) shall be circulated to every person required by the scheme to provide financial assistance for his consent within a period of sixty days from the date of such circulation or within such further period, not exceeding sixty days, as may be allowed by the Board, and if no consent is received within such period or further period, it shall be deemed that consent has been given. (3) Where in respect of any scheme the consent referred to in sub-section (2) is given by every person required by the scheme to provide financial assist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law, no proceedings for the winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial Company or for the appointment of a receiver in respect thereof and no suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the appellate authority." It is in light of the aforesaid statutory provisions that the controversies arising in these petitions are required to be examined. 10. We will first take up the preliminary contention raised by Mr. Gori, learned AGP for the respondents that no inquiry under section 16(1) of the Act is pending even now. As far as the pendency of the appeal before the Appellate A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same case leave no room for doubt that registration of the reference itself amounts to commencement of inquiry under section 16(1) for the purposes of section 22 of the SICA : "Relying on the use of the word "may" in section 16(1) of the Act it has been contended in some High Courts that the word "may" in that section shows that the BIFR has power to reject a reference summarily without going into the merits and that it is only when the BIFR takes up the reference for consideration on the merits under section 16(1) that it can be said that the "inquiry" as contemplated by the section has commenced. It is argued that if the reference before the BIFR is only at the stage of registration under section 15, then section 22 is not attracted. This contention, in our opinion, has no merit. In our view, when section 16(1) says that the BIFR can conduct the inquiry "in such manner as it may deem fit", the said words are intended only to convey that a wide discretion is vested in the BIFR in regard to the procedure it may follow for conducting an inquiry under section 16(1) and nothing more. In fact, once the reference is registered after scrutiny, it is, in our view, mandatory for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehabilitation scheme by the BIFR; and ( iii )the period after the date of sanction of the rehabilitation scheme. 15. There is no dispute about the third period. The decisions of the Apex Court in Dy. CTO v. Corromandal Pharmaceuticals [1997] 105 STC 327 and in Tata Davy Ltd. s case ( supra ) clearly lay down that the amounts like the sales-tax which the industrial Company is enabled to collect after the date of the sanction of the scheme, legitimately belong to the revenue and such amounts cannot be and could not have been intended to be covered by section 22 of the Act. 16. As far as the first period is concerned, this Court is of the view that even though the sick industrial Company which is a dealer registered under the Gujarat Sales-tax Act and the Central Sales-tax Act collects sales-tax as an agent of the State, as far as the arrears of sales-tax till the date of registration of the reference are concerned, the amounts received by the Company have been intermingled with the other properties of the Company and, therefore, the State is prohibited from recovering such arrears from any particular property of the Company without obtaining prior consent of the BIFR. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Company" till the rehabilitation scheme is considered, approved or rejected by the BIFR. 18. In Corromandal Pharmaceutical s case ( supra ), the Apex Court has held that the sales-tax collected by the company after the date of sanction of the rehabilitation scheme legitimately belong to the State and, therefore, the State cannot be prevented from collecting such dues. The sales-tax dues for the second period ( i.e., till the date of sanction of the scheme) as such legitimately belong to the State. In Kanoria Dyechem Ltd. v. STO [2002] 108 Comp. Cas. 620 (Guj.), the draft scheme presented at the hearing held before the BIFR on January 3, 2001, provided for cut off date of June 30, 2001 for crystallization of the dues of the sick Company. Hence, by order dated 3-9-2001, this Court restrained the Government from making any recovery of the sales-tax dues only for the period till June 30, 2001, except in accordance with such scheme for revival and rehabilitation as may be framed by the BIFR or after obtaining prior approval of the BIFR, subject to the condition that the petitioner-Company shall pay its sales-tax dues for the period from July 1, 2001 onwards regularl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Government to defer recovery of current sales-tax amounts from the company which is collecting the sales-tax from its own purchasers. 20. As per the judicial notice taken by the Apex Court in Corromandal case, the proceedings before the BIFR take long time. The time-limits in various provisions of the Act for completion of inquiry, preparation of scheme etc., are held to be directory and not mandatory vide Industrial Cables case ( supra ). Let us assume that in the facts of this case, the inquiry under section 16(1) will take a few months, the Operating Agency will be appointed and the draft scheme will be prepared and circulated by 31-3-2005 and the cut off date is fixed as 1-4-2005. If the objections to the draft scheme are to be considered and ultimately the BIFR sanctions the scheme on 31-3-2006, according to the petitioner, the State Government can recover the sales-tax dues only with effect from 1-4-2006 and not prior thereto in view of the principles laid down in Tata Davy Ltd. s case ( supra ). (Without prejudice to the contention of the State Government that the sales-tax amounts collected by the petitioner are not the proper ties of the petitioner-company so a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would not be on behalf of the Income-tax authorities. Since the petitioner is registered as a sick company by BIFR, it is not very likely that the petitioner would be required to pay income-tax on the purchase price to be recovered from the purchasers of its goods. Income-tax is a tax on income and it is only after the petitioner would earn taxable income which would be computed in accordance with the provisions of the Income-tax Act that it would be liable to pay tax. Hence, the question of liability under the Income-tax Act on future income would not arise at this stage. The recovery presently sought to be made by the department is of arrears of income-tax for the past period for which the petitioner has already approached the BIFR. Under the circumstances, protection under section 22 of the SICA would be available to the petitioner in respect of the arrears of income-tax." [Emphasis supplied] 23. The view that we are taking does not run counter to the decisions being relied upon for the petitioner. On carefully going through them, we have noticed that in none of them have the Courts countenanced a Company registered as a sick industrial Company retaining current sales-tax a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appointed Receiver. 8-8-1997 High Court restored the appointment of Provisional Liquidator. 5-5-1998 The Supreme Court set aside the High Court s orders dated 28-7-1997 and 8-8-1997 on the ground that the inquiry had commenced; therefore, the Company was entitled to protection under section 22(1) of the SICA. In this case, there was no controversy about current tax dues. The recovery sought was of the dues of creditors for the period prior to the date of registration of the reference. 24.2 Tata Davy Ltd. s case ( supra ) 1983-84 1984-85 Company in arrears of sales-tax dues for these assess-ment year 9-2-1988 Company declared as sick under SICA. 23-12-1989 BIFR sanctioned the scheme. Coercive recovery of arrears of sales-tax for the aforesaid period sought to be made by the Government by attachment of the properties. 1990 The High Court held that SICA did not override the sales-tax Act. Hence, protection under section 22 was not available. 4-8-1997 Supreme Court allowed the appeal. In this case also, prote ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ICA. After deciding the controversy, which was the only controversy, whether failure of the BIFR to complete the inquiry under section 16 within 60 days has the effect of rendering the reference infructuous and therefore, the State can effect recovery of dues, the Court held that the period is not mandatory and, therefore, the inquiry cannot be treated as lapsed simply because the operating agency is not in a position to complete the inquiry within 60 days. It does not appear from the judgment that the dues were for the period after the date of registration of the company as a sick industrial Company. The Court was not called upon to decide the controversy which is raised in the present case. 24.7 Gram Panchayat v. Shree Vallabh Glass Works Ltd. [1992] 86 STC 41 (SC) 27-8-1997BIFR declared the company as sick industrial Company. Since the Apex Court was concerned with the case of the Company in the matter of recovery of arrears of property tax levied on the property of the Company, there was no question of passing on incidence of current tax to any other person, unlike the sales-tax liability which the Company passes on to the purchasers. An analysis of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ready collected by the Company in the past and interest accruing thereon from time to time, the State Government is entitled to refuse straight away making any such reliefs, concessions or sacrifices for the future and to insist that whatever revival and rehabilitation package is to be prepared, as regards the recovery of such sales-tax dues from a future cut off date which may be specified by the State Government, the BIFR will have to stipulate such cut off date for the sales-tax dues in rehabilitation package to be prepared by the BIFR or the operating agency which may be appointed by the BIFR. 27. These petitions are pending before this Court since 1/2-7-2003 when the petitioner Company s reference was not even registered by the BIFR or the Appellate Authority under SICA. In the affidavits dated 1-10-2003 on behalf of the respondent-State Government, an assertion is made that the State Government is entitled to recover at least the current dues, notwithstanding the provisions of section 22 of the SICA, because the petitioner continues to collect the sales-tax from the purchasers. This stand of the State Government was also reiterated at the hearing before the Court on 15-10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Supreme Court and various High Courts, and the reasons indicated in para graphs 14 to 25 of the judgment make it clear that we are not taking a view which is at variance with the view taken by the other High Courts, this case does not involve a substantial question of law of general importance which needs to be decided by the Hon ble Supreme Court. The request is, therefore, rejected. 31. Mr. Soparkar further prays for continuing the interim relief which was granted during pendency of these petitions for a period of one month to enable the petitioner to have further recourse in accordance with law. Mr. Siraj Gori, learned AGP opposes the request and submits that the petitioner is collecting sales-tax from its purchasers and, therefore, there should not be any extension of interim relief. When we have already held that the petitioner is collecting sales-tax as an agent of the State Government and that the State Government has been demanding current sales-tax from the petitioner as per the stand of the Government in the affidavit dated 1-10-2003, the interests of justice do not demand any extension of interim relief. Moreover, when we have also held that the State Gover ..... X X X X Extracts X X X X X X X X Extracts X X X X
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