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2009 Supreme(Ker) 677
High Court Of Kerala
THE HONOURABLE MR. JUSTICE S.S. SATHEESACHANDRAN
P.A.Shahabudeen - Appellant
Versus
The District Collector, Ernakulam - Respondents
WP(C).Nos. 6701 of 2008 & 19710 of 2008 (W)
Decided On : 24 August 2009
Headnote:
Kerala Insolvency Act 1955 - Section. 2( 1)(b) and 32 - Kerala General Sales Tax Act 1963 - Section. 46 and 49 - Protection order - Penalty for submitting untrue return etc - Courts not to set aside or modify assessments except as provided in this Act - Whether 'debt' as defined u/S.2(1)(b) of the Insolvency Act, 1956 covers sales tax arrears due to Government ? Whether there can be protection from penal consequences flowing from S.46 of K.G.S.T. Act, by an order u/S.32 of Insolvency Act ? Whether S.49 of K.G.S.T. Act is an embargo on the protection contemplated u/S.32 of the Insolvency Act ? whether the petitioners can get a protection order under S. 32 of the Insolvency Act from arrest and detention - Held, View taken by the learned District Judge in the impugned judgment that sales tax is collected by the trader from the customers for the purpose of remittance to the Government and so much so, the trader collecting that amount as the trustee or agent of the Government and the amount due to the Government thereof will not have the character of a 'debt' is not correct. Trader is collecting the tax prescribed by the statute for the sale transactions over the commodities from the customers. He is not collecting such amount from the customers as a trustee or as an agent of the Government. Amount collected by him is due to the Government by way of tax does not postulate that the trader is a trustee and the Government beneficiary. If the trader fails to pay the amount collected by way of tax he is liable to be proceeded as covered by the Sales Tax Act which may give rise to penal consequences as well. The amount due from the trader to the Government collected as tax falls within a State debt due which in turn comes within the definition of debt under the Insolvency Act - Insolvency Court cannot grant protection from criminal proceedings as S.32 covers only arrest by civil court and detention in civil prison - Protection granted u/S.32 will not cover the criminal proceedings u/S.46 of the K.G.S.T. Act, 1963 - When considering protection u/S.32, reference to the nature of the debt and procedures provided by law for realisation are also to be taken into account - Though protection order u/S.32 in respect of a debt due as sales tax arrears is not strictly barred by S.49 of K.G.S.T. Act, the embargo placed therein has to be taken into consideration in such proceedings - Court find no interference with the orders passed by the courts below that the petitioners are not entitled to the protection order under S. 32 of the Insolvency Act is called for - Writ Petitions lack merit, and both of them are dismissed
These two Writ Petitions are filed by two brothers separately, who were erstwhile partners of a firm by name 'Shabago Marketing', impeaching the correctness, propriety and legality of the judgments passed by the VI Additional District Judge, Ernakulam in the respective civil miscellaneous appeals preferred by them against the orders passed by the insolvency court in their respective applications declining protection order against proceeding for realisation of sales tax arrears due from them in respect of their business concern.
2. Initially both the petitioners together had filed a petition as I.P.No.1 of 2003 for declaring them as insolvents. But, later realizing that a joint petition by them for the relief claimed is not entertainable, that petition was withdrawn with liberty to file fresh application. Petitioner in W.P.C.No.6701 of 2008, thereafter, filed I.P.No.1 of 2005 and the petitioner in W.P.C.No.19710 of 2008 filed I.P.No.2 of 2005, both before the Sub Court, Kochi to declare them as insolvent. The gist of the allegations raised in both petitions were common alleging that the Sales Tax Intelligence Wing carried out an inspection over their business concern and pursuant to verifications of the stocks, registers and accounts on reaching a conclusion that the dealer had suppressed the sales turn over with intention to evade tax imposed a penalty of Rs.29,43,980/-under Section 45A of the K.G.S.T.Act. Both the petitioners stating that they are unable to pay and discharge the liability imposed towards penalty filed the above insolvency petitions to declare them as insolvent. Separate petitions were also filed for orders of protection against coercive step by issuing warrant and detention to realise the penalty towards sales tax arrears. The respondents resisted the application contending that recovery proceedings are in progress and the petitioners who are defaulters are not entitled to get any protection from arrest and detention from the court.
3. The learned Sub Judge, after considering the petitions for protection with reference to the objections raised by the respondents and hearing the counsel on both sides, finding that in the respective insolvency petitions other than the claim of the State and the sales tax officials in respect of the penalty imposed as sales tax arrears the particulars of the claims of the other respondents impleaded as respondents 4 to 13, and also the particulars of the property of the petitioners and its value have not been mentioned, that the petitioners had substantial bank deposits during the period of the assessments involved, and that there was suppression of turn over of huge amount as to their business, concluded that no sufficient cause was made out for grant of orders of protection under Section 31 of the Insolvency Act. Petitioners, both of them, preferred separate appeals challenging the orders of the learned Sub Judge before the District Court, Ernakulam. The learned Additional District Judge dismissed the appeals by separate judgments concurring with the views formed by the learned Sub Judge. The learned Additional District Judge while dismissing the appeals had expressed the view that sales tax arrear is not a personal debt of the dealer and the amount demanded by the State towards sales tax arrears from the dealer is the sum which had been collected by the dealer from his customers as the trustee or agent of the Government. Forming such a view sales tax arrear is not a debt, it was held that the appellants/petitioners are not entitled to get protection under the Insolvency Act. Both the petitioners preferring separate Writ Petitions against the respective judgments rendered by the learned Additional District Judge in their civil miscellaneous appeal challenge the correctness of those judgments invoking the supervisory jurisdiction vested with this court under Article
227 of the Constitution of India.
4. I heard the learned counsel for the petitioners and also the learn
