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CASE NO.: Appeal (civil)  8607-8610 of 2002

PETITIONER: Southern Agrifurane Industries Ltd.              

RESPONDENT: Commercial Tax Officer & Ors.                     

DATE OF JUDGMENT: 08/02/2005

BENCH: Ruma Pal,Arijit Pasayat & C.K. Thakker

JUDGMENT: J U D G M E N T

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

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(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

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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

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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

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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

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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.