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Judgment
V.S. Sirpurkar, J.—This judgment shall govern two writ petitions - they being W.P. Nos.20099 and 20100 of 1999. A brief history would
be necessary to understand the controversy.
The first petitioner is a public limited company, registered under the Companies Act whereas, the second petitioner is a private limited company
and a subsidiary company of the first petitioner. The first petitioner had set up a textile industrial unit, styling it as ""B"" Unit, at Keelarajakularaman,
Rajapalayam Taluk, which is an industrially backward area. Under the policy of the Government to boost the industries and more particularly
setting up of more industries in the rural areas, the Government came out with a Government Order, G.O.Ms. No.500 14-5-1990. Under the said
Government Order, such industrial units which were opened in the demarcated regions contemplated by the said Government Order were to be
given sales-tax deferral for certain period. Accordingly the first petitioner availed of that benefit in respect of its ""B"" unit at Keelarajakularaman. An
agreement came to be executed between the petitioner company and the Assistant Commissioner who was empowered by the Government under
Sec. 17-A(1) of the Tamil Nadu General Sales Tax Act. Thereafter, the Government came out with the necessary Government Order and
ultimately a final agreement came to be executed. Under the clause (4) of the agreement, the petitioner was not to transfer, alienate, dispose,
encumber or lease out the fixed assets nor could it remove the fixed assets from the unit premises without the express prior permission from the
party of the first part, meaning thereby the Assistant Commissioner. The petitioner has also agreed that breach of any of the conditions of the said
agreement could result in the cancellation of the agreement and the company being liable for the repayment of the tax dues if necessary along with
the interest under Sec. 24(2) of the Tamil Nadu General Sales Tax Act. It seems that the sales tax deferral was for the period between 1992 and
1997 and the repayment of this tax was to be in five years'' period beginning from April, 1997 to 2002.
It was found by the Government that the petitioner company had transferred, without prior permission of the Government or as the case may be
the Assistant Commissioner, the said ""B"" unit to the second petitioner company. On this a notice came to be issued on 2-1-1997 to the petitioner
company that it had breached the relevant condition in the agreement and had made itself liable. Under that notice, the petitioner company was
directed to pay the entire sales-tax deferral availed so far during the assessment year and it was directed not to wait for the actual due dates for the
agreement already made in that regard. Another notice also came to be issued whereby the interest also came to be claimed under Sec.24(2) of
the Act. The notice was challenged by the petitioner company in O.P. No.561 of 1997.
During the pendency of this original petition, the Special Tribunal passed an order directing the parties to resolve their disputes and enabling the
petitioner company to make a representation on this behalf because the Tribunal was persuaded by the subsequent developments. The order
passed by the Tribunal is as under:
There is a subsequent development in the case, in the sense that a petition has been filed by the parent company on 4-11-1998 seeking
amendment of the agreement to enable the subsidiary company to maintain the schedule of repayment as per the earlier agreement with the parent
company. If the above proposal is not prejudicial to the interest of the revenue, there can be no objection for the orders. The pendency of this
O.P. need not be a bar to the authorities passing orders. In this view of the matter, we direct the Commercial Tax Officer-II, Rajapalayam
Assessment Circle to pass orders on the petition dated 4-11-1998 on or before 29-1-1999. The O.Ps are stand adjourned to 1-2-1999.
In its representation dated 4-11-1998 the first petitioner company had pointed out that there were common Directors in the petitioner company
as also in the transferee company, that is the second petitioner company. It was also pointed out that the petitioner company had not violated any
conditions and that no alienation or disposal of the fixed assets was done by it. It was pointed out that the said ""B"" unit was transferred and
administered by one of the brothers as per the family arrangement among the brothers and that the newly formed company was nothing but a
wholly owned subsidiary company of the petitioner. It was therefore pleaded that the agreement should be amended and the benefits under the
same should be given to the second petitioner company. It was this representation which was directed to be decided by the Special Tribunal.
There was another representation of the same nature made to the Commercial Tax Officer also. The Special Tribunal, however, directed not the
Assistant Commissioner, Commercial Taxes, who was the authorised officer but the Commercial Tax Officer II, Rajapalayam Assessment Circle
to go into the matter. It seems that the Commercial Tax Officer - II, Rajapalayam has actually gone into the matter and has passed an order on 25-
1-1999. In his order, the Commercial Tax Officer has given in all three reasons, viz.
That the new B unit of first petitioner company has been formed as a separate entity and obtained a separate registration certificate with effect from
31-10-1996 in the name and style of Tvl. Jeyajothi Textile Mills (P) Ltd.
That first petitioner company is a limited company and the second petitioner company is a private limited company and that both cannot be held to
be one and the same company. That though the first petitioner company had filed an application dated 10-1-1997 before the SIPCOT for due
approval of the scheme of transfer to the subsidiary company, there was no order passed by the SIPCOT or at least was not received by the
Commercial Tax Officer.
For these reasons and in order to protect the interest of the Revenue, the said representation was rejected.
The petitioner then filed another original petition, O.P. No.249 of 1999, challenging this order also. The two original petitions came to be
disposed of by a common order by the Special Tribunal on 17th March, 1999. The Tribunal came to the conclusion that there was undoubtedly a
breach of the agreement on the part of the petitioner company of the essential clauses, viz. Clauses 3 to 7 and, therefore, the amount had become
recoverable as against the petitioner company. The Tribunal, however, held that the relief as claimed by the petitioner could not be given and that
such a decision would lay down a bad precedent. The Tribunal observed that when the fixed assets were transferred to the different entity, it could
not be said that the interest of the Revenue would not suffer. The Tribunal, however, observed that it all depended upon the manner in which the
transferee company conducts itself. The Tribunal, therefore, refused to quash the notices dated 2-1-1997 or 22-1-1997. The Tribunal also
rejected the prayer to quash the order dated 25-1-1999. However, the Tribunal observed that it had given the liberty to the respondent to look
into the matter and to see whether the request of the petitioner company could be accommodated. It found that though the request of the petitioner
was rejected by the order dated 25-1-1999, the matter should not be foreclosed and further observed that it is still open to the respondent to look
into the matter and see whether the interests of the Revenue could be protected by entering to a fresh agreement with the subsidiary company after
getting a fresh eligibility certificate from SIPCOT. It seems that the Tribunal''s suggestions were based upon the policy of promotion of new
industries in backward areas which seems to be the object of G.O.Ms. No.500 dated 14-5-1990. The Tribunal, leaving the doors open for fresh
negotiations, enforced strictly the terms of the agreement and rejected both the original petitions.
When the argument commenced, the learned senior counsel appearing on behalf of the petitioner companies, Mr. C. Natarajan, pointed out that
during the pendency of the writ petitions there was an interim order passed by our predecessors wherein the petitioners were directed to deposit
fifty percent of the tax liability within a period of five weeks and the further fifty percent was to be paid in two equal instalments within three
months. The learned senior counsel pointed out that the whole tax under the deferral scheme was paid as per the schedule. It was pointed out by
the learned counsel that by the time when the order was passed, almost the whole tax stood paid as per the agreement of deferral of tax. He,
therefore, pointed out that the petitioner company had shown its bona fides by paying all the tax arrears though technically speaking there was a
breach on the part of the first petitioner company in transferring the ""B"" unit to its subsidiary company. He pointed out that no loss to the Revenue
has been caused by such an action and the whole tax came to be paid. He, therefore, urged that a practical, pragmatic and realistic approach
should be taken in the matter.
The fact that the tax was paid altogether was not disputed very seriously by the learned Special Government Pleader (Taxes) on behalf of the
Revenue. Learned standing counsel for SIPCOT, which is also a party to these writ petitions, also did not dispute that. Though the petitioner
company had made representations to SIPCOT also, SIPCOT had not decided upon the matter. Under the circumstances, we are of the opinion
that though no fault can be found with the order of the Tribunal in so far as it is concerned with the dismissal of O.P. No.561 of 1997, regarding
the recovery, it will be better if the Assistant Commissioner, who was a party to the agreement, considers the matter afresh. We are saying this for
the following reasons:
The Commercial Tax Officer had given predominantly three reasons, which we have quoted above. Reasons 1 and 2 can hardly be said to be the
reasons. It is because of the transfer of the new unit that the whole controversy began. Though that is at the most a reason for the Government to
take an action, that cannot be a reason why the representation of the petitioner could not have been considered properly.
The third reason is that the Commercial Tax Officer had not heard anything from SIPCOT regarding the request made by the petitioner company.
It is really strange that the ball should have been thrown into the court of SIPCOT. In our opinion, that could be no reason because the role of
SIPCOT was only limited to the extent of granting eligibility certificate to the concerned unit. It was SIPCOT''s duty under the relevant
Government Order to consider the feasibility, eligibility, etc. of the new unit and to check whether the new unit was really covered under the four
corners of the said Government Order so as to be able to earn the advantage of the tax deferral. As to what course to be adopted on the breach
of the agreement was entirely either for the Assistant Commissioner, who was a party to the agreement, or at the most the Government. We have
no doubts that the Assistant Commissioner was a party and who is an empowered officer by the Government would act in consultation with the
Government. The Commercial Tax Officer, who was neither a party to the agreement nor was an authorised authority under Sec.17-A of the Act,
has, in our opinion, considered irrelevant circumstance of SIPCOT not having decided the representation of the petitioner dated 10-1-1997 and
not having informed the Commercial Tax Officer regarding such decision. In our opinion this is clearly an irrelevant reason. Therefore, the
suggestion made by the Special Tribunal, which was really a very worthy suggestion in our opinion also, should have been given a proper thought
and should have been considered in the light of the attendant circumstances like the total and complete payment of the deferred taxes by the
petitioner company as also the identity of the Directors in the transferor company as well as the transferee company. We would, therefore, direct
the territorial Assistant Commissioner to reconsider the representation dated 10-1-1997 sent to it by the petitioner company. The parties agree on
the same and they have no difficulty in appearing before the Assistant Commissioner for the consideration of the said representation.
The writ petition in so far as it pertains to O.P. No.561 of 1997 being W.P. No.20099 of 1999 is dismissed while the W.P.No.20100 of
1999, which pertains to O.P. No.249 of 1999, is disposed of in the light of the above directions of ours. The consideration process of the
representation shall be finished as far as possible within three months from today. With these directions, we dispose of both the writ petitions. No
costs. W.M.P. No.29510 of 1999 is closed.