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TMI Blog1999 (6) TMI 462X X X X Extracts X X X X X X X X Extracts X X X X ..... the transfer of the deferral benefit, by a letter dated November 22, 1991. Since the Commercial Tax Department is the operating agency in respect of the deferral scheme, on the advice of the SIPCOT, the petitioners entered into an agreement on August 31, 1994 with the Assistant Commissioner (Commercial Taxes), Madurai West. However, the 4th respondent, namely, the Government of Tamil Nadu wrote a letter on September 16, 1998 informing the petitioners that they had to clear the arrears of sales tax relating to 1990-1991 and 1991-1992 before the question of approval of the transfer could be considered. A sum of Rs. 7,28,123 was due and payable by KCP Mills for the years 1990-1991 and 1991-1992. A recovery notice was issued on January 14, 1999 addressed to the petitioners to remit a sum of Rs. 7,28,123 payable on account of KCP Mills and a further sum of Rs. 12,35,232 payable by the petitioner-company for the years 1990-1991 and 1991-1992. On January 29, 1999 the Assistant Commissioner (Commercial Taxes) writes a letter to the petitioner-company seeking to collect the sum of Rs. 7,28,123 because he is the appropriate authority so far as the arrears payable by KCP Mills for the years 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the main clause in the agreement is clause 4 which is as follows: The party of second part shall not alienate/dispose/encumber the said fixed assets, nor shall it remove fixed assets from the unit s premises until the deferred tax is fully repaid. There is also clause number 7 which reads as follows: The party of the second part shall obtain the permission of the party of the first part before the sale of the fixed assets. The eligibility certificate issued by SIPCOT also contains similar clauses and it is as follows: Sell or otherwise dispose of wholly or in part of lease out wholly or in part of or effect any change in the ownership of the fixed assets of the company or encumber the same in any manner other than the charges created or to be created in favour of Government of Tamil Nadu, Department of Commercial Taxes to secure, the deferred sales tax of Rs. 296 lakhs without the prior written permission from the Government/department at least 30 days prior to the contemplated event. 3.. The order of the Assistant Commissioner dated September 18, 1991, sanctioning the deferral of payment of sales tax also contains an identical clause which is as follows: Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e SIPCOT for a no objection certificate to transfer the deferral facility. They prayed for transfer of the IFST loan facility to the petitioners for the remaining period of the agreement dated April 12, 1991. On November 22, 1991 the SIPCOT issued a letter in the following terms: As the Lead Bank , the Karur Vysya Bank Ltd., has already issued its NOC in regard, we have also no objection in permitting the new management [M/s. Fenner (India) Ltd.] to avail the sales tax deferral benefit for the remaining period, provided the new management execute an agreement with you. On December 13, 1991 the petitioners wrote to the Assistant Commissioner, Karur, undertaking to pay the sales tax loan amount availed by KCP Spinning Mills as per the deferral scheme. There is a letter dated December 17, 1991 from the Assistant Commissioner, Karur, to the Assistant Commissioner, Madurai West. In this letter the necessary files relating to the KCP Mills are transferred to the addressee with a request to enter into a new agreement in accordance with the rules. On February 28, 1992 the Assistant Commissioner, Madurai West, writes a letter to the petitioner asking them to appear on March 6, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1, 1994 an agreement had been executed between the Assistant Commissioner, Madurai West and the petitioners extending the deferral benefit to Pushpa Textiles, being an unit of the petitioners. There is a clause in this agreement which reads that the petitioners had produced an eligibility certificate issued by the General Manager, SIPCOT, dated April 22, 1991. The above clause itself is proof enough for the contention that no eligibility certificate was issued to the petitioners. This is because the eligibility certificate referred to in the agreement dated April 22, 1991 is the one issued in favour of KCP Mills. Any agreement based on an eligibility certificate not referable to the petitioners is totally ineffective and contrary to the very scheme issued in G.O. Ms. No. 500, Industries, dated May 14, 1990. 6.. To continue the narration on September 16, 1998, the Secretary to Government, Commercial Taxes Department wrote to the petitioners in the following terms: I am directed to state that the actual balance amount payable by Tvl. Karur KCP Spinning Mills (P) Ltd., for the year 1990-91 and 1991-92 is Rs. 7,28,123. The abovesaid mill was sold to your company without prior perm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -section (1) of section 17-A enables the Government to issue notification to defer the payment of any industrial unit or sick unit to the terms and conditions in the notification. Inasmuch as the Assistant Commissioner, Madurai West, has entered into an agreement with the petitioners on August 31, 1994 it is not open to the Government to deny the deferral benefits of KCP Mills taken over by the petitioners. The argument as such is unexceptionable but for the legal infirmities which we have already pointed out. We will however, elaborate on such legal infirmities, by referring to G.O. Ms. No. 500 dated May 14, 1990, which is a basic notification extending deferral benefits. Under the said Government Order three different tracks have been identified for extension of different quantums of assistance. Similarly two types of industries are referred to in the notification, like existing industries undertaking expansion, new small, medium or major industries. We have already noticed that the KCP Mills was a new industrial unit established in Manavasi-Kulithalai a notified backward area. They were eligible to have the sales tax on the sale of product manufactured by the new unit subject to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the fixed assets without the prior permission of the Government. It is not pretended that either KCP Mills or the petitioners at any time approached the Government for permission to transfer the unit to the petitioners. We are not willing to accept the proposition that the subsequent information and request for ratification of the transfer that the deferral benefits could satisfy the terms and conditions of the agreement. It is therefore clear that there is a clear breach of the agreement entered into between KCP Mills and the Government as well as the condition on which the deferral benefit was extended to KCP Mills. It was attempted by the petitioners to belittle the importance of the prior permission by referring to G.O. Ms. No. 1394 dated December 4, 1990. Reference was made to clause 5 of the said G.O. which says that if the industries proposes to dispose of any asset other than the stock in trade the industry will have to get the permission of the Commercial Tax Department. But the very same clause says that the agreement should provide for this condition. No such clause was introduced in the agreement between KCP Mills and the Government. Further this is a case of whol ..... 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