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TMI Blog2009 (8) TMI 1101X X X X Extracts X X X X X X X X Extracts X X X X ..... thereafter, filed I.P. No. 1 of 2005 and the petitioner in W.P. (C.) No. 19710 of 2008 filed I.P. No. 2 of 2005, both before the SubCourt, Kochi to declare them as insolvent. The gist of the allegations raised in both petitions was common alleging that the Sales Tax Intelligence Wing carried out an inspection over their business concern and pursuant to verifications of the stocks, registers and accounts on reaching a conclusion that the dealer had suppressed the sales turnover with intention to evade tax imposed a penalty of Rs. 29,43,980 under section 45A of the Kerala General Sales Tax Act. Both the petitioners stating that they are unable to pay and discharge the liability imposed towards penalty filed the above insolvency petitions to declare them as insolvent. Separate petitions were also filed for orders of protection against coercive steps by issuing warrant and detention to realise the penalty towards sales tax arrears. The respondents resisted the application contending that recovery proceedings are in progress and the petitioners who are defaulters are not entitled to get any protection from arrest and detention from the court. The learned Sub-Judge, after considering th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on under section 31 of the Insolvency Act as sought for by them in their respective insolvency petitions filed to declare them as insolvents. The learned counsel for the petitioners inviting my attention to the definition under section 2(1)(b) of the Insolvency Act submitted that the liability due from a defaulter towards sales tax arrears to the Government also falls within the ambit of "debt". The learned District Judge was not correct in holding that the liability of the defaulter to sales tax arrears is not a debt and he holds such sum collected from his customers as a trustee on behalf of the Government, submits the counsel. Inviting my attention to State Bank of Bikaner & Jaipur v. National Iron Steel Rolling Corporation [1995] 96 STC 612 (SC) it is contended that sales tax arrears is a State debt due from the defaulter and as such the petitioners, both of them, the defaulters of sales tax arrears to State are entitled to get an order of protection from arrest and detention till their insolvency petitions are disposed of on the merits after trial. Reliance is also placed on Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. [2000] 120 STC 610 (SC); [2000] 5 SCC 694 by the learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not postulate that the trader is a trustee and the Government beneficiary. If the trader fails to pay the amount collected by way of tax he is liable to be proceeded against as covered by the Sales Tax Act which may give rise to penal consequences as well. The amount due from the trader to the Government collected as tax falls within a State debt due which in turn comes within the definition of "debt" under the Insolvency Act. The decisions relied by the counsel for the petitioners do not directly deal with the question. In State Bank of Bikaner & Jaipur v. National Iron & Steel Rolling Corporation [1995] 96 STC 612 (SC) though the question considered was precedence of the State debt over the claim of a secured creditor it is indicative that sales tax arrears due from a dealer comes under State debt. In State of Kerala v. R.V S. Mani [1995] 2 KLJ 568 it has been held by a Division Bench of this court that the orders passed in insolvency proceedings are binding on the State in respect of debt due to the State as sales tax arrears. In the above decision, it was held that steps taken by the State to realise arrears of sales tax as public revenue due on land by resorting to the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o realise debts totalling a sum of Rs. 35,86,852. The counter-affidavit filed in the writ petitions by the second respondent discloses in the raid conducted over the premises suppression of sales were detected and hence the Intelligence Officer imposed penalty under section 45A of the KGST Act to the tune of Rs. 29,43,980. In this context it has to be noted that section 45A of the KGST Act contemplates imposition of penalty in respect of the amount due as sales tax or such other amount evaded or sought to be evaded. Section 46 of the KGST Act further provides that any dealer or person who knowingly submits an untrue return or fails to keep true and complete accounts is liable to be prosecuted and on conviction by a Magistrate be liable to fine which may extend to twenty-five thousand rupees. So, on the facts presented in the case where suppression of sales turnover and evasion of tax is detected by the Intelligence Wing of the Sales Tax Department in the business concern of the firm wherein the petitioners at that time were the partners the acts or omissions committed by them amount to offence and it is open to the Department to prosecute them for such offence, in which case they a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed). Of course, in an insolvency proceedings setting aside or modifying any assessment under the General Sales Tax Act is not contemplated nor permissible. Still stay of any proceedings or recovery under the Act by invoking section 32 of the Insolvency Act and protection order thereunder deserve to be examined with reference to the interdiction as aforementioned, covered by section 49 of the KGST Act. May be, the jurisdiction of the insolvency court as such to pass a protection order under section 32 of the Insolvency Act in relation to debt due by sales tax arrears is not strictly barred by the interdiction under section 49 of the KGST Act but the interdiction placed under the KGST Act imposing a restriction on the courts from staying any proceedings for recovery necessarily has to be taken into consideration in examining the entitlement of the petitioners seeking protection order from arrest and detention. Both the courts below have found that though several others have been shown as respondents in the petitions moved by the petitioners as their creditors, particulars of the debt due to them have not been mentioned. It has been observed by both courts that the petitioners have n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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