Topic: M/S.Sargam Foods Pvt.Ltd vs State of Maharashtra

Bench: P. B. Majmudar, Rajesh G. Ketkar - In The High Court Of Judicature At Bombay Civil Appellate Jurisdiction - Writ Petition No.4313  Of 2008 -  dated:  8 July, 2010

Judgment Reserved on: 6th May, 2010 Judgment Pronounced On :8th July, 2010 Judgment : (Per R.G.Ketkar, J.)

1. By this petition under Article 226 of the Constitution of India, the petitioners challenge the order dated 29th November 2007 passed by the 3rd Respondent, Cess Officer, Municipal Corporation of the City of Navi Mumbai (for short NMMC) , as also the prohibitory order dated 5th November 2007 passed by the 3rd Respondent. The facts and circumstances giving rise to the filing of the present writ petition, briefly state, are as under:-

The 1st Petitioner is a Company and Small Scale Unit engaged in the business of manufacturing of compounded asafoetida ( Hing) from its factory situate at MIDC, Navi Mumbai. The 1st Petitioner is also a member of Small Scale Entrepreneurs Association (for short the Association) who challenged the competence of the NMMC for levy and collection of cess from the Industries in Maharashtra Industrial Development Corporation (for short MIDC) area in Thane Belapur Industrial Belt by filing Writ Petition No.2787/2001. On 22nd December, 2005 the 2nd Respondent issued demand notice of Rs.49,733/- for the period 2005-2006 for payment of property taxes. The petitioner replied this notice on 5th January, 2006 questioning the competence of the NMMC to levy and recover the property taxes. Respondent No.2 issued notice dated 26th July, 2006 calling upon the 1st Petitioner to produce the books of accounts and demanding the payment of cess. This was replied by the 1st Petitioner on 27th July, 2006 contending that the question about the competence of the NMMC to levy and collect cess is pending in this Court and the petitioners would abide by the decision in that case. On 29th September, 2006 the 2nd Respondent issued final reminder to appear before the cess authorities alongwith the books of accounts to ascertain the cess liability. This was followed by notice dated 5th October, 2006 issued under Rule 25(3) (10) & (11) of the Bombay Provincial Municipal Corporation (Cess on entry of goods) Rules 1996 (for short the Rules). This was replied by the petitioners on 9 th October, 2006. Since there was no payment, the 2nd Respondent issued letter dated 29th November, 2006 and proposed for best judgment assessment. This was replied by the petitioners on 4th December, 2006 requesting the 2nd Respondent not to initiate any proceedings and/or pass any order as the matter is sub-judice before this Court. The notice of demand was issued under Rule 25 (14) of the Rules on 27 th December, 2006 pursuant to the order dated 27th December, 2006 passed under Rule 25(5) of the Rules.

Pursuant to this order, the 3rd Respondent passed an order under Rule 35 on 27th December, 2006 attaching the Bank Account No.CC-653 in the Dombivali Nagari Sahakari Bank Limited to protect the legitimate revenue of the Corporation which is impugned in this petition. The petitioners also challenged the prohibitory order dated 5th November, 2007 passed by the 3rd Respondent u/s.152 (J) (3) of the Bombay Provincial Municipal Corporations Act, 1949 (for short the Act) attaching the goods, list whereof was annexed to the said order.

2. Heard Mr.Jitendra Jain, learned counsel for the petitioners, Ms.S.S.Bhende, learned AGP for Respondent Nos.1 & 5, and Mr.A.A.Garge, learned counsel for Respondent Nos.2 & 6. Mr.Jain, for the petitioners submitted that the order dated 29th November, 2007 passed by the 3rd Respondent attaching the cash credit account is wholly unsustainable. He submitted that basically it is an overdraft facility and the amount is not payable by the Bank.

3. As far as the prohibitory order dated 5th November, 2007 passed by the 3rd Respondent u/s.152 (J) of the Act is concerned, he submitted that the said order passed by 3rd Respondent is without any authority and only the Commissioner of NMMC has power to pass the said order.

4. On the other hand, Mr.Garge, learned counsel for Respondent Nos.2 & 6 submitted that the order dated 29th November, 2007 passed by the 3rd Respondent under Rule 35 of the Rules is with a view to protecting the legitimate revenue of the Corporation. The petitioners are liable to pay Rs.

13,90,129/- as cess liability. As far as prohibitory order dated 5th November, 2007 passed by the 3rd Respondent is concerned, he submitted that the Cess Officer is one of the Cess Authorities u/s.152E of the Act. He further submitted that the petitioners have an equally efficious alternate remedy of filing an appeal u/s.406 of the Act. He therefore prayed for dismissal of the writ petition.

5. Mr.Jain invited our attention to the judgment of the learned Single Judge of the Madras High Court in the case of Adam V/s.Income Tax Officer, Vol.XXXIII, Income Tax Reports 26, as also the judgment of the learned Singe Judge of the Karnataka High Court in the case of Karnataka Bank Limited V/s.Commissioner of Commercial Taxes, 1999 Sales Tax Cases 19.

In the case of Income Tax Officer, the learned Single Judge of the Madras High Court considered the provisions of Section 46 (5A) of the Income Tax Act. The said provision reads as under:-

"The Income-tax Officer may at any time or from time to time, by notice in writing (a copy of which shall be forwarded to the assessee at his last address known to the Income Tax Officer) require any person from whom money is due or may become due to the assessee, or any person who holds or may subsequently hold money for or on account of the assessee to pay to the Income Tax Officer, either forthwith upon the money becoming due or being held at or within the time specified in the notice (not being before the money becomes due or is held)so much of the money as is sufficient to pay the amount due by the taxpayer in respect of arrears of income-tax and penalty or the whole of the money when it is equal to or less than that amount.
The Income-tax Officer may at any time or from time to time amend or revoke any such notice or extend the time for making any payment in pursuance of the notice.
Any person making any payment in compliance with a notice under this sub-section shall be deemed to have made the payment under the authority of the assessee and the receipt of the Income- tax Officer shall constitute a good and sufficient discharge of the liability of such person to the assessee to the extent of the amount referred to in the receipt.
Any person discharging any liability to the assessee after receipt of the notice referred to in this sub-section shall be personally liable to the Income-tax officer to the extent of the liability discharged or to the extent of the liability of the assessee for tax and penalties, whichever is less.
If the person to whom a notice under this sub-section is sent fails to make payment in pursuance thereof to the Income-tax Officer, further proceedings may be taken by and before the Collector on the footing that the Income-tax Officer's notice has the same effect as an attachment by the Collector in exercise of his powers under the proviso to sub-section (2) of Section 46.
Where a person to whom a notice under this sub-section is sent objects to it on the ground that the sum demanded or any part thereof is not due to the assessee, or that he does not hold any money for or on account of the assessee then nothing contained in this section shall be deemed to require such person to pay any such sum or part thereof, as the case may be, to the Income-tax Officer."
After extracting section 46(5A) of the Income Tax Act, the learned Single Judge observed that the classes of persons to whom such notice could be served are two; (i) any person from whom money is due or may become due to the assessee; (ii) any person who holds or may subsequently hold money for or on account of the assessee. In that case, the amount of Rs. 3,45,689-14-0 was due from K.M.Adam on account of income tax and/or penalty. On 19th November,1955 the Respondent served notice u/s.46(5A) of the Income Tax Act calling upon the Indian Bank to pay the dues of Mr.Adam. This was replied by the Bank on 23rd November, 1955 stating that there was no amount with them which was payable to Mr.Adam. The learned Single Judge held that un-utilised overdraft account does not render the banker the debtor in any sense and the banker is, therefore, not a person from whom money is due to the customer. Nor is the banker in such case, a person from whom money may become due. Where the banker lends money on an overdraft and the customer is always in debit there is no stage at which the banker is debtor to the customer, nor at any point of time at which he holds any money of the customer or the later's account. In view of this, Section 46 (5A) of the Income Tax Act cannot be resorted to as a credit-freeze. This judgment was followed by the learned single Judge of Karnataka High Court in the case of Karnataka Bank Limited (supra).

6. In the present petition, the 3rd Respondent has passed the order under Rule 35 of the Rules, which reads as under:-

"35. Special mode of recovery (1) Notwithstanding anything contained in any law for the time being in force or contract to the contrary, the Commissioner at any time or, from time to time, by notice in writing, a copy of which shall be forwarded to the dealer or person liable to pay cess at his last address known to the Commissioner, require -
(a) any person from whom any amount of money is due, or may become due, to a dealer or person from whom any amount has become due under these rules and has remained unpaid; or (b) any person who holds or may subsequently hold money for or on account of such dealer or person, to pay to the Commissioner, either forthwith upon the money becoming due or being held or at or within the time specified in the notice (but not before the money becomes due or is held as aforesaid), so much of the money as is sufficient to pay the amount due by such dealer or person in respect of the arrears of cess, penalty, interest, sum forfeited, fine or the whole of the money when it is equal to or less than that amount.
Explanation - For the purpose of this rule, the amount of money due to a dealer or person from, or money held for or on account of a dealer or person by any person, shall be calculated after deducting therefrom such claims, if any, lawfully subsisting, as may have fallen due for payment by such dealer or person to such person.
(2) The Commissioner may at any time or, from time to time, amend or revoke any such notice, or extend the time for making any payment in pursuance of the notice. (3) Any person making any payment in compliance with a notice under this rule shall be deemed to have made the payment under the authority of such dealer or person and the receipt of the Commissioner shall constitute a good and sufficient discharge of the liability of such first mentioned person, to the extent of the amount referred to in the receipt. (4) Any person, discharging any liability to such dealer or person after receipt of the notice referred to in this rule, shall be personally liable to the Commissioner to extent of the liability discharged, or to the extent of the liability of such dealer or person in respect of such arrears, whichever is less. (5) Where a person to whom a notice under this rule is sent proves to the satisfaction of the Commissioner that the sum demanded or any part thereof is not due to such dealer or person or that he does not hold any money for or on account of such dealer or person, then nothing contained in this rule shall be deemed to require such person to pay any such sum or part thereof to the Commissioner. (6) Any amount of money which a person is required to pay to the Commissioner, or for which he is personally liable to the Commissioner under this rule shall, if it remains unpaid, be recoverable as an arrears of property taxes.
7. Comparison of Rule 35 extracted herein-above with Section 46(5A) of the Income Tax Act, would indicate that similar language is employed in both the provisions. In view of this, Section 46 (5A) of the Income Tax Act cannot be resorted to as a credit-freeze.

8. We have disposed of the Writ Petition No.2787 of 2001 by holding that the MIDC area is within the municipal limits of the NMMC and consequently, having regard to the provisions of the Act, the NMMC has power and competence to levy and recover taxes, which obviously includes the cess as well. In the present case, undisputedly, the NMMC has attached the cash credit account which in other words is a overdraft facility. The un-utilised overdraft account does not render the banker the debtor in any sense and the banker is, therefore, not a person from whom money is due to the customer. Nor is the banker in such case, a person from whom money may become due. Where the banker lends money on an overdraft and the customer is always in debit there is no stage at which the banker is debtor to the customer, nor at any point of time at which he holds any money of the customer or the later's account. We respectfully agree with the view expressed by the learned Single Judge of Madras High Court in Adam's case (supra) followed by the learned Single Judge of Karnataka High Court in Karnataka Bank's case (supra). We have therefore no authority but to set aside the order dated November 29, 2007 passed by the 3rd Respondent under Rule 35 of the Rules. We however make it clear that this will not prevent the NMMC from proceeding to recover the amount of cess liability in any other manner authorised by law.

9. As far as the prohibitory order dated November 5, 2007 passed by the 3rd Respondent is concerned, the petitioners have challenged the same on the ground that the said order is without jurisdiction and contended that only the Commissioner of NMMC could have passed the said order. On the other hand, the learned counsel for Respondent Nos.2 & 6 submitted that he is one of the cess authorities u/s.152E of the BPMC Act, and there is no substance in the aforesaid submission raised by the learned counsel for the petitioners.

10. In our opinion, the petitioners have equally efficacious alternate remedy by filing the appeal u/s.406 of the BMPC Act. It would be open to the petitioners to raise all the contentions before the learned Judge in the appeal u/s.406 of the BPMC Act. We do not express any opinion on these contentions.

11. In case the petitioners prefer the appeal within eight weeks from today, the learned Judge shall decide the same in accordance with law by taking into consideration the fact that the petitioners were bonafide prosecuting their remedies in the form of this writ petition in this Court.

12. The order dated November 29, 2007 passed by the Cess Officer of the NMMC is quashed and set aside with liberty to the NMMC to recover the cess liability in any other manner authorised by law.

13. Rule is made partly absolute in the aforesaid terms, with no order as to costs.

R.G.Ketkar, J. And P.B.Majmudar, J.