Laxmi Starch Limited, Nacharam, Hyd. vs Commercial Tax Officer, Nacharam, Hyd.

Motilal B. Naik, J.—In this writ petition, the short question which arises for our consideration is whether the petitioner-Company is entitled to claim immunity u/s 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 ?

Petitioner is a Public Limited Company, having its registered office at Kundara, Kerala State and having its factories at Kundara and Hyderabad. The petitioner-Company''s factory at Hyderabad is engaged in manufacture of Starches, Liquid Glucose, Cattle Feed etc., from out of Maize. Due to financial problems, the petitioner-Company became a Sick Industrial Company in the year 1987. The case of the petitioner-Company was referred u/s 15 of the Sick Industrial Companies Act, to the Board of Industrial and Financial Reconstruction (for short ''the Board'') in the year 1988 and a case was registered as Case No.232 of 1988 by the Board. The ICICI has been appointed as the Operating Agency. The Board has sanctioned the Rehabilitation Scheme, prepared by the Operating Agency, and it was put into force in August, 1994. Despite the said scheme, the petitioner-Company could not make benefit out of the said scheme and incurred further losses and the accumulated loss as on 31-3-1995 was around Rs.31 crores.

Added to the financial problems, the petitioner-Company also suffered labour problems in the year 1994-95. Due to the failure of the petitioner-Company in payment of dues to A.P. State Electricity Board and Water Works Department, the electricity and water connections were disconnected in March, 1995. Lock-out was also declared by the Company in the month of June, 1995. In this background, the petitioner-Company sought for deferment of payment of sales tax for three years. The Government of Andhra Pradesh accepted the request of the petitioner-Company and issued G.O. Rt. No.674, dated 5-7-1993 defering the payment of Sales Tax from 1992-93 to 1994-95. After the sanction of the scheme pursuant to G.O. Rt. No.674, at the request of the petitioner-Company, the Government issued another G.O. Rt. No.625, dated 24-7-1995 whereunder it granted moratorium of one year in respect of the deferred Sales Tax. Consequently, the repayment of the deferred Sales Tax was to commence from 1-4-1996.

According to the petitioner-Company, as a result of certain problems, there was no production in the factory since June, 1995 and as such, there was no tax liability from that date onwards as there were no sales. The petitioner-Company has again applied to the Government of Andhra Pradesh for extending the moratorium by some more period as the petitioner-Company was negotiating with the parties for reviving the factory and the revival was expected to be materialised soon.

As die petitioner-Company failed to pay the tax liability as per the understanding, die respondent served a notice on the petitioner-Company on 10-9-1996 demanding the payment of deferred sales tax for the years 1992-93, 93-94 and 94-95 within a period of three days failing which it was indicated by the respondent that coercive steps could be taken. The respondent on 13-9-1996 went to the factory premises of the petitioner and threatened to attach the properties if the demanded amounts were not paid by 17-9-1996.

It is in this background, the petitioner-Company approached this Court under Article 226 of the Constitution of India seeking a mandamus or any other appropriate writ or direction declaring the action of the respondent in seeking to recover the Sales Tax dues for the years 1992 to 1995 under notice dated 10-9-1996 by initiating coercive steps as contrary to the provisions of Sick Industrial Companies (Special Provisions) Act, 1995 and sought further direction to the respondent not to take any coercive steps against the petitioner except with the express permission of the Board of industrial and Financial Reconstruction.

While admitting tills Writ Petition on 18-9-1996, a Division Bench of this Court, in WPMP No.24151 of 1996 granted stay of all further proceedings pursuant to the notice dated 10-9-1996, initially fora period of four weeks and subsequently it was extended from lime to time.

The sole respondent - Commercial Tax Officer, Nacharam, Hyderabad, has filed a detailed counter along with vacate-petition and sought vacating the interim stay granted by this Court in WPMP No.24151 of 1996.

In the counter-affidavit filed by the respondent, it was categorically indicated about the tax liability of the petitioner-Company for the year 1992-93, 93-94 and 94-95. It. is stated in the counter that the tax due by the petitioner Company for the assessment year 1992-93 resulted from the final assessment and whereas for the years 1993-94 and 1994-95, it resulted as per the monthly returns filed by the petitioner-Company.

According to the respondent, in a draft rehabilitation scheme prepared by the Board, vide proceedings dated 1-7-1992, the Government of Andhra Pradesh was requested to consider deferment of Sales Tax for a period of three years with interest rate of 15% per annum to be repaid after a moratorium of 2 years in 20 equal instalments. Pursuant to the said recommendation of the Board, the Government issued G.O. Rt. No. 674, dated 5-7-1993 granting deferment of sales tax payable by the petitioner-Company for the period of three years i.e., for 1992-93 to 1994-95. However, this deferment of sales tax shall carry interest at (8% per annum as provided u/s 16 of the APGST Act and shall be paid in 36 monthly equal instalments from the date of expiry of the period of deferment.

According to the respondent, the petitioner-Company was to pay the first instalment on 1-4-1995. As the Company did not pay the same, the respondent issued a notice on 22-5-1995 requiring the petitioner-Company to pay the first and second instalments. While the matter stood thus, the Government of Andhra Pradesh has issued another G.O. Rt. No.625, Industries & Commerce (IFR) Department, dated 24-7-1995 granting moratorium of one year during 1995-96 on the sales tax deferment for three years from 1992-93 to 1994-95 with interest of 18% per annum. In the said G.O. Rt. 625, dated 24-7-1995, it was clarified that the repayment of deferred sales tax shall commence from 1-4-1996 after expiry of the moratorium period. Thus, the petitioner-Company has to pay the deferred sales tax amount for the years 1992-93 to 1994-95 with effect from 1-4-1996 in 36 monthly instalments with interest at 18% per annum.

It is further stated in the counter that as the petitioner-Company failed to pay the first and second instalments which fell due in the months of April and May, 1996, the respondent issued notice on 1-6-1996 requiring the petitioner-Company to make the payment of the first instalment. But the petitioner-Company has neither paid the amount nor filed any reply, hi this background, a notice u/s 17 of the APGST Act, 1957 was issued to Dena Bank, Hyderabad on 20-6-1996. The Dena Bank, in its letter dated 20-6-1996 filed on 26-6-1996 replied that the Company was due to the bank substantial amount and no amount was due by them to the petitioner-Company and as such, they were unable to act on such notice.

Again, the respondent issued a notice on 10-9-19% requiring the petitioner-Company to pay the amount of Rs.30,01,294/- equal to five instalments from April to August 1996. As the petitioner-Company did not pay the amount nor even cared to reply, a Form-1 notice under A.P. Revenue Recovery Act was issued on 13-9-1996. It is this action of the respondent, which is assailed in this writ petition.

On behalf of the petitioner-Company, Sri Vedula Srinivas, learned Counsel has made strenuous submissions by principally contending that when once the petitioner-Company is declared as a sick Company and revival of the petitioner-Company is still pending before the Board as the scheme earlier framed has failed and when the Board is considering the other proposals in respect of the petitioner-Company, the petitioner-Company is entitled to immunity u/s 22(1) of the Sick Industrial Companies Act and as such the respondent cannot issue the impugned notices to the petitioner-Company for recovery of the instalments due except with the express permission of the BIFR. Learned Counsel stated that as per the scheme providing modalities to the payment of arrears of Sales-tax for the year 1992-93 to 1994-95, the petitioner-Company was required to pay the deferred sales tax arrears from 1-4-1996 in 36 equal monthly instalments, the first instalment commencing from the month of April, 1996. However, on account of financial difficulties and as a result of subsequent closure of the factory, the petitioner-Company could not discharge its obligation arising out of the scheme prepared under GO Rt. No. 625 dated 24-7-1995. Counsel further states that even if there is a default in payment of instalments, in terms of Section 22(1) of the Sick Industries Act, the respondent, without the express permission of the BIFR, cannot initiate action against the petitioner-Company through the impugned notices dated 10-9-19% and 30-9-19%. Counsel, in this background contends that the issuance of the said notices by the respondent is without authority and pleads for quashing of the impugned notices. In support of his contention, learned Counsel has drawn our attention to a decision of this Court reported in Coromandal Pharmaceutical Limited v. Deputy Commercial Tax Officer, Khairatabad, 1996(1) ALD-161.

Learned Special Government Pleader for Taxes, on the contrary, submits that the petitioner-Company is not entitled to the immunity as provided u/s 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 as the petitioner-Company has failed to discharge its obligation in promptly paying the instalments due after the expiry of the moratorium sanctioned by the Government through G.O. Rt. No.625, 24-7-1995 which contemplated deferment of sales tax payment for the years 1992-93 to 94-95. As the petitioner-Company failed to pay the instalments for the months of April and May, 1996 notice u/s 17 of the APGST Act was also issued to the Deena Bank, Hyderabad on 20-6-1996. The Bank, in turn, replied to the respondent that there are no amounts lying to the credit of the petitioner-Company and it cannot act upon the said notice. Since the instalments due for April to August, 1996 accounted to a tune of more than Rs. 30 lakhs notice dated 10-9-1996 was issued by the respondent indicating the amounts due and requiring the petitioner-Company to make these payments within three days from the date of receipt of that notice, failing which proceedings under A.P. Revenue Recovery Act are to be initiated. Counsel further stated that notice under Form-I under A.P. Revenue Recovery Act was also issued on 30-9-1996 in the absence of any response from the Company. Learned Special Government Pleader contended that the principle laid down by this Court in the decision cited (1996 (1) ALD 161 supra) is no more a good law in view of the decision of the Supreme Court in Tata Davy Ltd. Vs. State of Orissa and Others, and in Deputy Commercial Tax Officer and Others Vs. Corromandal Pharmaceuticals and Others, , learned Special Government Pleader for Taxes submitted that as the petitioner-Company has committed default in payment of instalments even after the expiry of the moratorium period envisaged by the Government, the immunity u/s 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 is not available to the petitioner-Company and therefore, pleaded for the dismissal of this Writ Petition.

In Deputy Commercial Tax Officer v. Coromandal Pharmaceuticals Limited, (cited supra), the Supreme Court while considering the embargo u/s 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, in para-10 of its decision has held thus:

"All that is required by Section 22(1) of the Act is that in cases where an inquiry is pending or scheme is under preparation or consideration or a sanctioned scheme is under implementation or an appeal is pending, no proceedings, as stated in Section 22 of the Act for execution, distress or die like shall be proceeded with except with the consent of the Board or the appellate authority. What is contemplated by Section 22(1) of the Act is only a previous consent of the Board for the proceedings to be initiated against a sick Company. It is not an absolute bar."

The above observation of the Supreme Court dispels the myth of the petitioner-Company. The petitioner-Company canvasses a proposition before us that when once the rehabilitation scheme is under preparation or under implementation, without the express consent of the BIFR, no action could be initiated against it for recovery of the instalment amounts. Looking at the facts of the instant case, a rehabilitation scheme was prepared enabling the petitioner-Company to discharge its obligation arising out of the payment of sales tax amount due. The Government of Andhra Pradesh, firstly, issued G.O. Rt. No.674, dated 5-7-1993 through which it granted deferment of sales-tax payable by the petitioner-Company for the years 1992-93 to 1994-95. According to the said GO., the petitioner-Company was liable to pay 18% interest per annum on the deferred sales tax payment which should have been paid in 36 equal monthly instalments commencing from 1-4-1995. However, on a request made by the petitioner-Company, the Government of Andhra Pradesh issued another G.O. Rt. No.625 on 24-7-1995 granting moratorium for one more year during the year 1995-96 on the payment of deferred sales tax for the years 1992-93to 1994-95, with interest at 18% per annum. According to this second G.O. the first instalment has to be paid on 1-4-1996 and every month thereafter in 36 equal monthly instalments. Despite these concessions granted by the Government to the petitioner-Company, the petitioner-Company failed to pay these instalments. When the instalments for the months of April and May, 1996 fell due, a notice was issued by the respondent on 1-6-1996 requiring the petitioner-Company to pay the instalment amounts. As there was no response from the petitioner-Company, the respondent issued notice u/s 17 of the APGST Act, 1957 to Deena Bank, Hyderabad also.

With all the efforts made by the respondent proved futile and as the petitioner-Company neither paid the instalments amount nor cared to reply, the impugned notice was issued on 10-9-1996 and Form-I notice under the Revenue Recovery Act was also issued on 30-6-1996.

In the guise of the rehabilitation scheme under implementation, notwithstanding the default committed by the petitioner-Company in payment of the instalment amounts to the Government, can it be still held that the petitioner-Company is entitled to claim immunity u/s 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 and the express permission of the BIFR has to be obtained by the respondent before initiating action against the petitioner-Company?

The Supreme Court in the decision (cited supra), has held in no uncertain terms that obtaining permission from the BIFR is not an absolute bar for initiating action against the defaulting Companies. The dues of payment of sates tax by the petitioner-Company pertain to the years 1992-93 to 1994-95. A rehabilitation scheme at the request of the petitioner-Company and at the intervention ofthe Board was prepared for the petitioner-Company and certain modalities were worked out for the payment of deferred sales tax by the petitioner-Company. As per the first G.O. Rt. No.674, dated 5-7-1993, payment of instalments by the petitioner-Company should have commenced from 1-4-1995, but however, on a request made by the petitioner-Company to the Government, the Government was considerate enough in issuing another G.O. Rt. No.625, dated 24-7-1995 granting moratorium for one more year. According to the second G.O., repayment of deferred sales tax should have commenced from 14-1996 in 36 equal monthly instalments, for the three years period from 1992-93 to 1994-95.

The rehabilitation scheme formulated under the Sick Industries Act is in the direction of saving such of those companies which are sinking due to financial problems. Though the Companies collect taxes from the consumers on the sale of their products, but payment of such tax on the sales made by the Company are postponed in order to allow the Companies to tide over the precarious financial position in which they are placed. We understand, the object of the Sick Industrial Companies (Special Provisions) Act is to provide remedial measures which needed to be taken with respect to sick industries and to enforce expeditious measures by providing urgent rehabilitation so as to save the sinking industry.

In the instant case, the rehabilitation scheme was prepared for the petitioner-Company and is under implementation. Despite the generosity showered by the Government on the petitioner-Company by granting deferment of payment of sales tax, the petitioner-Company foiled to discharge its obligation arising out of the understanding arrived at as a result of the rehabilitation measures initiated. As observed by the Supreme Court in the decision cited Deputy Commercial Tax Officer and Others Vs. Corromandal Pharmaceuticals and Others, , obtaining the express permission of the BIFR before initiating action against an erring Company to recover the instalment amounts due to the Government is not an absolute bar.

Though Counsel for the petitioner-Company has cited the decision of a Division Bench of this Court in Coromandal Pharmaceuticals Limited v. Deputy Commercial Tax Officer, Khairatabad, (cited supra), the ratio laid down in the said decision has been reversed by the Supreme Court in the decision Deputy Commercial Tax Officer and Others Vs. Corromandal Pharmaceuticals and Others, . This decision of the Supreme Court has again been reiterated by the Supreme Court in another decision reported in Tata Davy Limited v. State of Orissa, (cited supra).

Having regard to the facts and circumstances of the case and in the light of the decisions of the Supreme Court cited Tata Davy Ltd. Vs. State of Orissa and Others, and Deputy Commercial Tax Officer and Others Vs. Corromandal Pharmaceuticals and Others, , we are not persuaded to accept the proposition that the petitioner-Company is entitled to claim immunity u/s 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, for an indefinite period despite committing default in payment of instalments of the deferred sales tax for the years 1992-93 to 1994-95 as per the rehabilitation scheme.

We, therefore, see no merits in the writ petition and the same is accordingly dismissed. However, in the circumstances, without costs.