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TMI Blog2017 (12) TMI 455X X X X Extracts X X X X X X X X Extracts X X X X ..... s to countenance any order of BIFR contrary to the law as it can be challenged in an appeal. There is nothing to indicate to why the BIFR thought it fit to reject the State of Gujarat’s objections, to the proposed scheme. In the circumstances mentioned above, this Court is of the opinion that the sanctioned scheme was not binding on both the States for want of consent on part of the State authorities rendering financial assistance. In the present case, the previous discussion clearly reveals that SICA was not followed, in that one State had objected to the scheme; the other was not even aware of it. Therefore, there was no consent, but opposition in one case and lack of knowledge: both contingencies could not have attracted the provision for “deemed consent”. In such event the scheme, being violative of SICA, could not have prevailed, by virtue of Section 32. This Court is further of the opinion that the petitioner’s grievance was to be redressed by it, within reasonable time of the denial of exemption, i.e. within one or two years of the sanction for the BIFR scheme. By not seeking recourse, firstly by pursuing with the State authorities for notifications or directions, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Accordingly the BIFR discharged the sick company from the purview of SICA by its order dated 19.12.2007. 3. The sanctioned scheme was in force for 7 years, i.e. upto 30.09.2012; it provided certain reliefs and concessions from Gujarat and GOM, in terms of paras 12.1 and 12.2. The relevant part of these paragraphs pertaining to exemption from payment of VAT duties which are the subject matter of this appeal are as follows- 12.1 From the State Govt of Gujarat b) To exempt the Transferred Units from payments of VAT/Sales Tax payable for a period of seven years from the appointed date. d) To exempt the transferred unit from payment of Electricity Duty , Cess and any other levy on the power generated/purchases and consumed by the said units for a period of seven years from the appointed date. 12.2. From the State Govt. of Maharashtra b) To exempt the Transferred Units from payments of VAT/Sales Tax payable for a period of seven years from the appointed date. d) To exempt the transferred unit from payment of Electricity Duty , Cess and any other levy on the power generated/purchases and consumed by the said units for a period of seven years from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the burden of tax can only claim such refund, and if such person does not come forward for refund, it is just appropriate that such amount is retained by the government. 6. In the light of the above, BIFR was of the view that the company itself did not avail the benefit of exemption under para 12.2(b) of SS-06 and continued to collect VAT/Sales Tax from its customers and now asked for refund. It was also held that the application was filed only in March 2012, i.e. after expiry of more than 6 years of reliefs provided and the said miscellaneous application deserved to be treated as time-barred. It also dismissed the Review Application MA-122A filed by Government of Gujarat as it was of the view that it could not review its own orders. Furthermore, it was reasoned that exemption from payment of taxes and duties under the scheme were incorporated without the consent of Gujarat by ignoring the specific objections raised by it. And hence the sanctioned scheme is not binding on it. The sanctioned scheme only provided for exemption of payment of Sales Tax/VAT and electricity duties and was not a refund. Refund of taxes already collected and paid to the State was different from exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no reasoning to show why BIFR thought it fit to reject Gujarat s objections against the proposed scheme. AAIFR held that the sanctioned scheme providing reliefs and concessions from Gujarat was without jurisdiction and unenforceable. It was held, however, that the Government of Maharashtra did not file any objection to the rehabilitation scheme and is deemed to have consented to the reliefs and concessions of the sanctioned scheme and was thus binding upon it. 9. AAIFR was of the view that the Petitioner did not avail the exemption granted to it in the scheme voluntarily for a period of six years after the scheme was sanctioned and it cannot seek an alternated remedy of refund, which was not part of the scheme at the end of the scheme period. Refund of already deposited VAT/Sales Tax to the State was not a benefit sanctioned by the Scheme. Therefore, BIFR and AAIFR had no jurisdiction to order a refund. Only the concerned tax authorities of the States under their respective statutes were competent to order such a refund to the appellant if at all permissible under the law. At best, the petitioner could have sought enforcement of provisions of the sanctioned scheme in consonance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FR or meetings of Operating Agency as part of preparation of sanctioned scheme in support of clauses 12.1(b) and 12.2(b), which intended to give the appellant the benefit of collecting taxes from consumers and retaining the same for its use. The clauses of the scheme have to be interpreted in the context in which they were formulated and in the absence of such context, in terms of the established practice and policy of the States. As the appellants had failed to provide any context of formulation of the scheme, the established practice and policy of the State has to prevail. Therefore, the sanctioned scheme does not permit the petitioner company to collect taxes and retain it for its own use. And having collected taxes and paid to the State, it is not entitled for any refund. The said provisions only permit UCL not to collect taxes from its purchasers and not pay any taxes to the State on its sales. And in such circumstances, it is permitted to seek reimbursement of input taxes or equivalent tax credit from the State on its purchase. 13. AAIFR relied on and applied the ruling of the Supreme Court case of Amrit Banaspati Co. Ltd v. State of Punjab (1992) 2 SCC 411 , that exemp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the sanctioned scheme and on legitimate expectation that parties would perform their part of the obligations. Gujarat was aware about the provisions of the sanctioned scheme and is guilty of willful disobedience. It never filed appeal against the sanctioned scheme despite communicating its intention to the Petitioner. AAIFR s letter of 30.11.2011 establishes the fact that no appeal was filed against BIFR s order dated 15.05.2006 sanctioning the scheme. Further, Gujarat did not pursue its application (MA) filed with BIFR (on 12.10.2006) till March 2012, i.e. for more than 5 years. 15. It was highlighted that BIFR and AAIFR passed the impugned orders by relying upon and adopting submissions for respondents without adequately dealing with factual and legal submissions made by the Petitioner company. Mr. Ahmadi argued that Sections 19 and 32 of SICA operate in their independent domain and provide for separate powers to be exercised by the BIFR. AAIFR failed to consider that Section 19(2) of SICA relates to consent for reliefs and concession within its statutory framework, however, Section 32(1) duly empowers and gives adequate authority to BIFR to pass appropriate directions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty Duty. AAIFR has erroneously proceeded on the premise that the Scheme does not permit the Petitioner to collect tax from its purchaser and not to pay taxes to the State on its sales. This would enable it to either lower prices of its products to generate higher demand and sale or alternatively realize higher profit margin without reducing its prices. It was stressed that on plain reading of the provisions of the Scheme, UCL was not exempted from collection of Sales Tax/VAT but only exempted from its obligations for payment of Sales Tax/VAT. Exemption from payment of Sales Tax/VAT has a different connotation from Exemption from collection of Sales Tax/VAT . The present case is of exemption from payment of Sales Tax/VAT. Mr. Ahmadi submitted that payment of VAT and Electricity Duty comes within the purview of financial assistance under Section 19(1) of SICA. Delhi High Court in Lords Chloro v. BHEL Ors at 181 (2011) DLT 46 held that financial assistance is a positive act by which some amount is given for rehabilitation of the Company. AAIFR fell into error in concluding that the clauses of the sanctioned scheme have to be read in consonance with the policy of the concern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on all concerned. SICA was enacted to give effect to the policy of the State towards securing principles enshrined in Article 39 (b) (c) of the Constitution of India. Learned senior counsel argued that the unjust enrichment cannot be presumed merely because the burden of the tax has been passed on. It was argued that unjust enrichment is inapplicable for electricity duty paid by UCL. The refund of electricity duty was rejected by the BIFR and AAIFR erroneously. 21. Learned senior counsel relied on the Bombay High Court s judgment in Vadilal Dairy International Ltd. v. State of Maharashtra 2009 (111) Bom LR 3585 (Para 8) examined the scope of Section 32 of SICA and held that the rehabilitation scheme as sanctioned by BIFR would override the policy guidelines of the State Governments. Once a scheme has been sanctioned, it becomes sacrosanct and in absence of any appeal followed by the order of the Competent Authority/Court against the same, it becomes final and binding on the parties to the scheme. Reliance is placed on ACC Ltd. v. Assistant Commissioner, Commercial Taxes (2011) 46 VST 244 (Cal) by the Calcutta High Court, which held in Section 32 of SICA overrides all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... correct method would have been to approach BIFR itself. In this regard, counsel relied on State of Maharashtra v Ramdas Shrinivas1982 (2) SCC 463 and Commissioner of Customs v. Bureau Veritas 2005 (3) SCC 265 in support of the submission. It was also urged that in the absence of any appeal (to the sanctioned scheme), the legal consequence of the order cannot be escaped. Counsel relied on Dakshin Gujarat Bij Company v Amardeep Association 2014 SCC Online Guj 6761; Marshall Sons and Co. (India) Limited v. Income Tax Officer 223 ITR 809 ( SC) and Tayyabhai M. Bagaswarwalla Anr v. Hind Rubber Industries (P) Ltd Ors (1997) 3 SCC 443 . Learned counsel furthermore argued that the relief of refund is consequential and is not barred by delay or laches. Counsel also relied on Madras Port Trust v. Hymansha International AIR 1979 SC 1144. 24. Counsel for the State of Gujarat argues that the AAIFR s conclusions about the nature of relief granted by BIFR and its inadmissibility cannot be faulted. It is urged that after circulation of the Draft Rehabilitation Scheme in 2006 (DRS), the Government of Gujarat had clearly expressly objected to BIFR by its communication dated 07 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of the Act shall prevail over other provisions of the law. In the present case, however, the scheme was contrary to the provisions of the Act itself specifically Section 19. The non-obstante clause in Section 32 of SICA does not enable the BIFR to pass orders arbitrarily and completely ignores other provisions of SICA. 26. It is argued that the writ petition is based on an erroneous interpretation of the sanctioned scheme. Whereas the provisions of the scheme provide for an exemption only, the relief was for refund of taxes paid, without demur. The claim presupposes that exemption from taxes and refund of taxes already paid mean the same thing. There is a difference between exemption from tax, to encourage industrialization and refund of tax. The two are completely different. A sick company may be granted exemption to improve its competiveness and encourage industrialization. However, refund of tax cannot be granted when the tax has been paid and the company is running profitably. The sanctioned scheme only spoke of exemption. Therefore, if UCL felt aggrieved, it ought to have approached the BIFR at the earliest opportunity, seeking implementation of the exemption . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aking concern. Further, UCL was discharged from the purview of SICA in 2007. Therefore, there was absolutely no requirement to refund the duly collected taxes and duties. SICA aims to help only in rehabilitating a sick company. 29. The State of Maharashtra argued that till 24.10.2011, its Sales Tax Department was not aware of any Rehabilitation Scheme sanctioned by BIFR. The department was not party to the summary proceedings dated 15.05.2008. The copy of the summary proceedings was not endorsed to the department. It was totally unaware of any such proceedings. Counsel highlighted that merger of NCCL with UTCL was not communicated to the Sales Tax Department as required under Section 18 of MVAT Act, 2002 within the prescribed time, but only on 26.07.2007 after a period of one year from BIFR order. Learned counsel submitted that UCL took it for granted that it was entitled to avail relief in respect of VAT payable, without intimating the concerned authorities within prescribed time, as envisaged under the statute.The exemption/concession claimed by the company had not been reflected in returns filed by the Company for more than 6 years. UCL claimed refund worth ₹ 11.90 cror ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L s claim for refund of VAT/Sales Tax and electricity duty in terms of clauses 12.1 and 12.2. 33. It is crucial to analyze Section 19 of SICA, which deals with Rehabilitation by giving of Financial Assistance. It reads as follows- 19. Rehabilitation by giving financial assistance .-(1) Where the scheme relates to preventive, ameliorative, remedial and other measures 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry provision of Section 19(2) of SICA, the same is void and without jurisdiction and, therefore, not binding on the Government of Gujarat. 36. The High Court of Delhi in Union of India v. Cimmco Ltd. 2015 (193) Com Cases 289 determined the scope of Sections 18 and 19 of SICA. The relevant paragraphs are quoted below- As regards the first two questions, the Court notes that the provisions of Section 18 and 19 are complementary, and dealing with different spheres of action. Section 18(8) states that the scheme sanctioned by the BIFR will be binding on the sick company, its creditors, employees, guarantors etc. Indeed, these are the only entities which the BIFR can unilaterally bind. The scope of application of Section 19 however is different. In the words of the section, as regards, 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 , the BIFR does not have the authority to bind these entities by its orders and thus modify the obligations and rights owed between the sick company and these entities. However, the scheme for rehabilitation may- in the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the petitioner did not give its consent to the draft scheme, the petitioner put forward its objections vide letters dated 21/6/2001 and 31/8/2003, which have not been in any manner discussed by the BIFR, which cannot be upheld as proper judicial approach. No judicial or quasi-judicial authority or even administrative authority can act arbitrarily and pass an order affecting a party without considering the view by ignoring altogether objections of the petitioner state. No doubt, Section 32 of the SICA contains a non-obstante clause; even the said provision cannot empower BIFR to act arbitrarily or to go contrary to the statutory scheme. The operation of non-obstante clause will be limited to making a provision of the SICA operative in case of conflict. The Act itself contemplates an order stipulating financial assistance to be passed with consent or to prepare a scheme adopting measures as are specified in Section 18 or other measures contemplated under Section 19(1) which may include winding up. Thus, there is no conflict in the Sales Tax statute and the SICA had such a construction which results in harmonious constriction of the two provisions, has to be accepted. 38. UCL i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State Government. In view of the decision of the Supreme Court in State of UP v UPTRON Employees Union (2006) 5 SCC 319, no direction can be given by the BIFR directing any State to grant or not to grant any incentive or to relieve the Petitioner of any statutory liability. In Ambuja Cements Ltd Anr. v State Ors (DB W.P. No. 3233-38/2014, decided on 19.12.2014 ), the Rajasthan High Court observed as follows: 63. We may observe here that the BIFR under section 19 of the Sick Industrial Companies (Special Provisions) Act, 1985 read with Regulation 33, does not have any power to direct, in the absence of specific consent, the State Government to grant any incentive, which is not a part of the policy of the State Government. In view of the decision of the Supreme Court in State of U.P. v. UPTRON Employees' Union, CMD ((2006) 5 SCC319, no direction can be given by the BIFR directing any State to grant or not to grant any incentive or to relieve the petitioner of any statutory liability. 64. We do not find any weight in the submission made on behalf of the petitioner-Company that the Sanctioned Scheme-04 by itself granted to the petitioner the benefit of 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st scheme exempts the dealer from payment of tax on sales upto a fixed period or up to monetary limit. The second scheme is tax deferment, where the dealer is allowed to postpone the payment of tax on sales. These are based on entitlement certificates granted under Section 89 of MVAT Act, 2005. In the case of exemption, the company does not collect tax from consumers on sale of exempt goods, and is governed by a notification dated 01.04.2005. Here, the exempt company does not collect tax from sale to consumers of exempt goods; there is no obligation to pay tax. The scheme- it is explained, is such that if the dealer is exempt from payment of tax, in the invoices issued by seller, if the VAT collected is separately shown then only the set-off of input tax credit has been allowed to consumers. The exempted company is entitled to get refund of tax of an amount equal to the set-off to which it would have been entitled under the Act or Rules on the purchases of raw materials made on or after the appointed day, if it was not holding Certificate of Entitlement in respect of each period for which it is required to file a return under Rule 79 (1) of MVAT Rules. Rule 79 (2) of MVAT prescribe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of Gujarat for filing reply to Misc. Application- 122 filed by the company . 3. Having considered the submissions made during the hearing and materials on record the Bench noted that the review application dated 12.10.2006 of Govt. of Gujarat is on records of BIFR, which is yet to be decided, hence the review application dated 12.10.2006 need to be heard and decided before taking any decision in MA No.122 of 2012. The Ld. Advocate of the company intervened and submitted that they may also be given an opportunity to file a reply to the review application of Govt. of Gujarat, which is already available with the company. The bench agreed to the request of the company and issued following directions. .. .. 46. The State of Gujarat cites Section 19 to say that without consent, there cannot be any sanction. It also submits that it moved an application for Modification of the sanctioned scheme. That application remained pending before the BIFR. Finally, the said application for modification was disposed of along with the application of the petitioner for refund of taxes by a common order. It is also stated besides that UCL had collected VAT and deposited it with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and justified. 48. Exemption from tax to encourage industrialization cannot be equated with refund of tax. They are two different legal and distinct concepts. An exemption is a concession allowed to a class or individual from general burden for valid and justifiable reason. The underlying intention of exemption is to incentivize production and economic activity. VAT is an indirect tax passed on to the consumer. If an industry is exempt from tax the ultimate beneficiary is the consumer. The industry is allowed to overcome its teething period by selling its products at comparatively cheaper rate as compared to others. Therefore, both the manufacturer and consumer gain one by concession of non-levy and other by non-payment. Such provisions in an Act or Notification or Orders issued by government are neither illegal nor against public policy. A provision or agreement to refund tax due or realized in accordance with law is not justified. Refund is directed only when the amount collected is excessive, or there is no levy or for wrongful collection. In all such cases, a fault must be located within the revenue before the courts order refund. The Supreme Court in Amrit Banaspati (supra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Supreme Court that refund could not be given, in somewhat similar circumstances: During the interregnum the company has been collecting the amount equivalent to the tax from the consumers. According to Dr. Rajiv Dhawan, Mr. Dwivedi during this period the company has collected more than ₹ 60 crores on the sale of cement by virtue of the directions issued by this Court in the Order dated 18.11.2002. In view of the law laid down by this Court in Amrit Banaspati (supra) the company cannot be permitted to retain the amount collected from the customers. This would amount unjust enrichment. Therefore, a direction is required to be issued that the amount deposited by the company with the bank pursuant to the orders of this Court be released to the appellant State. On the other hand, Mr. Parshad has submitted that the delay in issuance of the exemption Notification by the State has crippled the Companyfinancially. Even then the Company is trying to revive itself through financial restructuring. The survival of the Company now depends on the approval of the Financial Restructuring Package prepared by the respondent No.2. This package has been submitted to the Chief Ministe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of Gujarat did not give its consent in terms of Section 19(2) above and instead filed its objections to the relevant provisions of the rehabilitation scheme, there was no question of deemed consent. As is evident from Section 19(4) of SICA, it is in the absence of consent by any person, the Board may adopt such other measures including the winding up of the sick industrial company as it may deem fit. Likewise, the Maharashtra State had no notice of the scheme and became aware of it later. In its case too, its consent cannot reasonably be deemed. Therefore, BIFR could not have overridden or completely ignored the requirement of consent required under Section 19(2) of SICA. The argument that since there is a provision for filing an appeal against the order of BIFR (under Section 25 of SICA), the BIFR can ignore the mandate of Section 19(2) of SICA and sanction a scheme in the absence of consent without intimation to any state, or contrary to its object is an untenable proposition. To admit of this eventuality is to countenance any order of BIFR contrary to the law as it can be challenged in an appeal. There is nothing to indicate to why the BIFR thought it fit to reject the State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of SICA are followed. In the present case, the previous discussion clearly reveals that SICA was not followed, in that one State had objected to the scheme; the other was not even aware of it. Therefore, there was no consent, but opposition in one case and lack of knowledge: both contingencies could not have attracted the provision for deemed consent . In such event the scheme, being violative of SICA, could not have prevailed, by virtue of Section 32. 55. This Court is further of the opinion that the petitioner s grievance was to be redressed by it, within reasonable time of the denial of exemption, i.e. within one or two years of the sanction for the BIFR scheme. By not seeking recourse, firstly by pursuing with the State authorities for notifications or directions, to grant the needed exemption, on the one hand, and proceeding to recover VAT and other levies on the other, after the duration of the scheme, the petitioner has approached the Court after an inordinate delay. The idea of granting exemption was to incentivize growth and ensure commercial viability. The petitioner effectively gave up that relief by its inaction (in not seeking exemption or approaching BIFR or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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