Modi Industries Ltd. vs State of U.P. and Others

We have heard Sri Dhruv Agarwal, Senior Advocate, assisted by Sri Nikhil Agarwal for the petitioner. Sri S.P. Kesarwani, learned standing counsel appears for respondent Nos. 1 to 5. Sri Suresh Chandra Srivastava, appears for respondent No. 6-State Bank of India. Sri Anuragh Khanna had intervened on behalf of Sri M.K. Modi and Shri S.D. Singh for Sri V.K. Modi. The rehabilitation of Modi Industries Ltd. is still pending with the Board of Industrial Finance and Reconstruction (BIFR). By an order dated March 12, 2007, a rehabilitation scheme was prepared, with cut-off date as June 30, 2007. The Commercial Tax Department, U.P., represented with an application dated February 14, 2007, to allow the recovery of current dues, on which the BIFR passed an order on March 26, 2008. The operative portion is quoted as follows :

Having considered the facts on record, the Bench observed that in the hearing held on March 12, 2007, the Bench had directed the promoters of the company to submit fully tied up proposals jointly or severally, to IDBI (OA) within three months, in terms of honourable AAIFR order dated May 24, 2006. IDBI (OA) was directed to submit a fully tied up DRS to the Board within two months thereafter. The cut- off date of the scheme was to be taken as June 30, 2007. Notwithstanding the interim orders of status quo of the honourable AAIFR, the final cut-off date given by the Board continued to be June 30, 2007.

17.1. As per the standard guidelines of the Board for preparation of rehabilitation scheme, the company was required to be regular in the payment of all its current dues arising after the cut-off date, since the recovery of such dues was not covered in the proposed rehabilitation scheme.

17.2. The Bench observed from the company''s audited balance sheet for 2006-07 that the company was working and paying the current statutory dues also.

17.3. Therefore, the Bench permits the Commercial Tax Department, Government of Uttar Pradesh to recover its outstanding dues, due after June 30, 2007, i.e., the cut-off date given by the Board vide its final order dated March 12, 2007 regarding preparation of the rehabilitation scheme.

17.4. The Bench further directs that a copy of this order along with the Board''s proceedings of the hearings held on January 10, 2008 and February 13, 2008 may be sent to the honourable Supreme Court.

There is no dispute between the parties that the dues after June 30, 2007, are to be paid by the company, under the scheme.

In this writ petition, the petitioner is challenging the recovery and attachment orders dated August 10, 2009 and October 25, 2009, to recover Rs. 79,00,917 for the assessment year 1983-84 towards penalty, in pursuance of order u/s 4B(6) and recovery of Rs. 13,12,793 towards tax liability plus interest for the assessment year 1986-87, in pursuance of the order u/s 49(8) of the U.P. Trade Tax Act. The assessment orders were subject-matter of appeal. The appellate authority remanded the matter. The assessing authority vide order dated February 11, 2009 arrived at the same figure towards penalty, interest and tax dues.

It is contended by Sri Dhruv Agarwal that the demand raised by assessment order dated February 11, 2009, after remand, is not current liability, and has to be treated as outstanding dues. He submits that section 3 read with section 3AAA of the Commercial Trade Tax Act provides for payment of tax at the rate provided. Where the demand is enhanced u/s 8(9), fresh demand for the enhanced amount has to be raised.

In the present case, the tax was assessed on the transactions made in the assessment years 1983-84 and 1986-87. The enhanced demand was also raised, relating to these years, which was subject-matter of appeal when the rehabilitation scheme was prepared. The rehabilitation scheme was finalized on March 12, 2007 with the cut-off date as June 30, 2007. The demand, prior to the cut-off date, was remanded by the Commercial Tax Tribunal in February 2008, and thus making of fresh order dated February 11, 2009 will not treated as current liabilities. The amount has to be termed as outstanding dues arising prior to the cut-off date.

Sri S.P. Kesarwani, appearing for the Department submits that the charging section only declares liability, and the demand, after the remand order, made after the cut-off date, is liable to be treated as current dues. The recovery proceedings thus initiated in pursuance of the assessment order dated February 11, 2009 were not illegal, and are not protected by the scheme. He has relied upon decisions in M.A. & Co. v. Assistant Commissioner (Judicial), Sales Tax, Farrukhabad [1967] 15 SCC 487, and in Harshad Shantilal Mehta Vs. Custodian and Ors, , in which it was held by the Supreme Court that tax is payable after the liability is ascertained and quantified.

The words "outstanding dues" and "current dues" have to be understood in the context in which rehabilitation scheme is prepared, and the object and purpose of section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). The object of preparing rehabilitation scheme, and to give a protective umbrella to the sick units for rehabilitation is to provide for deferment or for a different treatment of the payment of dues, prior to the cut-off date, which may be termed as outstanding dues. The current dues for the purpose of rehabilitation scheme are those dues, which fall due after the cut-off date. The liabilities created, taxes falling due, assessed and demand raised after the cut-off date, do not fall within the protection of section 22 of the SICA Act. Any demand in pursuance of the assessment orders, prior to the cut-off date has to be classified as outstanding dues, to be protected by the rehabilitation scheme. In the case of reassessment, after remand of a period prior to cut-off date, the dues do not partake the character of current dues.

Sri Anurag Khanna submits that the rehabilitation proposals have also been submitted by Sri M.K. Modi, and that Sri V.K. Modi, and that directions be issued to the Appellate Authority (AAIFR), where the matter is pending in pursuance to the order of the Supreme Court dated August 27, 2010 in M.K. Modi v. V.K. Modi, (Special Leave to Appeal (Civil) Nos. 23095-23097/2010) to accept the rehabilitation scheme.

The prayers made by Sri Anurag Khanna do not come within the scope of the present writ petition. We are not concerned in this writ petition with any fresh rehabilitation scheme, which may be pending in the AAIFR. The writ petition is allowed with declaration that demand for the years 1983-84 and 1986-87, on the orders passed by Assistant Collector, Grade I, Commercial Taxes, Modi Nagar, Ghaziabad shall be included, and be treated as covered by the rehabilitation scheme, as it was framed, or may be modified subsequently. If any amount has been recovered by way of attachment, the same will be subject to adjustment by the BIFR, or provision may be made for its adjustment, in the rehabilitation scheme.