IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 17.03.2008 CORAM THE HONOURABLE MR.JUSTICE S.MANIKUMAR W.P.No.13461 of 2007 M.P.Nos.2, 3 and 4 of 2007 M/s.Balaji Distilleries Ltd., rep. By its General Manager ... Petitioner vs. 1. The Secretary to Governdment, State of Tamil Nadu, Commercial Taxes Dept., Secretariat, Fort St. George, Chennai-9. 2. The Assistant Commissioner (CT), Fast Tract Assessment Circle II, Chennai-6. 3. The Managing Director, Tamil Nadu State Marketing Corporation Ltd., 4th Floor, CMDA, Tower II, Gandhi Irwin Bridge Road, Egmore, Chennai-8. 4. The Board for Industrial & Financial Reconstruction, Jawahar Vyapar Bhavan, 1, Tolstoy Marg, New Delhi 110 001. 5. Industrial Development Bank of India, IDBI Towers, Cuffe Parade, Mumbai. ... Respondents Writ petition is filed under Article 226 of the Constitution of India for issuance of a Writ of Certiorarified Mandamus to call for the records of the second respondent in his impugned proceedings bearing reference in communication No.RC.196/04/A2, dated 10.04.2007, and quash the same as being arbitrary, illegal and contrary to the provisions of SIC(SP) Act, 1985 and the proceedings of the fourth respondent to seek to recover to take any coercive steps against the petitioner for recovery of any tax arrears for the period upto March 31, 2007 under the Tamil Nadu General Sales Tax Act, 1959 and the Tamil Nadu Value Added Tax Act, 2006, including by issuance of Form B-6 notice or by attaching properties or monies directly or otherwise through the third respondent till the sanction by the fourth respondent of the Scheme of Rehabilitation under SIC (SP) Act, 1985 and receive payments and enforce payments in respect of taxes strictly in accordance with the final orders to be passed by the fourth respondent in exercise of its powers under SIC(SP) Act. For Petitioner : Mr.Sathish Parasaran For Respondents : Mr.P.S.Raman Additional Advocate General assisted by Mr.Haja Naziruddin Special Government Pleader O R D E R The petitioner has sought for a Writ of Certiorarified Mandamus to quash the order of the second respondent, in his impugned proceedings bearing reference in communication No.RC.196/04/A2, dated 10.04.2007, as being arbitrary, illegal and contrary to the provisions of SIC(SP) Act, 1985 and the proceedings of the fourth respondent to seek to recover to take any coercive steps against the petitioner for recovery of any tax arrears for the period upto March 31, 2007 under the Tamil Nadu General Sales Tax Act, 1959 and the Tamil Nadu Value Added Tax Act, 2006, including by issuance of Form B-6 notice or by attaching properties or monies directly or otherwise through the third respondent till the sanction by the fourth respondent of the Scheme of Rehabilitation under SIC (SP) Act, 1985 and receive payments and enforce payments in respect of taxes strictly in accordance with the final orders to be passed by the fourth respondent in exercise of its powers under SIC(SP) Act. 2. Brief facts leading to the Writ Petition are as follows: The petitioner-company is engaged in the manufacture of Indian Made Foreign Spirits (IMFS) and beer products in their industrial units located at Bye-pass Road, Poonamallee, Chennai 600 056 and Mount Thiruvallur High road, Aranvoyal Village, Thiruvallur District respectively. Initially, they have started their business with an authorized capital of Rs.90 lacs and it was increased from time to time over the years. The authorized capital of the company as on 31st March, 2006 was Rs.225 crores. The petitioner has issued, subscribed and paid-up share capital as on 31th March, 2006 was Rs.1,12,63,84,600/-, comprising the following: Equity capital Rs.5,31,75,600/- Preference capital Rs.59,62,09,000/- 3. The petitioner has further submitted that as they were earning substantial profits on the distillery units, they decided to expand their business by setting up a brewery unit and accordingly, they obtained a licence from the State Government of Tamil Nadu in the year 1995. Immediately, the petitioner-company has availed financial assistance from various financial institutions and commenced their project. However, due to unforeseen circumstances, the project was delayed and finally, the company completed the brewery project and commenced the commercial operation in May, 2003. 4. The petitioner has further submitted that they have capitalized the plant, machinery and building etc., of the brewery project at Rs.110 Crores, employed over 1000 employees and contributed around Rs.1000 Crores from the above distillery and brewery units to the state exchequer by way of excise duty, sales tax etc. During the financial year 2000-01 onwards, the Company was suffering considerable loss, which resulted in heavy interest burden, delay in implementation of the brewery unit and higher input cost without any corresponding increase in the prices etc. The above factors leads to deterioration of the company. 5. The petitioner has further submitted that as per the mandatory requirement of Section 3(1)(o) r/w. Sec 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as "the SIC(SP) Act"), they have referred their sickness with the Board for Industrial and Financial Reconstruction (BIFR). On 04.02.2004, the petitioner has filed an application for first reference under Section 15 of the SIC (SP) Act and the same was registered as Case No. 103/2004 on 19.2.2004. On reference, an enquiry was initiated as per Regulation 19 of the SIC (SP) Act, 1985. The BIFR directed the petitioner to file Form A along with enclosures, by letter dated 11.03.2004 and the same was duly filed with BIFR on 17.03.2004. Similarly, a second reference was filed on 12.10.2004, based on the audited accounts as on 31.03.2004 and same was registered as case No.315 of 2004 by the BIFR on 18.10.2004. Here again, the BIFR, by letter dated 23.11.2004, directed the petitioner to file Form A alongwith enclosures and the same was filed on 25.11.2004. Based on the audited accounts for the year ending 31.03.2005, a third reference was filed on 24.8.2005 and the BIFR has not given any fresh reference, as both the earlier registrations were pending with the Bench. Fourth reference was filed on 27.10.2006, based on the audited accounts for the year ending 31st March, 2006 and no fresh reference was given, as the previous references were pending before the Bench and the same was informed to the petitioner by letter dated 2.11.2006. 6. The petitioner has further submitted that on 13.07.2006, as directed by BIFR, they have filed their written submissions on 28.7.2006 and on the next hearing date, i.e., on 20.12.2006, the BIFR, after examination of facts, declared the company as Sick Industrial Unit and formulated a scheme for Rehabilitation, vide its communication dated 28.12.2006. IDBI was appointed as an Operating Agency and after conducting a detailed study, the Board has fixed the cut off date as 31.03.2007, for the purpose of formulating a scheme of rehabilitation under the Sick Industrial Companies (Special Provisions) Act, 1985. 7. The petitioner has further submitted that as per Section 18 of SIC(SP) Act, the Operating Agency has to prepare a scheme with respect to the sick company, provide for one or more of the measures set out in the said Section. As per Sec.l8(l)(e), the operating agency has to include preventive, ameliorative and such other remedial measures, as may be appropriate in respect thereof. Section 19 further provides that where the scheme relates to preventive, ameliorative, remedial and other measures, the scheme may provide for financial assistance by way of loans, advances or guarantees or reliefs or concessions or sacrifices from the Central Government, State Government etc. 8. The petitioner has further submitted that in exercise of the powers conferred therein, the BIFR fourth respondent has issued directions, vide proceedings dated 20.12.2006, wherein the Operating Agency, namely, IBDI has been directed to prepare a viability study report and revival scheme keeping in view of the provisions of Section 18 of the Act. In the said order, it is specifically stated that the petitioner is not in a position to work out a scheme under Section 17(2) of the Act and therefore, Section 18 have to be explored in public interest. 9. According to the petitioner, the cut-off date is important for the reason that in the guidelines issued for preparation of the rehabilitation scheme, the company has been directed to furnish a detailed break-up of all liabilities as on the said date under several heads including dues towards Government and other statutory dues. It has also been provided that consequent upon furnishing all the required information, the Operating Agency has to submit a final report. Clause 9 specifically provides that the scheme has to take care of all the known liabilities of the company. Under Clause 15, the Company has been directed to continue to make dues that arise after 31.3.2007, since the same would not be covered in the proposed rehabilitation scheme. 10. The petitioner has further submitted that despite getting protection, pursuant to the order, dated 20.12.2006, they have consistently been paying their taxes every month towards sales tax and Value Added Tax. Considering the continued depletion of all of their resources and in view of the specific protection given to them as well as the direction of the fourth respondent that all their liabilities would be included in the scheme for rehabilitation, the petitioner-company has requested the second respondent, through its communications dated 02.03.2007 and 05.04.2007, not to take any coercive steps for recovery of sales tax arrears, till the Operating Agency prepares a rehabilitation Scheme for revival of the company. 11. The petitioner has further submitted that their liability, as on the cut off date, includes sales tax amount pertaining to January 2004 and February 2004 and Value Added Tax pertaining to March 2007 and the same are required to be included as part of the rehabilitation scheme, in accordance with the direction of the BIFR order and therefore they submitted the VAT returns for the Month of March' 2007 without payment of Tax, as the dues prior to 31.03.2007 would now have to be included and paid in accordance with the schedule, that would finally be sanctioned by the BIFR and make payments in terms of the consequential notification that would, if required, passed by the Government. Therefore a request was made to the second respondent to take the above facts into account and not to initiate any recovery steps in view of the orders of the BIFR, in terms of the Sick Industrial Companies (Special Provisions) Act, 1985. 12. The Assistant Commissioner (CT), Fast Track Assessment Circle II, Chennai - 600 006, second respondent herein, vide its letter dated 10.04.2007, has rejected the petitioners' request and therefore it has now become certain that the second respondent would initiate coercive steps to recover the arrears covered under the Scheme of Rehabilitation. The petitioner has further submitted that even on an earlier occasion, despite the pendency of the reference before the fourth respondent, when respondents 1 and 2 sought to enforce sales tax in respect of January and February' 2004, they had approached this Court in W.P.4862 of 2004 and by order dated 3.3.2004, this Court had granted interim orders in their favour. The second respondent also agreed not to take any coercive steps in respect of the tax covered under the said writ petition. To the contrary, the second respondent has taken a different stand in respect of their dues for the month of March 2007. 13. The petitioner has further contended that the impugned communication dated 10.4.2007 is wholly without any application of mind and has been passed arbitrarily, in as much as, the second respondent has clearly recognized that the earlier dues in respect of sales tax need not be paid and they would await orders from BIFR in respect of dues for the month of March 2007 and the VAT liability of Rs.53.07 crores. The basis for rejection of the request to await further orders in respect of the rehabilitation scheme is wholly inexplicable and there is every likelihood that respondents 1 and 2 would initiate coercive steps for recovery, which would make the efforts, before the BIFR, nugatory. The petitioner has further contended that the records were already before the second respondent as well as the Secretary to the Government and it would clearly prove that they are a sick industrial unit within the meaning of the Sec. 3(1) (o) r/w. Section 15 of the SIC (SP) Act, in which, the operating agency has been appointed and he has acted upon in terms of the BIFR order dated 28.12.2006. 14. The second respondent in his counter affidavit has submitted that the petitioner, Tvl. Balaji Distilleries Ltd., is a manufacturer of IMFL and beer and an assessee on the files of the Assistant Commissioner (CT), Fast Track Assessment Circle II, Chennai, the 2nd respondent herein. The Company has arrears upto March 2004 as follows: (i) Part of tax collected in Jan' 04 payable in Feb' 04 (Rs. in Lakhs) Rs.1600.00 (ii)Part of tax collected in Feb' 04 payable in Mar' 04 Rs. 29.48 (iii) Interest levied for belated payment of tax due for 2001-02 and for 2002-03 Rs. 356.60 Total Rs.4905.33 15. The petitioner-company, by preparing balance sheet for the year ending 30.06.2003, filed reference and the same was received by the BIFR on 04.02.2004 and got registered as case No. 103/04. The company in Case No.103 of 2004, had included the arrears of Rs.356.60 Lakhs. Again, by preparing another balance sheet for the year ending 31.3.04, the petitioner has filed reference under Section 15(1) and got registered on 12.10.04 as case No. 315/04. In the Form A filed for reference in case No. 315/04, the arrears (i) to (iii) above, totalling Rs.49.05 Crores were included. The company is a viable and running unit. The company refrained themselves from paying taxes collected by them at Rs.16 Crores and Rs.29.49 Crores and interest levied for belated payment of tax at Rs.356.60 lakhs under the cover of BIFR in Case Nos. 103/04 & 315/04. 16. The respondent has further submitted that the company is a running unit engaged in the manufacture of IMFL & Beer, a flourishing trade and has been paying taxes regularly from April 04 to March 07. The company had paid Rs.411.00 crores from April 05 to March 06 and Rs.558.37 crores from April 06 to March 07. The company had also paid the tax dues in March 07(February 07 due in March 07) at Rs.52.57 crores. The second respondent has further submitted that the BIFR, in pursuance to the registration of reference in case Nos. 103/02 and 315/04, in the summary record of the proceedings of the hearing held on 20.12.06, declared the company as a sick industrial unit and by appointing IDBI as an operating agency directed IDBI to prepare a viability study report and a revival scheme for the said company, if feasible within an overall period of 16 weeks (from 20.12.06) and with cut off date as 31.3.07 (within the overall period). 17. The second respondent has further submitted that the company has been paying the monthly tax regularly from April 04 to March 07 and they have paid Rs. 52.57 in March 07 (Feb.07 due in March 07). As the company delayed the payment by Rs.14 crores upto 20.3.07 towards the taxes due for Feb. 07, payable in March 07, B6 notice dated 21.03.2007 was issued to TASMAC and to the banker of the petitioner company, and Rs.5.14 crores was collected from M/s TASMAC in the late evening on the same day 21.3.07. On payment of balance of Rs. 8.86 crores by the company on 22.3.07, B6 notice was withdrawn. The company, has been regularly making payments from April 04 to March 07. 18. It is further submitted that the company misconstrued the cut-off date, i.e., on 31.3.07, as equivalent to the reference date for registration of the company as a sick industrial unit Under Section 15(1) of the Act and the company is under wrong notion that the taxes due in April 07 (March 07 payable in April 07) need not be paid under the cover of protection under sec. 22 of SICA. Therefore, the request of the company in not to collect the current taxes, relating to the amount of taxes collected by them in March 07 in their sale bills, was rejected by the Assistant Commissioner (CT) Fast Track Assessment Circle-ll, dated 10.4.07 and the company was requested to make the current taxes. The company again in their letter dated 12.4.07, by filing their returns for the month of April 07 (March 07 payable in April 07) disclosed a taxable turnover of Rs.91,64,93,250/- and admitted a tax liability at Rs.53,06,97,604/-, refrained from making payment of taxes under the pretext date, 31.3.07 mentioned in the summary record of the proceedings of the hearing held on 20.12.06 by the BIFR, as cut off date with reference to registration of reference of a sick industrial unit u/s.15(1) of the Act, even though the cut off date 31.3.07 mentioned in the summary record of the proceedings of the hearing held on 20.12.06 refers only to the date prescribed for the operating agency to prepare and submit a viability study report if feasible with in an overall period of 16 weeks i.e. before 31.3.2007. 19. The company was requested to make the payment for which they assured that they shall pay the current taxes. However, to their shock and surprise, the company had moved this court and by order dated on 12.4.07, the company obtained an interim stay and injunction. The order was received on 16.4.2007. The BIFR in the summary record of the proceeding dated 20.12.07 has observed as follows. "Accordingly, in terms of powers available under sec. 17(3) of the Act, the Bench appointed IDBI as the operating Agency (OA) with directions to prepare a viability study report and revival scheme for the company, if feasible within an over all period of 16 weeks. The OA was directed to keep in view the provisions of Section 18 of the Act and the enclosed guidelines while carrying out this exercise. The company was directed to make a payment of Rs. 5.00 lakhs to the IDBI as OA fee. The company was directed not to dispose of except with the consent of the Board, any of its assets as per section 22A of the Act. The cut off date (COD) for the scheme shall be taken as 31.03.2007". 20. It is further submitted that the cut off date, i.e., on 31.3.07, refers to only the "preparation of viability study report and revival scheme by the Operating Agency to the company, if feasible, within an overall period of 16 weeks with a cut off date as on 31.3.07. 16 weeks period from 20.12.06 extends upto 10.4.07 and the cut off date 31.3.07 refers to the overall period of 16 weeks and it has nothing to do with the registration of reference under Sec. 15 of SICA in case Nos. 103/04 & 315/04. Actually the cut of date 31.3.07 is no way specified as the cut off date by BIFR in relation to the references registered under Sec. 15 of SICA. The BIFR in the summary record of proceedings of the hearing held on 20.12.06 nowhere ordered or directed, the government to sacrifice the current taxes collected in March 07 by the petitioner. The respondents 1 and 2 have further submitted that when this position/fact could be well known and visualised even by an ordinary person it is not open to the petitioner-company to misconstrue, distort to gain undue advantage without any justification either under SICA or general law, much to the disadvantage of the revenue and that too, when the petitioner as a running concern had already collected the current taxes in March 07 at Rs.53.07 crores. The petitioner has projected a case to hamper the government in realizing legitimate dues from them, which amount is used for the developmental activities of the government. 21. It is further submitted that the High Court of Gujarat in the case of M/s Core Health Care Ltd. Vs. the State of Gujarat reported in 139 STC 116 while dealing with suspension of legal proceedings pending inquiry, consequent upon registration of reference under SICA, has raised the three important points with reference to cut off date and answered them as a source of jurisprudence of great value. According to the respondents 1 and 2 the decision rendered in the above reported case is applicable to the facts of the present case. 22. The respondents 1 and 2 have furthr submitted that the cut off date did not refer to the period i.e., (i) the period upto the date of registration of the company as a sick industrial company under sec. 15 of the Act, which is also the date of commencement of the inquiry (ii) the period commencing from the date of registration of the sick Industrial Company by the BIFR, till sanction of the rehabilitation scheme by the BIFR, enabling the Government to recover Rs. 53.07 crores without any sacrifice whatsoever. The company has misconstrued the cut off date and obtained interim order. Therefore, the claim made by the company is unwarranted, unjustified and arbitrary. 23. The second respondent in his counter affidavit has further submitted that the High Court of Andhra Pradesh in the case of Sol Pharmaceuticals Ltd., Vs. Mandal Revenue Officer and Another, reported in 5 VST 580, under similar set of facts and issue, held that when the company did not become defunct or non-productive or stopped its substratum activity before seeking reference under Section 15(1) of the SICA and continued to collect sales tax from others, the same has to be paid over to the Government. The respondents have further submitted that in view of the above judgment, the petitioner-company has to pay the tax collect for the month of March 2007 to the Government and they do not have any legal or statutory right to retain the same. 24. The second respondent has further contended that the cut off date 31.3.07, is nothing but a crucial date for the preparation of viability study report, if feasible, for the company and this has been misconstrued and distorted by the petitioner with an intention to gain undue advantage. The crucial date did not refer to the period prior to date of registration of reference, i.e., prior to registration of references in case Nos. 103/04 and 315/04. Therefore no blanket protection under Section 22 of SICA is available for the taxes collected by the petitioner company in March 07, in the post reference period and the State is entitled to collect the same, even without any consent from BIFR. Admittedly, the company did not become defunct or non-productive or stopped its substratum activity either before seeking reference under Section 15(i) of SICA or subsequently. In all probabilities, the petitioner company continues to collect taxes from TASMAC, but wantonly withheld the same, without paying it over to the Government. Hence, no protection under sec. 22 of SICA is available to the petitioner and the State is at full liberty to collect the taxes of Rs.53.07 Crores towards Sales tax collected by the company in March 07 during the period, after the date of registration of reference in Case Nos.103/04 and 315/04 and before the sanction of rehabilitation scheme. The Operating Agency, IDBI within an overall period of 16 weeks from 20.12.2006 and before the cut off date, i.e., 31.3.2007, has not come forward to prepare the viability study report. Because, the Operating Agency might have determined that the affairs of the company, might not be so conducive to prepare a viability study report especially, when the company had already in arrangement with ICICI, internally, before seeking reference to BIFR under sec. 15(i) and before registration of reference in case Nos.103/04 and 315/04. May be such circumstances, it is not even possible for IDBI to prepare viability study report and it is rather not feasible for IDBI without eliminating ICICI from seizing the control of the company as a fully secured creditor, in whose position, the affairs of the company is under control. The petitioner company has conveniently