9911796707
TMI Blog2008 (3) TMI 631X X X X Extracts X X X X X X X X Extracts X X X X ..... dent to seek taking of any coercive steps against the petitioner for recovery of any tax arrears for the period up to March 31, 2007 under the Tamil Nadu General Sales Tax Act, 1959 and the Tamil Nadu Value Added Tax Act, 2006, including by issuance of form B6 notice or by attaching properties or monies directly or otherwise through the third respondent till the sanction by the fourth respondent of the scheme of rehabilitation under SIC (SP) Act, 1985 and receive payments and enforce payments in respect of taxes strictly in accordance with the final orders to be passed by the fourth respondent in exercise of its powers under SIC (SP) Act. Brief facts leading to the writ petition are as follows: The petitioner-company is engaged in the manufacture of Indianmade Foreign Spirites (IMFS) and beer products in their industrial units located at By-pass Road, Poonamallee, Chennai 600 056 and Mount Thiruvallur High Road, Aranvoyal Village, Thiruvallur District, respectively. Initially, they have started their business with an authorised capital of Rs. 90 lacs and it was increased from time to time over the years. The authorised capital of the company as on March 31, 2006 was Rs. 22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... audited accounts as on March 31, 2004 and same was registered as case No. 315 of 2004 by the BIFR on October 18, 2004. Here again, the BIFR, by letter dated November 23, 2004, directed the petitioner to file form A along with enclosures and the same was filed on November 25, 2004. Based on the audited accounts for the year ending March 31, 2005, a third reference was filed on August 24, 2005 and the BIFR has not given any fresh reference, as both the earlier registrations were pending with the Bench. Fourth reference was filed on October 27, 2006, based on the audited accounts for the year ending March 31, 2006 and no fresh reference was given, as the previous references were pending before the Bench and the same was informed to the petitioner by letter dated November 2, 2006. The petitioner has further submitted that on July 13, 2006, as directed by the BIFR, they have filed their written submissions on July 28, 2006 and on the next hearing date, i.e., on December 20, 2006, the BIFR, after examination of facts, declared the company as sick industrial unit and formulated a scheme for rehabilitation, vide its communication dated December 28, 2006. IDBI was appointed as an operati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir taxes every month towards sales tax and value added tax. Considering the continued depletion of all of their resources and in view of the specific protection given to them as well as the direction of the fourth respondent that all their liabilities would be included in the scheme for rehabilitation, the petitioner-company has requested the second respondent, through its communications dated March 2, 2007 and April 5, 2007, not to take any coercive steps for recovery of sales tax arrears, till the operating agency prepares a rehabilitation scheme for revival of the company. The petitioner has further submitted that their liability, as on the cut-off date, includes sales tax amount pertaining to January 2004 and February 2004 and value added tax pertaining to March 2007 and the same are required to be included as part of the rehabilitation scheme, in accordance with the direction of the BIFR order and therefore they submitted the VAT returns for the month of March 2007 without payment of tax, as the dues prior to March 31, 2007 would now have to be included and paid in accordance with the Schedule that would finally be sanctioned by the BIFR and make payments in terms of the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 28, 2006. The second respondent in his counter-affidavit has submitted that the petitioner, Tvl. Balaji Distilleries Ltd., is a manufacturer of IMFL and beer and an assessee on the files of the Assistant Commissioner (CT), Fast Track Assessment Circle II, Chennai, the second respondent herein. The company has arrears up to March 2004 as follows: (Rs. in lakhs) (i) Part of tax collected in January 2004 payable in February 2004 Rs. 1,600.00 (ii) Part of tax collected in February 2004 payable in March2004. Rs. 29.48 (iii) Interest levied for belated payment of tax due for 2001-02 and for 2002-03. Rs. 356.60 Total . . . Rs. 4,905.33 The petitioner-company, by preparing balance sheet for the year ending June 30, 2003, filed reference and the same was received by the BIFR on February 4, 2004 and got registered as case No. 103 of 2004. The company in case No. 103 of 2004, had included the arrears of Rs. 356.60 lakhs. Again, by preparing another balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as equivalent to the reference date for registration of the company as a sick industrial unit under section 15(1) of the Act and the company is under a wrong notion that the taxes due in April 2007 (March 2007 payable in April 2007) need not be paid under the cover of protection under section 22 of SICA. Therefore, the request of the company in not to collect the current taxes, relating to the amount of taxes collected by them in March 2007 in their sale bills, was rejected by the Assistant Commissioner (CT), Fast Track Assessment Circle-II, dated April 10, 2007 and the company was requested to make the current taxes. The company again in their letter dated April 12, 2007, by filing their returns for the month of April 2007 (March 2007 payable in April 2007) disclosed a taxable turnover of Rs. 91,64,93,250 and admitted a tax liability at Rs. 53,06,97,604, refrained from making payment of taxes under the pretext date, March 31, 2007 mentioned in the summary record of the proceedings of the hearing held on December 20, 2006 by the BIFR, as cut-off date with reference to registration of reference of a sick industrial unit under section 15(1) of the Act, even though the cut-off date M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l known and visualised even by an ordinary person it is not open to the petitioner-company to misconstrue, distort to gain undue advantage without any justification either under SICA or general law, much to the disadvantage of the revenue and that too, when the petitioner as a running concern had already collected the current taxes in March 2007 at Rs. 53.07 crores. The petitioner has projected a case to hamper the Government in realising legitimate dues from them, which amount is used for the developmental activities of the Government. It is further submitted that the High Court of Gujarat in the case of Core Healthcare Limited v. State of Gujarat reported in [2005] 139 STC 116 while dealing with suspension of legal proceedings pending inquiry, consequent upon registration of reference under SICA, has raised the three important points with reference to cut-off date and answered them as a source of jurisprudence of great value. According to the respondents 1 and 2 the decision rendered in the above reported case is applicable to the facts of the present case. The respondents 1 and 2 have further submitted that the cut-off date did not refer to the period, i.e., (i) the period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 22 of SICA is available to the petitioner and the State is at full liberty to collect the taxes of Rs. 53.07 crores towards sales tax collected by the company in March 2007 during the period, after the date of registration of reference in case Nos. 103 of 2004 and 315 of 2004 and before the sanction of rehabilitation scheme. The operating agency, IDBI within an overall period of 16 weeks from December 20, 2006 and before the cut-off date, i.e., March 31, 2007, has not come forward to prepare the viability study report. Because the operating agency might have determined that the affairs of the company might not be so conducive to prepare a viability study report especially, when the company had already in arrangement with ICICI, internally, before seeking reference to BIFR under section 15(i) and before registration of reference in case Nos. 103 of 2004 and 315 of 2004. May be under such circumstances, it is not even possible for IDBI to prepare viability study report and it is rather not feasible for IDBI without eliminating ICICI from seizing the control of the company as a fully secured creditor, in whose position, the affairs of the company is under control. The petitionercomp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directed to take care of all the liabilities of the company. Referring to clause 15 of the guidelines of the Board for the preparation of scheme, he further submitted that it is sufficient that the company makes payment of all its current dues arising after the cut-off date since the recovery of dues prior to the cut-off date shall be covered in the proposed rehabilitation scheme. Placing reliance on Tata Davy Ltd. v. State of Orissa reported in [1998] 111 STC 462 (SC); [1997] 6 SCC 669, learned counsel for the petitioner submitted that all the creditors seeking to recover the dues from sick industrial companies, in respect of whom an inquiry under section 16 is pending or the scheme is under preparation or consideration or has been sanctioned, have to obtain the consent of the Board before resorting to any steps for recovery and therefore, the State Government, has no jurisdiction to resort to recovery by way of attaching the amounts due to the petitioner from the Tamil Nadu State Marketing Corporation, Chennai, the third respondent and that it would be amounting to infringement of the statutory protection granted under section 22 of the SIC (SP) Act, 1985. In this context, he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n excess of Rs. 1,000 crores. Considering the fact that the petitioner has remitted dues of more than Rs. 50 crores and their bona fides, he submitted that if coercive steps are allowed to be initiated, the entire process of manufacturing activity would come to standstill and it would be contrary to public interest and State exchequer. Non-payment of tax for one month, i.e., from March 2007, which would be covered under the scheme under preparation, does not attract recovery and the respondents having not obtained any sanction/consent in terms of the SIC (SP) Act, 1985, cannot resort to recovery by coercive steps. Mr. P.S. Raman, learned Additional Advocate-General, referring to the provisions of the SIC (SP) Act, 1985 and the record of proceedings of the Board dated December 20, 2006, submitted that the petitioner's company has misconstrued the cut-off date, i.e., March 31, 2007 as equivalent to the reference date for registration of the company as a sick industrial unit under section 15(1) of the SIC (SP) Act, 1985. Learned Senior Counsel further submitted that the record of proceedings pertains to the balance sheet for the year ending June 30, 2003 and the reference ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 of the SIC (SP) Act, 1985. Placing strong reliance on a decision of the Gujarat High Court in Core Healthcare Limited v. State of Gujarat reported in [2005] 139 STC 116, Andhra Pradesh High Court in Sol Pharmaceuticals Limited v. Mandal Revenue Officer reported in [2007] 5 VST 580 and sections 15 and 16 of the SIC (SP) Act, 1985, the learned Additional Advocate-General submitted that as the date of registration of the reference is also the date of commencement of the inquiry under section 16 and the current taxes collected by the company, in March 2007, payable in April 2007, refer to the period between the registration of reference (commencement of enquiry) and pre-sanction of rehabilitation scheme and therefore, the State by legal fiction under the provisions of the Act and following the judgments reported in Core Healthcare Limited v. State of Gujarat [2005] 139 STC 116 (Guj), Sol Pharmaceuticals Limited v. Mandal Revenue Officer [2007] 5 VST 580 (AP), Deputy Commercial Tax Officer v. Corromandal Pharmaceuticals [1997] 105 STC 327 (SC) and Tata Davy Ltd. v. State of Orissa [1998] 111 STC 462 (SC), is entitled to recover Rs. 53.05 crores without any sacrifice whatsoever and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thority under the Act. The Statement of Objects and Reasons discloses the anxiety of the Legislature at the alarming increase in the incidence of sickness of industrial companies and it also reveals that the legislation has been enacted with the end in view to: (1) afford maximum protection of employment; (2) optimise the use of funds of the companies, etc.; (3) salvaging the production assets; (4) realising the amounts due to the banks, etc.; and (5) to replace the existing time-consuming and inadequate machinery by efficient machinery for expeditious determination by a body of experts. Before adverting to the facts of this case, it would be relevant to extract few provisions of the Sick Industrial Companies (Special Provisions) Act, 1985. Section 15 of the Act deals with reference to the Board and it reads as follows: (1) Where an industrial company has become a sick industrial company, the Board of the Directors of the company, shall, within sixty days from the date of finalisation of the duly audited accounts of the company for the financial year as at the end of which the company has become a sick industrial company, make a reference to the board for determination of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the inquiry into working of sick industrial companies and it is extracted hereunder: 16. Inquiry into working of sick industrial companies. (1) The Board may make such inquiry as it may deem fit for determining whether any industrial company has become a sick industrial company (a) upon receipt of a reference with respect to such company under section 15; or (b) . . . (2) The Board may, if it deems necessary or expedient so to do for the expeditious disposal of an inquiry under sub-section (1), require by order any operating agency to enquire into and make a report with respect to such matters as may be specified in the order. (3) The Board or, as the case may be, the operating agency shall complete its inquiry as expeditiously as possible and endeavour shall be made to complete the inquiry within sixty days from the commencement of the inquiry. Explanation. For the purposes of this sub-section, an inquiry shall be deemed to have commenced upon the receipt by the Board of any reference or information or upon its own knowledge reduced to writing by the Board. (4) . . . Under section 17, after completion of the inquiry whether it is practicable for the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of such sanction, the scheme shall be binding on all concerned. (3A) On the sanction of the scheme under sub-section (3), the financial institutions and the banks required to provide financial assistance shall designate by mutual agreement a financial institution and a bank from amongst themselves which shall be responsible to disburse financial assistance by way of loans or advances or guarantees or reliefs or concessions or sacrifices agreed to be provided or granted under the scheme on behalf of all financial institutions and banks concerned. (3B) The financial institution and the bank designated under subsection (3A) shall forthwith proceed to release the financial assistance to the sick industrial company in fulfilment of the requirement in this regard. (4) Where in respect of any scheme consent under sub-section (2) is not given by any person required by the scheme to provide financial assistance, the Board may adopt such other measures, including the winding up of the sick industrial company, as it may deem fit. Section 20 provides that where the Board after making inquiry under section 16 and after considering all the relevant facts and circumstances and afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ference was filed on October 12, 2004, based on the audited accounts as on March 31, 2004 and the same was registered as case No. 315 of 2004 by the BIFR on October 18, 2004. The BIFR directed the petitioner to file form A along with enclosures by letter dated November 23, 2004 and the same was filed with the BIFR on November 25, 2004. Form A submitted by the company under regulation 19 framed by the Board, contains the details of the informant, name of the company, registered office, factory office and the details of the statutory liabilities to the creditors and such other details. By letter dated March 1, 2004, the company has requested the BIFR to reckon Rs. 4,875.12 lakhs as sales tax amount outstanding under statutory liabilities and consider the same for the purpose of the scheme. The details of the sales tax outstanding as at February, 2004 are as follows: The reference made by the company on February 4, 2004 shows that the statutory liability to the Sales Tax Department as at February 2004, is Rs. 4,875.12 lakhs, which is the subject-matter of reference No. 103 of 2004. Form A submitted by the company in relation to reference dated October 11, 2004 includes the sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. Sub-section (5) of section 22 provides for exclusion of the period during which the remedy is suspended while computing the period of limitation for recovering the dues. The facts of the case in Deputy Commercial Tax Officer v. Corromandal Pharmaceuticals reported in [1997] 105 STC 327 (SC); [1997] 10 SCC 649, are that the petitioner-company was an assessee to sales tax under the Andhra Pradesh General Sales Tax Act, 1957. It was assessed for the assessment year 1992-93, by order dated January 3, 1994 and for the year 1993-94, by order passed in 1995. The sales tax authorities initiated action under section 17 of the Andhra Pradesh General Sales Tax Act for recovery of the said dues. Appeals were preferred from the assessment orders and the appellate authority granted a conditional order of stay to pay the tax assessed in instalments. Even then, there was default. The arrears of tax due from the company for the aforesaid period of two years 1992-93 and 1993-94 was Rs. 9,53,833. There was tax arrears of sales tax for the assessment years 1986-87 to 1992-93. The company was declared a sick industrial company under the SICA. Industrial Reconstruction Bank of India (IRBI) was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Under the statute, the BIFR is to consider in what way various preventive or remedial measures should be afforded to a sick industrial company. In that behalf, BIFR is enabled to frame an appropriate scheme. To enable the BIFR to do so, certain preliminaries are required to be followed. It starts with the reference to be made by the Board of Directors of the sick company. The BIFR is directed to make appropriate inquiry as provided in sections 16 and 17 of the Act. At the conclusion of the inquiry, after notice and opportunity afforded to various persons including the creditors, the BIFR is to prepare a scheme which shall come into force on such date as it may specify in that behalf. It is in implementation of the scheme wherein various preventive, remedial or other measures, are designed for the sick industrial company, steps by way of giving financial assistance, etc., by Government, banks or other institutions, are contemplated. In other words, the scheme is implemented or given effect to, by affording financial assistance by way of loans, advances or guarantees or reliefs or concessions or sacrifices by Government, banks, public financial institutions and other authorities. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his court nor from the decisions of the various High Courts brought to our notice, that in any one of them, the liability of the sick company dealt with therein itself arose, for the first time after the date of sanctioned scheme. At any rate, in none of those cases, a situation arose whereby the sick industrial unit was enabled to collect tax due to the Revenue from the customers after the 'sanctioned scheme' but the sick unit simply folded its hands and declined to pay it over to the Revenue, for which proceedings for recovery, had to be taken. The two decisions of this court as also the decisions of High Courts brought to our notice are, therefore, distinguishable. They will not apply to a situation as has arisen in this case. We are, therefore, of the opinion that section 22(1) should be read down or understood as contended by the Revenue. The decision to the contrary by the High Court is unreasonable and unsustainable. We set aside the judgment of the High Court and allow this appeal. There shall be no order as to costs. In the same judgment, honourable justice Jeevan Reddy, while agreeing with the ratio, expressed his opinion as follows: . . . We have come acr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nth Schedule. 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 the sick industrial companies in respect of whom an inquiry 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 and is, by reason of sub-section (5) of section 22, excluded in the computation of the period of limitation . . . Though the Supreme Court referred the case of Deputy Commercial Tax Officer v. Corromandal Pharmaceuticals [1997] 105 STC 327; [1997] 10 SCC 649, on the facts of Tata Davy's case [1998] 111 STC 462 (SC); [1997] 6 SCC 669, the court declined to apply the said judgment as it was not appropriate. In Tata Davy's case [1998] 111 STC 462; [1997] 6 SCC 669, the apex court held that the arrears of tax and sales tax dues from the sick industrial companies, who satisfy the conditions set out in section 22(1) of SIC (SP) Act, cannot be recovered by coercive steps, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of protection under section 22 of the Act. Regulation 19(5) is reproduced hereunder: 19(5). If on scrutiny, the reference is found to be in order, it shall be registered, assigned a serial number and submitted to the Chairman or assigned to a Bench. Simultaneously, remaining information/ documents required, if any, shall be called for from the informant. In the above judgment, the Supreme Court has further held as follows: 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 merits and that it is only when the BIFR takes up the reference for consideration on merits under section 16(1) that it can be said that the 'inquiry' as contemplated by 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also directed the petitioner-company to inform the respondent-authorities about the progress and/or failure of the scheme before the BIFR and the final outcome of the proceedings before the BIFR as and when they stand concluded. In the reported case, the BIFR has categorically fixed the cut-off date of crystallisation of the dues of the company up to a specified period, whereas in the case on hand, the reference before the BIFR was only for the period up to March, 2004 and the inquiry under section 16(1) of the Act does not relate to the subsequent period. It should be noted in the said judgment that the Gujarat High Court has directed the company to pay the sales tax dues to the Government after the date mentioned in the scheme. The reported case does not deal with the specific issue relating to recovery of the sales tax arrears pertaining to the post-reference period. Therefore the said judgment is not applicable to the facts of this case. In Industrial Cables (India) Limited, Rajpura v. State of Punjab reported in [2001] 122 STC 187 the Punjab and Haryana High Court considered a case, where the demand notices issued by the Assessing Authority-cumExcise and Taxation Officer w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of the case in a nutshell are that on the basis of its financial position as on March 31, 2000, the company approached BIFR and a reference was registered as case No. 149 of 2001, for the entire company, i.e., for all the projects at village Sachana in Ahmedabad (Rural) District and at village Rajpur in Mehsana District. By order dated January 24, 2002, the said reference was rejected by the BIFR on the ground that it was timebarred. Aggrieved by the said order, the company preferred an Appeal No. 74 of 2003 before the Appellate Authority for Industrial and Financial Reconstruction (AAIFR) under section 25 of the SICA. The appeal was filed on February 24, 2003, and was listed for hearing on June 16, 2003. Thereafter the appeal was fixed for hearing on September 19, 2003. In the meantime, the company filed petitions on July 1 and 2, 2003, challenging the demand notices and orders for attachment of the bank accounts and also the subsequent notices issued by the Sales Tax department for recovery of the sales tax dues and for initiating criminal proceedings against the company and/or its directors for recovery of sales tax. On facts, the petitioner contended that out of four ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded that the company is not entitled to retain the sales tax collected after registration of the company as a sick industrial company and the State Government cannot be expected to wait for the entire period till the scheme for rehabilitation and revival of the sick company may or may not be finalised and sanctioned by the BIFR, which process ordinarily takes about two to three years. After analysing the statutory provisions and the decisions relied on by the counsel appearing for the contesting parties and having regard to the registration of the company as a sick industrial company by the BIFR on January 19, 2004, the Division Bench court did not go into the debate as to whether any inquiry under section 16(1) of the Act was pending on the date of adjudication. Following the decision in Real Value Appliance's case [1998] 93 Comp Cas 26 (SC), the court observed that there is no doubt, that the registration of the reference itself amounts to commencement of enquiry under section 16(1) of the Act for the purpose of section 22 of the SICA. The Division Bench, examined powers of the State Government to recover sales tax dues vis-a-vis the protection available to a sick ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial institutions or Scheduled banks. There is no dispute that the petitioner-company seeks reliefs or concessions from the State Government in respect of the sales tax dues. Sub-section (2) specifically provides that such a draft scheme has to be circulated to every person required by the scheme to provide financial assistance for his consent within 60 days from the date of circulation or within such further period (maximum 60 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. Sub-section (4) provides that where consent is not given by any person required by the scheme to provide financial assistance, the Board may adopt such other measures, including winding up of the sick industrial company as it may deem fit. The aforesaid provisions make it clear that the rehabilitation scheme cannot provide for any reliefs or concessions or sacrifices from the State Government without the consent of the State Government. Hence, it is open to the State Government to insist that although it will not make recovery of past sales tax dues without the consent of the BIFR, at least the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a draft revival scheme prepared and a cut-off date is provided therein. The State Government's reply is that judicial notice has been taken in Coromandal case [1997] 105 STC 327 (SC); [1997] 89 Comp Cas 1, that all this process takes many years and till then the company cannot be allowed to retain sales tax amounts collected by it from the customers, just as the Gujarat Electricity Board cannot be compelled to supply electricity to a sick company without getting paid for the same. We do find considerable substance in the above reply of the State Government. The petitioner's obligation to pay the State Government current sales tax amounts being collected by the petitioner from its purchasers cannot be placed on a lower footing than the payment of price by the company to the suppliers of goods and services. We would hasten to add that when the incidence of tax is being passed on by the seller to its purchasers, whether by separately recovering sales tax or by including sales tax as a component of the sale price, the company has no right to retain such current sales tax amounts. If the petitioner's contention is accepted, it would amount to the court directing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditors. Ordinarily, the BIFR may not provide for different cut-off dates if the creditors belong to the same category such as banks and public financial institutions (in whose case all the dues are past dues and interest accruing on the past dues), but a creditor like the State Government on whose behalf the petitioner continues to collect sales tax amounts from the public at large is entitled to assert its right under sub-section (2) of section 19 at any stage even before the preparation of the draft scheme. While it may give consent for tax reliefs or concessions or sacrifices for the sales tax amounts already collected by the company in the past and interest accruing thereon from time to time, the State Government is entitled to refuse straightaway 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 the rehabilitation package to be prepared by the BIFR or the operating agency which may be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for initiating proceedings to recover the tax arrears. Here again, the controversy arisen in the present case has not been specifically dealt with and therefore, it is inapposite to the facts of the case. The Division Bench of the Andhra Pradesh High Court in Bharat Heavy Plate and Vessels Ltd. v. Assistant Commissioner of Central Excise, Division-II reported in [2006] 133 Comp Cas 41, has dealt with a case where the Central excise officials ordered for attachment of the properties of the company, which was declared as a sick industrial company under the Act. In the said case, the company ran into loss and ultimately, on August 23, 2004, it approached the BIFR under section 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as the Act ) for a declaration that the company was sick and for grant of a scheme for rehabilitation. The company was declared a sick company within the meaning of the Act, on October 6, 2005. Attachments were ordered by the respondents on January 16, 2006 and January 27, 2006. The State Bank of India was appointed as operating agency under section 17(3) of the Act, with a direction to prepare a viability study r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars of land revenue. Notice dated February 22, 1999 was issued to the company demanding payment of certain sum towards trade tax arrears for the assessment years 1995-96 under the Andhra Pradesh Revenue Recovery Act, 1864. Meanwhile, the petitioner-company was declared as sick industrial company under the Sick Industrial Companies (Special Provisions) Act, 1985 under section 15(1) of the Act in 1998. On February 19, 1999, notice of attachment was issued and thereafter, the petitioner-company filed writ petition and contended that when once the company was declared as a sick industrial company by BIFR all proceedings for recovery of all amounts remained suspended and therefore, the notice issued by the respondents was illegal and in contravention of the provisions of the SIC (SP) Act, 1985. The Andhra Pradesh High Court, after consideration of various decisions of the Supreme Court in Real Value Appliances [1998] 93 Comp Cas 26, Tata Davy [1998] 111 STC 462 (SC); [1997] 6 SCC 669, Corromandal Pharmaceuticals [1997] 105 STC 327 and Maharashtra Tubes Limited v. State Industrial and Investment Corporation of Maharashtra Limited [1993] 78 Comp Cas 893 (SC) and the provisions of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Division Bench of the Andhra Pradesh High Court considered the case where the Deputy Commercial Tax Officer, Varangal issued proceedings under section 25 of the SICA proposing the sale of property belonging to the petitioner-company. On November 16, 2004, a reference was made under section 15 of the Act and after proper enquiry, the Board, by order dated May 22, 2006, declared that the petitioner-company is a sick company under section 16(1) of the Act. When the recovery proceedings were challenged, the Division Bench at paragraphs 6 to 8, held as follows: 6. . . . Admittedly, no Scheme as such has been framed in the present case. The proceedings under section 17 of the SICA Act are still pending. No doubt, the BIFR would not rest its conclusions in framing the Scheme, only on the information placed by the petitioner but also on information supplied by the other parties appearing before the BIFR. 7.. Normally, the State is also put on a notice of the proceedings of the BIFR and it is open to the State to bring it to the notice of BIFR regarding the amounts of arrears due to the State, the idea being that BIFR, while deciding whether the industry should be rehabilitated o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y if the reference is registered for the determination of the means to be adopted for revival and rehabilitation of the company. There is no provision in the SIC (SP) Act, 1985, empowering the BIFR or AAIFR to pass orders, without the reference being registered. Mere submission of a reference and its acknowledgment does not amount to registration of a reference by the Board. In the case on hand, the reference submitted by the petitionercompany for the years 2005 and 2006 has not been registered as case. It is now well settled in Real Value Appliance's case [1998] 93 Comp Cas 26 (SC) that the proceedings before the Board can be said to have been commenced and inquiry under section 16(1) of the Act is pending from the date of registration and once the reference is registered, it is mandatory for the Board to simultaneously to call for information/documents from the informant and such a direction is given, then inquiry under section 16(1) must for the purposes of section 22 be deemed to have been commenced. Section 22 and the prohibition contained in it shall immediately come into play. If the Board does not exercise its powers in respect of any reference registered on its f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e stipulated in the record of proceedings dated December 20, 2006, has to be understood with reference to the background in which such date came to be fixed. The Board in the said proceedings, dated December 20, 2006 has considered the claim of the various institutional creditors, the manner in which the liabilities have been rearranged and restructured between the banks and the sick company, while declaring the petitionercompany as sick industry. As stated supra, the liability of the petitioner's company for payment of loans to the institutional creditors, the Government or local bodies for the later period (2004-05 and 2005-06) was not the subject-matter of consideration, for the financial loss accumulated at the end of financial year ending with March 31, 2004 under reference Nos. 103 and 315 of 2004. It is evident from the pleadings that the petitioner-company has paid Rs. 411 crores for the assessment year 2005-06 and Rs. 558.37 crores for the assessment year 2005-06. An industrial unit declared as sick industrial unit by the BIFR can revive from sickness depending upon the financial assistance, sale potentiality of the product, purchase by the dealers/ customers and fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r embargo envisaged in section 22(1) of the Act can apply only to such of those dues reckoned or included in the sanctioned scheme. Such amounts like sales tax, etc., which the sick industrial company is enabled to collect after the date of the sanctioned scheme legitimately belonging to the Revenue, cannot be and could not have been intended to be covered within section 22 of the Act. Any other construction will be unreasonable and unfair and will lead to a state of affairs enabling the sick industrial unit to collect amounts due to the Revenue and withhold it indefinitely and unreasonably. Such a construction which is unfair, unreasonable and against the spirit of the statute in a business sense, should be avoided. In Corromandal's case [1997] 105 STC 327 (SC); [1997] 10 SCC 649, there was no controversy about the current tax dues collected by the petitioner-company after the date of registration. It was only with regard to initiation of coercive steps to recover the dues of the creditors for the period prior to the date of registration of reference. In Real Value Appliance's case [1998] 93 Comp Cas 26, the apex court explained as to when inquiry is said to have bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after appointment of operating agency in terms of section 17(3) of the SICA, the respondents could use coercive methods in order to recover the dues on account of excise duty which is a direct tax, which liability is borne by the company on manufacture from its corpus, unlike sales tax which is an indirect tax where an assessee is entitled to collect the tax and pass on the liability before remitting it to the Government. The summary record of proceedings dated December 20, 2006 reveals that IDBI has been appointed as an operating agency to prepare the viability study report under the revival scheme for the company, if feasible within an overall period of 16 weeks from December 20, 2006. The operating agency was directed to keep in view the provisions of section 18 of the Act and the guidelines, while carrying out the exercise of preparation of the report. As per clause No. 5 for preparation of rehabilitation scheme, the dues of the pressing creditors such as the State Electricity Board (SEBS) should be covered. In respect of Government/statutory/local bodies, only those reliefs and concessions would be included which have reasonable prospects of being granted. If any sacrifices ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s during the course of inquiry, when a scheme is under preparation or consideration, and still later when the scheme under implementation or even when an appeal under section 25 is pending. If the bar under section 22(1) of the Act is to cover the entire period of time, and to cover the post-reference period also, the situation may lead to very unreasonable or unintended state of affairs and it would extend the scope of section 15 to cover any period without any reference being registered and examination of the financial accounts submitted by the company. Therefore, the suspension of proceedings specified in section 22(1) of the Act should be confined only to the matters included in the pre-package state of affairs, i.e., in relation to the reference, subject-matter of which, the Board has ordered an inquiry, and not post-package matters, which would be outside the pale or area of the scheme to be prepared by the operating agency. Neither the Act nor the BIFR can authorise the operating agency to traverse beyond the information furnished by the company under reference or inquiry. If the bar or embargo under section 22(1) of the Act is held to cover all amounts collected by way o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oner-company has no legal or statutory right to withhold the same, under cover of preventive umbrella of section 22(1) of the Act. There is no bona fide in the action of the petitioner-company. Before parting with the case, I would like to reproduce the anguish expressed by honourable justice Jeevan Ready in Corromandal's case [1997] 105 STC 327 (SC); [1997] 10 SCC 649: . . . We have come across cases where unfair advantage is sought to be taken of the provisions of section 22 by certain industrial companies and the wide language employed in the section is providing them a cover. We are sure section 22 was not meant to breed dishonesty nor can it be so operated as to encourage unfair practices. The ultimate prejudice to public monies should not be overlooked in the process of promoting industrial progress. We are quite sure that the Government is fully alive to the situation and are equally certain that they must be thinking of necessary modifications in the Act. These few observations are meant merely to record the need for changes in the Act. The other decisions relied on by the learned counsel for the petitioner deal only with the general proposition that coercive ..... 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