Southern
Agrifurane Industries
Ltd. Vs. Commercial Tax Officer & Ors [2005] Insc 88 (8 February 2005)
Ruma
Pal,Arijit Pasayat & C.K. Thakker Ruma Pal, J.
The
issue to be decided in these appeals is whether the appellant is liable to pay
interest on the balance of sales tax dues for the period 1.10.93 to 30.9.94
under Section 24(3) of the Tamil Nadu General Sales Tax Act, 1959 or was it
exempt from doing so under Section 17A(2) of that Act? The appellant-company is
a registered dealer under the Tamil Nadu General Sales Tax Act, 1959. Sometime
in 1988 proceedings were commenced in respect of the appellant under the Sick
Industries Companies (Special Provisions) Act, 1985. (referred to hereafter as
SICA). Ultimately on 28th
September, 1993 a
scheme was sanctioned by the Board of Industrial and Financial Reconstruction
(hereinafter referred to as 'BIFR') for rehabilitation of the appellant. Under
the heading, "Cost of the scheme and Means of financing", the BIFR
noted the requirement of funds for the rehabilitation of the Appellant and the
means of finance. As far as the requirements of funds are concerned it was
assessed at Rs. 1491 lakhs. To meet this requirement, the means of finance from
three sources were identified, namely;
1.
Interest from Secured loans Rs. 568,00,000
2.
Promoters and new some items rights of issue of equity capital Rs. 300,00,000
3. Deferment of Sales Tax by Govt. of Tamil Nadu Rs. 623,00,000
----------------------- Total = Rs.1491,00,000 Clause (B) of the Scheme under
the heading 'Reliefs and Concessions' required the State Government to
"grant interest- free deferment of sales-tax payable to Tamil Nadu
Government on sales of furfural and IMFS during the 6 months period from
January 1993 to June 1993 (Rs.623 lakhs approx). The deferred amount of
sales-tax as above shall be repayable during the 3 years period from July 1, 1994 to June 30,1997." On 23rd September, 1993 the State Government
intimated the BIFR that having considered the request of the appellant, it had
proposed to sanction the deferral of sales tax for one year from 01.10.93 to
30.9.1994 and to permit the repayment of the deferred sales tax after a
moratorium period of one year over a period of 5 years i.e. from 1.10.1995 to
30.9.2000.
The
BIFR accordingly amended the scheme by an order dated 8th December, 1993 so
that the sales tax deferment during the six months' period from January 1993 to
June 1993 (Rs.623 lakhs approximately) repayable during the three years period
from July 1,1994 to June 30, 1997 was amended to read "for one year from
1.10.1993 to 30.9.1994 to be repayable during the period from 1.10.1995 to
30.9.2000".
The
scheme was approved by the State Government by GO Ms. No.5 dated 7th January,
1994 and on 4th March, 1994 a notification was published by the State
Government in the Official Gazette which reads:- "In exercise of the
powers conferred by sub- section (1) of section 17-A of the Tamil Nadu General
Sales Tax Act 1959 (Tamil Nadu Act 1 of 1959), the Governor of Tamil Nadu
hereby defers the tax payable under the said Act by Thiruvalargal Southern Agrifurane
Industries Limited, Madras for a period of one year from the 1st October 1993
subject to the condition that the deferred tax shall be paid over a period of
five years in equal instalments after a moratorium of one year, that is from
1st October 1995 to 30th September 2000." The implementation of the scheme
was reviewed by the BIFR on 18th August, 1994.
The Minutes of the Meeting record that according to the Monitoring Agency,
(which was the Industrial Development Bank of India), after the sanction of the scheme the appellant had to
incur additional capital expenditure of Rs. 468 lakhs and pay statutory dues of
Rs. 155 lakhs on account of Central Excise Duty for the year 1991-1992. As such
the enhanced cost of rehabilitation rose from Rs.1491 lakhs to Rs.2114 lakhs.
In response to a query by the BIFR, the representative of the appellant
submitted that the additional expenditure of Rs. 623 lakhs would be financed
out of deferment of sales tax agreed to by the State Government.
After
hearing the parties, the BIFR sanctioned the enhanced cost of rehabilitation of
Rs. 2114 lakhs. It also stated that the additional cost of Rs. 623 lakhs would
be financed out of sales tax deferment of Rs. 623 lakhs.
Consequent
to this amendment of the scheme, an Amendment Notification was published by the
State Government on 3rd
February, 1995 seeking
to amend the notification dated 4th March, 1994. The amendment notification stated that for the expression
"for period of one year from the 1st October, 1993, subject to the
condition that the deferral tax shall be over a period of five years in equal instalments
after a moratorium of one year that is from 1st October, 1995 to 30th September
2000" in the earlier notification, the following expression shall be
substituted namely:- "for a period of one year from the 1st October 1993,
subject to the following conditions namely:- (i) The deferred sum of Rs.1,246 lakhs
shall be paid over a period of five years in equal instalments from 1st October
1995 to 30th September 2000 after availing a moratorium of one year (1st
October 1994 to 30th September 1995); and (ii) The amount of tax deferred shall
not exceed the fixed deferred amount of Rs. 1,246 lakhs." The
rehabilitation measures undoubtedly proved effective as the appellant's net
worth became positive by 30th
September, 1995. These
facts were drawn to the attention of the BIFR by the appellant which agreed
that it may be released from the purview of SICA being no longer a sick
industrial undertaking. Considering the representation and the material, the
BIFR passed an order on 8th
December, 1995 to the
effect that it considered the appellant-company had ceased to be a sick
industrial company within the meaning of Section 3(1)(o) of SICA and its case
was no longer required to be dealt with by BIFR. The proceedings in the case
were accordingly closed and the Special Director appointed by the BIFR was
discharged.
Proceeding
on the basis that the sales tax deferment was only in respect of the Rs. 1,246 lakhs,
by several notices dated 31.7.1996, 21.8.1996, 10.9.1996 and 11.11.1996, the
Commercial Tax Officer, Villupuram being the respondent No.1 herein, called
upon the appellant to pay the entire balance of the sales tax due for the
period 1.10.93 to 30.9.94 together with the interest under Section 24(3) of the
Tamil Nadu General Sales Tax Act immediately. An amount of Rs. 5,51,91,688 was
payable on account of sales tax, surcharge, etc. Interest on that amount
calculated up to 31.10.1996 was claimed at Rs.4,36,48,594 thus making a total
demand of Rs.9,88,40,282.
In
response to the letter dated 30.10.1996, the appellant wrote to the Industries
Department of the State Government on 15th November, 1996 saying that they
would like to settle the Sales Tax dues as claimed by way of a comprehensive
package. The package envisaged:
(a)
The waiver of the interest amount of Rs. 4.37 crores;
(b)
Payment of the balance excess amount on Rs. 5.52 crores in two instalments, the
first of which would be paid within a fortnight from the date of the order of
the authorities and the second
after six months.
The
State Government passed an order on the appellants representation on 31st
December, 1996 by which it permitted the appellant to pay the amount of tax due
with interest in two instalments, one in December 1996 and the second before
5.3.1997 subject to three conditions, the third of which stated that there
would be no waiver of the interest payable on the deferred payment. It was made
clear that the appellant was liable to pay penal interest at 24% per annum on
the outstanding arrears till the date of the payment of the arrears under
Section 24(3) of the Tamil Nadu General Sales Tax Act, 1959.
The
appellant did not challenge this order. The subsequent demand for interest for
the period of 1.11.1996 to 10.11.1996 together with the earlier demands, totalling
Rs. 10,00,09,892 was cleared by the appellant on 10th January, 1997 and 14th
March, 1997 by two separate payments of Rs.4,94,20,141 and Rs. 5,05,89,751
amounting to the exact figure of 10,00,09,892.
Subsequently
however the appellant claimed that the payment of Rs. 5,05,89,751/- made by it
on 14th March, 2003 was not towards the demanded amount
but towards the regular tax for February, 1997. This was rejected by the
respondent No.1 and on 1st
April, 1997, the
appellant sought for permission from the respondent to pay the penal interest
of Rs. 4.37 crores in three equal instalments.
Without
waiting for a response between 9th April 1997
and 4th May, 1998, the appellant filed original
petitions before the Tamil Nadu Taxation Special Tribunal. In none of these
proceedings was the order dated 31st December,1996 challenged.
The
Tribunal dismissed the several petitions filed by the appellant. Challenging
the common order passed in the original petitions the appellant filed writ
petitions before the Madras High Court. The Madras High Court also rejected the
writ petitions.
The
appellant contends that by the amendment notification, the first notification
issued under Section 17(A) of the Sales Tax Act could not be retrospectively
affected so as to put a ceiling on the sales tax deferred. According to the
appellant, the first notification had granted the right to the appellant to pay
the entire sales tax liability incurred by the appellant for the period 1.10.93
to 30.9.94 in instalments over a period of five years. The imposition of a
limit on the deferred amount of Rs.1,246 lakhs was contrary to the statute and
invalid. Section 17(A) was referred to to submit that the power of
retrospectively denying benefit conferred under Section had been excluded.
The
High Court had rejected this submission of the appellant by holding that the
first notification did not grant an unlimited tax deferral and that the
amendment notification merely clarified that the deferral was not limited to
Rs.623 lakhs but was upto Rs.1,246 lakhs. Therefore there was no question of
the amendment notification operating retrospectively. On the assumption that
the amendment did operate retrospectively, the High Court held that by virtue
of Section 15 of the Tamil Nadu General Clauses Act, the State Government had
the power to deny the benefit of deferral granted retrospectively.
The
appellant submits that the view expressed by the High Court was contrary to the
well established principles laid down in several decisions of this Court
including Strawboard Manufacturing Co. v. Gutta Mill Workers Union AIR 1953 SC
95 and Kazi Lhendup Dorji V. Bureau of Investigation 1994 Supp (2) SCC 116. In
addition, the appellant submits that the Scheme framed by BIFR also did not lay
down any ceiling on the quantum of deferral of the sales tax. It is submitted
that the scheme was a statutory one and binding on the State Government under
the provisions of Sections 18(1), (4) (8) read with Section 19(3) and Section
32 of SICA.
According
to learned counsel for the respondents, neither the Scheme nor the first
notification had granted an unlimited sales tax deferral as claimed by the
appellant. The original scheme envisaged a deferment of sales tax of 6 crores
23 lakhs. This limit was subsequently raised to Rs. 1246 lakhs at the request
of the appellant and on the recommendation of the IDBI. There was as such no
question of retrospective operation of the amendment notification nor violation
of any scheme sanctioned by the BIFR. In any event, it is submitted that
Section 15 of the Tamil Nadu General Sales Tax Act, 1959 would apply to Section
17A permitting the State Government to undo what it may have the power to do
under that Section. It is also submitted that the appellant had collected the
entire sales tax from its customers for the period 1.10.93 to 30.9.94. It was
entitled to the deferment of the sales tax only to the extent it was required
to meet the cost of rehabilitation as sanctioned by the BIFR. It is further
submitted that the appellant in any event, on its own accord, sought release
from the provisions of the SICA and at least from the period subsequent to such
release, it should have cleared all outstanding tax liability immediately.
Section
17(A) of the Tamil Nadu General Sales Tax Act confers power on the State
Government to notify deferred payment of tax for certain industries including
sick units. The relevant extract of Section reads thus:
17A.
Power of government to notify deferred payment of tax for new industries, etc.
(1)
The Government may, in such circumstances and subject to such conditions as may
be prescribed, by notification issued whether prospectively or retrospectively
defer the payment by any new industrial unit or sick unit or sick textile mill
of the whole or any part of the tax payable in respect of any period:
Provided
that such retrospective effect shall not be earlier than the 9th May 1988.
(1A) xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
(2) Notwithstanding
anything contained in this Act, the deferred payment of tax under sub-section
(1) or sub-section (1A) shall not attract interest under sub-section (3) of
section 24 provided the conditions laid down for payment of the tax deferred
are satisfied." Therefore, under sub-section (2) interest is not payable
on the deferred payment of tax provided the conditions laid down in sub-section
(1) are satisfied. The purpose of the section is to grant the benefit to new
industrial units to help them tide over the initial teething troubles and to
sick industries to assist them to get over their sickness. To this end, the
Government is empowered to defer the payment of the whole or any part of the
tax payable in respect of any period. If on the other hand, the conditions are
not satisfied, then too the State Government may allow the tax due to be repaid
in instalments under Section 24(1) but in such a case the assessee would be
liable to pay interest under Section 24(3) which provides:
"On
any amount remaining unpaid after the date specified for its payment as
referred to in sub-section (1) or in the order permitting payment in instalments,
the dealer or person shall pay, in addition to the amount due, interest at one
and half per cent per month of such amount for the first three months of
default and at two per cent per month of such amount for the subsequent period
of default".
Both
the Tribunal and the High Court have found as a fact that the scheme which was
sanctioned by the BIFR initially on 28.7.1993 provided for a limit on the
quantum of Sales Tax deferral namely Rs.623 lacs. We see no reason to interfere
with this concurrent finding fact. The sales tax deferral was part of the
scheme and was granted as a measure of financial assistance to meet a projected
need for the purposes of the appellant being rehabilitated. Both the figures
were firm. It has been conceded by the learned counsel for the appellant that a
scheme for rehabilitation under the SICA must necessarily contain firm figures.
Unless the figure had been fixed by the Scheme when framed in 1993, it would in
our opinion be illogical to ask for an enhanced limit of need to be sanctioned
and for a consequent enhancement of the financial assistance on 18.8.1994. It
is true that the first notification only mentioned the period of deferral and
did not specify the amount, but the background in which the notification was
issued clearly showed that the State Government had been required by BIFR to
render assistance of Rs. 623 lakhs by way of sales tax deferral.
The
object and purpose of the notification was to fulfill that obligation cast on
the State Government under Section 19(3) of SICA. It is improbable that the
State Government, not being required to do so, would in an act of unprecedented
generosity deprive its exchequer of funds to which it was otherwise entitled.
The
State's understanding was that the original limit of Rs. 623 lakhs needed
revision upwards pursuant to the revision in the scheme. The increase in the
outer limit could be justified as far as the State was concerned to double the
original figure sanctioned, since the period of deferral was doubled from 6
months to a year. This was apparently how the appellant also understood the
position. It did not protest initially against the amendment notification when
it was published in February 1995. Again its response to the demand in 1996 of
the Sales Tax Authorities was not that the claim was in violation of the scheme
or the notifications but was a plea for grant of instalments which plea was
acceded to by the State Government on 31.12.1996 in exercise of its powers
under Section 24(1). In compliance with the order dated 31.12.1996, the payment
was in fact made by the appellant. As such the amended notification was indeed
an amendment of the first notification dated 28.7.1993 consequent upon the
revised sanction of the BIFR on 18.8.1994 enhancing the need and assistance
limits and it was not seeking to retrospectively deny any benefit already
conferred on the appellant. We therefore do not need to go into the further
question whether the High Court was right in importing Section 15 of the Tamil Nadu
General Clauses Act into Section 17.A.
Finally,
the appellant was entitled to the relief of sales tax deferral only to the
extent it was necessary to take it out of "sickness" i.e. on
rehabilitation. That is so provided under Section 17A(2). Anything in excess of
such rehabilitation would not be covered by Section 17A but would fall under
Section 24(3) of the Tamil Nadu General Sales Tax Act, 1959. The BIFR had fixed
the quantum for rehabilitation at Rs. 2114 lakhs.
The
Rs.1246 lakhs of deferral of sales tax admittedly met this need. Any further
tax deferral therefore would only be a benefit conferred on a non-sick company
and be permissible under Section 24(1) in which event the appellant would be
liable to pay interest under Section 24(3) as held by the High Court.
The
appeals are accordingly dismissed without any order as to costs.
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