High Court Of Andhra Pradesh And Telangana
Telangana State Beverage Corporation Ltd. vs. Union of India, Ministry of Finance
Section : 222, 220 and 156
Assessment Year : 2012-13
Kalyan Jyoti Sengupta, Cj. And Sanjay Kumar, J.
Writ Petition Nos. 5606 & 5616 Of 2015
May 1, 2015
Kalyan Jyoti Sengupta, CJ. – The above two writ petitions have been filed challenging the prohibitory orders and warrant of attachment of movable property issued by the 2nd respondent on 28.02.2015.
2. The factual and legal grounds of challenge in the aforesaid petitions are similar and identical.
The petitioner has been incorporated under the provisions of Companies Act, 2013 on 30.05.2014 and carrying on business on behalf of the State of Telangana in respect of sale of Indian Made Liquor and Foreign Liquor (In short, IML and FL). It is claimed that the petitioner is extended arm of the State Government as an instrumentality of the State of Telangana. The petitioner has also been conferred a monopoly status in respect of the said activities in the State of Telangana, as such, the petitioner has Permanent Account Number, being AAFCTO204P, issued by the 3rd respondent. In the course of carrying on such business, on 27.2.2015 the aforesaid prohibitory orders and warrant of attachment of movable property were issued restraining the petitioner from selling the liquor stock, which is the property of State of Telangana. The said prohibitory orders were issued contending incorrectly that the petitioner is the successor in business of Andhra Pradesh Beverages Corporation Limited (APBCL) under the provisions of Andhra Pradesh Reorganization Act, 2014 (hereinafter referred to as Act, 2014). It is also alleged that a sum of Rs.1468,63,95,620/- was the proportionate amount due from the petitioner for the assessment year 2012-13. The aforesaid prohibitory orders and attachment orders were issued by the 2nd respondent under the provision of Rule 26 (1) (iii) of the Second Schedule to the Income Tax Act, 1961 (hereinafter referred to as Act, 1961). It is contended that prior to the impugned prohibitory orders, the petitioner has never received any notice of assessment for the assessment year 2012-2013, and till date the petitioner does not receive any copy of the assessment orders for the same assessment year. As such, the 2nd respondent has no jurisdiction to commence tax recovery proceedings against the petitioner, as no notice was served on the petitioner during the assessment proceedings nor any assessment order was served upon the petitioner. No notice of demand was served upon the assessee under Section 156 of the Act, 1961. Since the respondents 2 and 3 have failed to serve notice of demand upon the petitioner as required under Section 156 of Act, 1961, they have no jurisdiction to commence the tax recovery proceedings against the assessee. Indeed, the petitioner cannot be called as an assessee in default under Section 220 of the Act, 1961, if the petitioner has not been served with the assessment order. The above impugned orders make a reference to the Tax Recovery Certificate No.AABCA7385A/171/TRO-1/2014-15, dated 19.02.2015. The petitioner has not received copy of the aforesaid Tax Recovery Certificate. In any event, the tax recovery certificate is totally inapplicable to the petitioner as it is with reference to some other assessee. The Permanent Account Number, as stated in the tax recovery certificate, does not belong to the petitioner. As such, the petitioner cannot be considered to be an assessee in default. Under Section 222 read with second Schedule of the Act, 1961, attachment of movable property can be done only in case of default. Consequently, attachment proceedings are without jurisdiction. The tax recovery certificate was drawn by the 2nd respondent and the Tax Recovery Officer has to issue notice on the alleged defaulter under Rule 2 of the Second Schedule of the Act, 1961. The said notice is required to be effected through a statutory form ITCP No.1. In the present case, no such notice in Form ITCP No.1 has been served on the petitioner. As the respondents have failed to comply with Rule 2 of the Second Schedule of Act, 1961 by serving the form in ITCP No.1, the respondents have no jurisdiction to commence the tax recovery proceedings by issuing the impugned prohibitory orders. The prohibitory orders were issued without complying with the condition in Rule 20 of the Second Schedule of the Act, 1961. Under Rule 20 (2), the Tax Recovery Officer has to serve a warrant in writing specifying the name of the defaulter and the amount to be realized. The impugned prohibitory orders were issued without issuing warrant specifying the name of the defaulter and the amount to be realized. As such, the respondents have no jurisdiction to commence the tax recovery proceedings and to issue the impugned prohibitory orders under the law. The liquor stocks belong to the State of Telangana, and the same do not form the property of the petitioner. The petitioner is holding the said property only as an agent and custodian of the State of Telangana. The orders for supply and the invoices categorically show that the property, which is sought to be attached, belong to the State of Telangana, and not to the petitioner herein. The petitioner is not the successor in business of APBCL. The respondents never treated the petitioner as the successor of APBCL for the assessment proceedings 2012-13. The respondents also did not treat the petitioner as the successor of APBCL for the purpose of serving assessment order. Nonetheless, the respondents treated the petitioner as successor of APBCL only for the purpose of tax recovery proceedings under the Scheme of Distribution of Assets and Liabilities, the income tax liabilities have to be borne by the Government of Andhra Pradesh and Government of Telangana respectively. The said scheme has been approved by the then Government of Andhra Pradesh vide G.O.Ms.No.239, Revenue (Ex.II) Department, dated 27.5.2014. Therefore, the attachment orders are arbitrary, unlawful and ultra vires the provisions of the Act, 1961.
3. In the counter-affidavit filed by the 2nd respondent, it has been stated to justify the aforesaid order that the petitioner is the successor in business of APBCL as per Section 53 read with Section 68 of the Act 2014, in respect of the territories falling in the State of Telangana. As a result of reorganization of the State, as per State Government G.O.Ms.No.187, Revenue (Ex.II) Department, dated 16.5.2014, a new Corporation was incorporated in the name and style of M/s. Telangana State Beverages Corporation Limited (TSBCL), having its registered office at 2nd Floor, Prohibition & Excise Complex, 9 & 10 Eastern Block, MJ Road, Nampally, Hyderabad. As per G.O.Ms.No.239, dated 27.5.2014 and G.O.Ms.No.254, dated 31.5.2015, the Government had appropriated the existing movable assets between both the Corporations of APBCL and TSBCL. The assets and liabilities have been shared based on the population ratio which was arrived at 58.32 : 41.68. For the Assessment year 2011-12 as per the directions of this Court in Writ Petition No.22430 of 2014 the petitioner has a share of liability amounting to Rs.83,36,00,000/- on 6.11.2014 which is 41.68% of the total amount paid by both the Corporations aggregating to Rs.200 crores. The income tax demand was raised for the assessment year 2012-13 i.e., financial year 2011-12 during which time TSBCL does not exist. The petitioner is estopped from denying the liability of income tax demand as it had already accepted by paying its share of demand pertaining to assessment year 2011-12. The assessing officer has passed the assessment order for the assessment year 2012-13 for which the relevant accounting period is from 1st April, 2011 to 31st March, 2012. The assessing officer has brought to tax the income that was received by the assessee, APBCL, from its business operations during the period relevant for the assessment year 2012-13, during which the petitioner herein is a non-existent. Subsequent to the accounting period relevant for the assessment year 2012-13, part of the assets and liabilities of the assessee, APBCL, stood transferred to the petitioner herein under Act 6 of 2014. Technically, no notice of demand was served on the petitioner under Section 156 of the Act, 1961 as the assessment order was passed for the assessment year 2012-13 during the accounting period relevant for the assessment year, when the petitioner herein was not in existence. The petitioner was incorporated only during the financial year 2014-15. It is contended that the petitioner must take liability including tax along with assets, indeed it has taken for the assessment year 2011-12. Accordingly, the tax liability of the petitioner works out to Rs.1225,19,94,125/- relating to the assessment year 2012-13 and 2013-14. Since the assessee Corporation has not discharged its tax liability, recovery proceedings were initiated by the Tax Recovery Officer by issuing ITCP Nos.2 & 5 under Rules 20 & 26 (1) (iii) of the Second Schedule to the Act, 1961. As per the provision of Section 170 (3) of the Act, 1961, the assessing officer has recorded its finding vide letter dated 18.2.2015 wherein it was stated that IML/FL sale proceeds, including the margins, are directly being credited into the treasury account of the State Government as per G.O.Ms.No.614, Revenue [Ex.II (2)] Department, dated 6.5.2005. A clear finding was recorded by the assessing officer that the income tax dues pertaining to the share of TSBCL, successor in business, has to be recovered from it by the Tax Recovery Officer, on being referred to him. Hence, there is no requirement of serving a demand notice or assessment order on TSBCL. After reference is made to the Tax Recovery Officer by the assessing officer, then the proceedings of the Tax Recovery Officer can be initiated by him even though he has not served a demand notice or assessment order on the petitioner. Therefore, the proceedings and the jurisdiction of the Tax Recovery Officer are valid. Notice under Rule 2 of the Second Schedule to the Income Tax Act has been issued to the assessee.
Even though the tax recovery certificate was drawn in the name of the predecessor, APBCL, the petitioner being the successor in business to APBCL in respect of the territorial jurisdiction of the State of Telangana, the liability pertaining to its share has to be paid by the petitioner as it has already received the assets from APBCL. Hence, there is no violation of provision of Section 222 or Rule 2 or Rule 20 of the Second Schedule of the Act, 1961. It will appear from the specimen orders for supply and invoices, all the transactions are monitored by the Managing Director, TSBCL, and only the name of the Government was mentioned therein. The depots are also in the name of TSBCL and the stock is delivered and sold at the depots. The petitioner cannot invoke Article 289 (1) of the Constitution of India as it is not the extended arm of the State Government and it has a special legal entity. The petitioner itself agreed that as per the Scheme of Distribution of Assets and Liabilities, including those of income tax, the same was approved by G.O.Ms.No.239, dated 27.5.2014.
4. The learned Advocate General appearing for the writ petitioner in both the writ petitions, while placing the above fact, submits that the writ petitioner is a separate legal entity and it came into being after the relevant assessment years, for which the alleged recovery proceedings initiated against the petitioner. Admittedly it is neither an assessee nor a garnishee, for which this action can be taken. Even the writ petitioner cannot be assessed to tax as it is a part and parcel of the State of Telangana. The composition of the petitioner would clearly show that it is absolutely an organ of the Government. So, it enjoys Constitutional immunity under Article 289 (1) of the Constitution of India.
5. According to him, the recovery has to be made in compliance with Sections 220 & 222 of the Act, 1961. It would appear from the aforesaid two Sections that there must be an assessment order against the assessee, followed by the notice of demand under Section 156 of Act, 1961, in case of failure of complying with the same the recovery proceedings can be started. Admittedly no assessment order has been passed against the petitioner nor the petitioner is a deemed assessee in default. The order of attachment or restraint order is also not in consonance with Section 222 read with Rule 26 (1) (ii) of the Second Schedule of the Act, 1961. The writ petitioner is not a transferee or the successor in interest of APBCL under the provisions of Act, 2014. Nothing has been succeeded by this petitioner as far as the assets and liabilities of the erstwhile APBCL is concerned.
6. Mr. J.V. Prasad, the learned Counsel for the Revenue, on the other hand, justifies the action, and contends that it would appear from the provision of Act, 2014, this writ petitioner is the successor in interest of APBCL, as such by virtue of Section 226 (3) (iii) read with Section 170 (3) of the Act, 1961, the proportionate share of the liabilities can be recovered from the writ petitioner. It would appear from the records that the petitioner is the successor in interest as far as the assets and properties and businesses are concerned. Therefore, notices issued and order of attachment made are perfectly justified under the law.
7. After hearing the learned counsel for the parties and considering the statements and averments made in the pleadings and perusing the necessary documents, the only question that arises in these two cases is whether any recovery proceedings can be initiated against the writ petitioner for the alleged income tax dues as claimed by the Revenue.
8. From the records, it is an undisputed position that the petitioner came into being as a company and as such it is separate legal entity, on being incorporated on 30th May, 2014. Tax dues in relation to which recovery is sought to be made concern with financial year 2011-12 and assessment year 2012-13. At that time the petitioner was not in existence. Admittedly the petitioner is not an assessee nor a deemed assessee or a default assessee. No assessment order was passed against it nor any notice of demand was issued.
9. Going by the legal provision as mentioned in Section 156 of Act, 1961, the recovery proceedings cannot be initiated against the petitioner. Therefore, apparently, notices are absolutely illegal and invalid as the same are issued without following the provision of Section 156 of Act, 1961. Section 156 of Act, 1961 is set out hereunder:
“156. Notice of demand:â When any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under this Act, the Assessing Officer shall serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable:
Provided that where any sum is determined to be payable by the assessee or by the deductor under sub-section (1) of section 143 or sub-section (1) of section 200A, the intimation under those sub-sections shall be deemed to be a notice of demand for the purposes of this section.”
10. Now, looking at the provision of clause (ii) of sub-section (3) of Section 226 of the Act, 1961, as urged by Mr. Prasad, whether we can conclude the writ petitioner as a person holding any money for or on account of the assessee, so much so the tax can be recovered from it, in respect of the dues of APBCL is concerned. We think, on the facts narrated above, the answer is in negative for the reason stated hereunder.
11. By virtue of Section 68 read with Section 53 of Act, 2014, successor States of Andhra Pradesh and Telangana have acquired the assets and took over the liability in respect of the Companies and Corporations specified in the Ninth Schedule of Act, 2014. The APBCL is one of the Corporations as mentioned in Ninth Schedule being Item No.25. Sections 53 & 68 of Act, 2014 provide as follows:
“53. Assets and liabilities of State undertakings:â (1) The assets and liabilities relating to any commercial or industrial undertaking of the existing State of Andhra Pradesh, where such undertaking or part thereof is exclusively located in, or its operations are confined to, a local area, shall pass to the State in which that area is included on the appointed day, irrespective of the location of its headquarters:
Provided that where the operation of such undertaking becomes inter- State by virtue of the provisions of Part II, the assets and liabilities of
(a) the operational units of the undertaking shall be apportioned between the two successor States on location basis; and
(b) the headquarters of such undertaking shall be apportioned between the two successor States on the basis of population ratio.
(2) Upon apportionment of the assets and liabilities, such assets and liabilities shall be transferred in physical form on mutual agreement or by making payment or adjustment through any other mode as may be agreed to by the successor States.
68. Provisions for various companies and corporations:â (1) The companies and corporations specified in the Ninth Schedule constituted for the existing State of Andhra Pradesh shall, on and from the appointed day, continue to function in those areas in respect of which they were functioning immediately before that day, subject to the provisions of this section.
(2) The assets, rights and liabilities of the companies and corporations referred to in sub-section (1) shall be apportioned between the successor States in the manner provided in section 53.”
12. Therefore, by virtue of sub-section (2) of Section 68 the assets, rights and liabilities of APBCL now stand apportioned between the State of Andhra Pradesh and State of Telangana in the manner as provided in Section 53 of Act, 2014. Section 53 provides subject to the agreement the aforesaid assets and liabilities of the Corporation, shall stand apportioned on the basis of population ratio. The petitioner has not acquired nor can acquire in view of above legal position any property from APBCL nor the liability thereof. The State of Telangana has acquired these assets and properties and liability of APBCL, being the recorded assessee proportionately. Therefore, it is absurd to contend that the writ petitioner is the successor in interest of APBCL. It is absolutely separate legal entity, as rightly contended by Mr. K. Ramakrishna Reddy, the learned Advocate General appearing for the writ petitioner, that it has not started business nor any income has been derived. It does not appear from object clause of Memorandum of Association that it has acquired any rights, assets and properties of APBCL. Thus, the question of shouldering liability by the writ petitioner also does not arise. We are of the view that just because the petitioner paid tax dues on mistaken application of law, it cannot be precedent for recovery for the simple reason that illegal and wrongful action cannot be precedent, furthermore there cannot be estoppel as against provision of law.
13. Therefore, we hold that the actions taken by the Revenue against the writ petitioner are without jurisdiction and wholly illegal.
14. The alleged dues of APBCL, in relation to the assessment year 2012-13 after the appointed day, can be recovered from the successor State Governments in terms of Section 68 (2) of Act 2014, as all these dues being part of liability can be apportioned accordingly. In the event, State of Telangana does not pay the proportionate liability of the tax dues for the assessment year 2012-13 or previous thereto, if any, it would be open for the respondents to recover the same from the State of Telangana, since It is to share the proportionate liability along with assets of the erstwhile APBCL which was again a separate legal entity and an assessee. We are of the view that the writ petitioner cannot be equated with the Government in order to get Constitutional immunity from payment of taxes.
15. We, therefore, set aside and quash the orders and notices issued against the writ petitioner. However, liberty is given to the respondent officials to recover the dues from the State of Telangana, if it is not paid, and that can only be done after issuance of notice under Section 226 of the Act, 1961.
16. Thus, both the Writ Petitions are allowed. There will be no order as to costs.
Consequently, pending miscellaneous petitions, if any, shall also stand closed.
[Citation : 377 ITR 622]