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2016 (3) TMI 1 - GUJARAT HIGH COURT

2016 (3) TMI 1 - GUJARAT HIGH COURT - TMI - Disbursement of an amount as directed to Official Liquidator - Held that:- The submission canvassed by learned advocate Mr. Yadav for the Official Liquidator seems to be genuine. When the dispute is pending before the Hon'ble Supreme Court with regard to incometax liability, at this stage, amount of ₹ 3,32,00,000/towards the future expenses and ₹ 3,03,637/towards misc. expenses (contingent) is required to be kept aside and the remaining amo .....

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the Official Liquidator, the same shall be returned back by them to the Official Liquidator at prevailing rate of interest. - COMPANY PETITION NO. 277 of 1997 COMPANY APPLICATION NO. 281 of 2014 , 555 of 2011 - Dated:- 2-7-2015 - MR.JUSTICE VIPUL M. PANCHOLI JJ. JUDGMENT 1. Official Liquidator has filed this report for the following relief. (A) This Hon'ble Court may be pleased to permit the Official Liquidator to disburse an amount of ₹ 3,22,55,000/or such other amount as may be decid .....

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revailing rate of interest. 2. Whereas, Company Application No.281 of 2014 has been filed by applicantIDBI Bank Limited, taking out judges summons for the following relief: (A) The respondent may be directed to disburse and pay with permission of this Hon'ble Court the amount found due and payable to secured creditors under Sec 530 of Companies Act from the Balance amount ₹ 5.5 crores approximately plus accruing interest out of total sale proceeds i.e. ₹ 6 Crores realized from th .....

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.J.Oza for Central Excise Department, learned advocate Mr.U.T.Mishra for Kamdar Hit Rakshak Union. 5. Learned advocate Mr.J.S.Yadav appearing for the Official Liquidator in Official Liquidator Report No.12 of 2015 mainly submitted that by an order dated 16.01.2001 rendered by this Court in Company Petition No.227 of 1997 M/s.Satnam Experts (India) Limited was ordered to be wound up. The Official Liquidator attached to this Court has been appointed as liquidator of the said company. This Court al .....

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osal of the assets of the company by advertisement in the newspapers and by conducting public auction. In pursuance to the order passed by this Court, the following properties of the company have been sold by the sale committee after confirmation by this Court. Sr. No. Description of properties Sale confirmation Date Amount (Rs.) Remarks 1 Factory premises (movable & Immovable) situated at plot No. 106,107 and 108, GIDC, Chhatral, Tal. Kalol 31.08.2010 Passed in OLR No. 81 of 2010 5.11 Crore .....

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ne English Daily and one Gujarat Daily Newspapers, both in Ahmedabad editions on 03.12.2010. In pursuance to the aforesaid advertisement, Official Liquidator received claims from the secured creditors and workers Union of the company in liquidation. Thereafter, Official Liquidator appointed M/s.J.M.Parikh and Associates, Chartered Accountant for the purpose of verification and examination of the claim submitted by the secured creditors and the workers of the company. The aforesaid Chartered Acco .....

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y. Out of the said amount of ₹ 5.11 Crores, ₹ 8 Lacs was disbursed to the workers of both the units of the company in liquidation i.e. Unit at Chhatral and unit at Vatva. Balance amount of ₹ 4,30,06,500/was disbursed to Indian Bank, whereas, ₹ 72,93,500/was disbursed to IDBI Bank. 7. By way of order dated 17.08.2011 passed in Company Application No.268 of 2011, this Court further directed the Official Liquidator to again invite claims from secured and unsecured creditors .....

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A and 530 of the Companies Act by issuing advertisement in the newspapers. Thereafter, one of the secured creditor viz. Indian Bank filed Company Application No.555 of 2012 before this Court, wherein, it was prayed that the Official Liquidator be directed to disburse an amount of ₹ 6 Crores received from the sale of Vatva property of the company. This Court passed an order on 08.02.2012, whereby, Official Liquidator was directed to disburse amount received from the sale of the properties o .....

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able property of Vatva unit and IDBI Bank or Indian Bank were having no charge on the said immovable property of Vatva unit of the company in liquidation. 8. In pursuance to the order dated 08.02.2012 passed by this Court in Company Application No.555 of 2011, the Official Liquidator filed Official Liquidator Report No.28 of 2012, wherein, the details with regard to the claims received from the creditors were also given. The Official Liquidator also sought permission to avail services of Charter .....

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for their consent and acceptance of the report of the said Chartered Accountant. IDBI Bank and Indian Bank have accepted the recommendation of the Chartered Accountant. However, the Central Excise Department, Ahmedabad Municipal Corporation and Lloyds Finance Limited have raised objection, regarding verification of their claim and distribution of ratio. Official Liquidator therefore sent copies of the objection letters received from the aforesaid authorities and company to the concerned Chartere .....

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t, which is contested by assessee cannot be treated as debt which has become due and payable. The excise duty becomes due and payable only with the adjudication order passed in favour of the departments. Therefore, as per the Chartered Accountant, the debt becomes due and payable on the day of the order. Supplementary report sent by Chartered Accountant was also forwarded to Central Excise Department, Ahmedabad and Lloyds Finance Limited for their comments and acceptance of the recommendations. .....

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ht have arisen prior to one year of the passing of the winding up order. M/s.J.M.Parikh and Associates, Chartered Accountant, has thereafter submitted revised rectification report dated 02.05.2013. 9. Learned advocate Mr.J.S.Yadav appearing for Official Liquidator further pointed out that in pursuance to the advertisement issued in the newspaper, various claims were received from the creditors of the company under Section 530 of the Companies Act. The said claims were divided into three parts. ( .....

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e: Sr No. Name of the Party Outstanding Dues (Rs.) Dues Covered u/s 530 (Rs.) Unsecured Creditors % 1 Excise Department 9,79,97,446 1000 9,79,96,446 59.66 2 Ahmedabad Municipal Corporation 19,93,149 15,00,387 4,92,762 1.33 3 Uttar Gujarat Vij Company Limited 4,43,124 NIL 20,44,253 0.27 4 Sun on peak Hotel Private Limited 20,44,253 Nil 20,44,253 1.24 5 Inductotherm(India) Limited 4,35,639 NIL 4,35,639 0.26 6 Lloyds Finance Limited 30,66,131 NIL 30,66,131 1.87 7 Indian Bank 1,43,75,238 NIL 1,43,75 .....

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n liquidation. The said firm of Chartered Accountant determined a tax liability of ₹ 3,32,00,000/( approx.) on account of sale proceeds of the company. The Official Liquidator therefore deducted an amount of ₹ 3,32,00,000/towards future expenses. ₹ 3,03,677/is deducted towards miscellaneous (contingent) expenses. Thus, out of ₹ 6,57,58,637/, ₹ 3,22,55,000/remains with the Official Liquidator. 11. Learned advocate Mr.Yadav appearing for the Official Liquidator furthe .....

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of the Companies Act and as per the prayer made in the 12. Learned Senior Counsel Mr.R.J.Oza appearing for the Central Excise Department mainly submitted that M/s.J.M.Parikh and Associates, Chartered Accountant has wrongly given the verification report and supplementary report ignoring the provisions of the Companies Act as well as Central Excise Act, 1944 and Central Excise Rules, 1944. Findings recorded by Chartered Accountant that the Excise Department is unsecured creditor except for claimi .....

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spondent No.4 and submitted that finding given by the Chartered Accountant that Excise Department is entitled for claim of ₹ 1,000/under Section 530 of the Companies Act is not correct. For rest of the claim i.e. claim of ₹ 9,79,96,446/is considered in the category of unsecured creditor and accordingly alloted 59.66% of the claim of the Excise Department. Said observation of Chartered Accountant is not correct and in violation of provisions of the Excise Act and the Rules framed ther .....

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riginal, the excise department is entitled to claim only ₹ 1000/in the category of preferential creditor under Section 530 of the Companies Act. Learned counsel further submitted that Chartered Accountant also committed an error in rejecting the claim of Excise Duty, penalty and interest submitted by affidavit of debt dated 30.10.2003, 27.12.2002 and 17.02.2003 without looking into the relevant material and evidence. Learned counsel further contended that Chartered Accountant has wrongly i .....

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cise duty was payable by the company in liquidation immediately after manufacturing of the goods and before removal of the said goods from the registered factory premises. The company in liquidation has not paid excise duty according to the provisions of the Act and the Rules, removed the goods without payment of duty and sold the said goods by recovering excise duties from the consumers. Collection of duties made by the company in liquidation from the customer had been on behalf of the Governme .....

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in case of direct tax and not in case of levy of excise duty which is indirect tax. Learned counsel therefore submitted that the Chartered Accountant ought to have considered entire dues as continuous dues. Learned counsel once again contended that due to nonpayment of tax liability, show cause notices were issued. Thereafter, the same were adjudicated. The adjudication takes place only with a view to give an opportunity to the assessee about its liability as well as for imposition of penalty a .....

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first charge on the property of the assessee or the person and sum payable by such assessee being amount of duty, penalty, interest is having preference over all dues which might have prescribed in any Central Act or State Act except the sum payable as provided in Section 529A of the Companies Act, 1956 Recovery of debts due to Banks and Financial Institutions Act of 1993 and the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2003. Learned Senior .....

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ng considered in preference in view of Section 11E of Central Excise Act, 1944. 15. In support of his contention, learned counsel has placed reliance upon the decision rendered by the Hon'ble Supreme Court in case of Shree Synthetics Ltd. v. Union of India & Ors., reported in 1999 (113) E.L.T. 774 (S.C.) as well as in case of Wallace Flour Mills Company Ltd. v. Collector of C. EX., reported in 1989 (44) E.L.T. 598 (S.C.). 16. Learned Senior Counsel Mr.Oza has also placed reliance on the .....

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ection 11 of the EPF Act, Section 74(1) of the Estate Duty Act, 1953, Section 25(2) of the Act Mines and Minerals (Regulation and Development) Act, 1957, Section 30 of the Gift Tax Act, 1958 and Section 259A of the Companies Act, under which statutory first charge has been created in respect of the dues of workmen or gift tax etc. 177. The facts of the case have been set out in the earlier part of the judgment. A recapitulation therefore shows that suit filed by the appellant Bank in 1996 for re .....

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er of the learned Single Judge was approved by the Division Bench. 178. In our opinion, the view taken by the Kerala High Court is in consonance with what we have held in the earlier part of the judgment regarding primacy of the state s first charge over the dues of banks, financial institutions and secured creditors. Therefore, the impugned orders do not call for any interference. 180. The view taken by the High Court is expectational and calls for no interference. 185. In our opinion, the Bank .....

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of 2014 be allowed. Learned advocate Mr.Bhagat referred to the Official Liquidator's report and submitted that as per the direction issued by this Court from time to time, the property of the company in liquidation has been disposed of. Amount is lying before the Official Liquidator. The Official Liquidator disbursed the amount under Sections 529 and 529A of the Companies Act, 1956 and therefore now the remaining amount of ₹ 5.5 Crores with interest may be disbursed under Section 530 o .....

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oduced at page 16 of the Official Liquidator Report report No.12 of 2015 may be confirmed and as per the said ratio, the Official Liquidator be directed to disburse the amount amongst unsecured creditors under Section 530 of the Companies Act. Learned advocate Mr.Bhagat further submitted that this Court delivered a judgment on 30.06.2014 in Company Application No.245 of 2012 and allied matters, wherein, this Court has discussed about the priorities of dues of the Income Tax Department under the .....

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ated, by virtue of section 530. Now, so far as said section 530 is concerned, even a glance at the said section would mark that the order of priority created by section 530(1) of the Companies Act is subject to the provision of section 529A of Companies Act. Thus, under Companies Act, order of priority and above that order and mode of preferential payment is prescribed, therefore in the matter of payment of dues the said procedure shall prevail. Thereafter, after discussing various decisions of .....

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, so far as the Department's request that the liquidator be directed to inform the Department about the order appointing liquidator in each case and to file returns are concerned, it is relevant to mention that the liquidator, in his report being OLR No.35/2012, has averred in paragraph No.13 that before passing any orders of disbursement, this Hon'ble Court may be pleased to hear the respondent No.2 i.e. Commissioner of Income Tax, Range 4, Ahmedabad in this matter . The request made by .....

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mention that this Court is given to understand that so as facilitate this process, the Department has nominated one officer as Nodal Officer who may be informed about the appointment of liquidator and/or about the process of sale of properties or about disbursement of sale proceeds. In this view of the matter, it appears appropriate to direct, inter alia, that as and when the Court passes an order appointing liquidator in any matter and so also when the process of disbursement in accordance wit .....

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this decision, the Official Liquidator may, after seeking appropriate permission and directions, proceed, according to the directions by the Court, to make the payments in accordance with the provisions contained under section 529A of the Companies Act." 19. Learned advocate Mr.Bhagat therefore submitted that the Official Liquidator cannot set apart the claim of the Incometax Department in the present case and therefore, entire amount of ₹ 5.50 Crores with interest be disbursed betwe .....

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ful to the department and the decision relied upon by the learned counsel appearing for the Central Excise Department are not applicable to the facts of the present case. Learned advocate Mr.Bhagat has relied upon the observations made in para (4) of the decision rendered by the Hon'ble Supreme Court in case of Commissioner of Income Tax v. KTC Tyres (India) Limited and others, reported in [2014] 185 Comp Cas 17 (SC). 21. I have considered the arguments canvassed on behalf of learned advocat .....

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e and immovable) properties of the company in liquidation, situated at Plot No.47, GIDC, PhaseI, Vatva. B. Official Liquidator disbursed an amount of ₹ 5.11 Crores received from the sale of movable and immovable properties of Chhatral unit of the company in liquidation under Section 529 and 529A of the Companies Act, 1956 between Indian Bank, IDBI Bank and workers. C. Now the dispute is with regard to disbursement of ₹ 6 Crores received from the sale of property of the company in liq .....

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charge over the said property. F. Claims were invited from the creditors of the company in liquidation under Section 530 of the Companies Act by issuing advertisement. The claims which were received from the creditors were sent to M/s.J.M.Parikh Associates, Chartered Accountant, for verification. The said Chartered Accountant sent verification report dated 22.03.2012. The said report was sent to the concerned creditors for their comments and acceptance of the recommendation. IDBI Bank and India .....

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medabad Municipal Corporation have not accepted even the supplementary report given by the said Chartered Accountant. I. As per the report of the Chartered Accountant, ₹ 1,000/is due and payable to the Excise Department under Section 530 of the Companies Act and ₹ 15,00,387/is required to be paid to Ahmedabad Municipal Corporation and after paying the said dues, the remaining amount is required to be distributed between the unsecured creditors as per their claims in the ratio mention .....

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ns canvassed by the learned advocates for the parties are required to be appreciated. 23. The main contention of learned Senior Counsel Mr. R.J.Oza appearing for the Central Excise Department is that the Chartered Accountant has not considered the objections raised by the department. Reliance was placed on Section 3 of the Central Excise Act of 1944 and Rules 7 and 9 of Central Excise Rules of 1944. The relevant part of Section 3 reads as under: 3. DUTIES SPECIFIED IN THE [SCHEDULE TO THE CENTRA .....

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a hundred percent exportoriented undertaking and allowed to be sold in India, shall be an amount equal to;] the aggregate of the duties of customs which would be leviable under Sec. 12 of the Customs Act, 1962 on like goods produced or manufactured outside India if imported into India, and where the said duties of customs are chargeable by reference to their value, the value of such excisable goods shall, notwithstanding anything contained in any other provisions of this Act, be determined in ac .....

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bond or otherwise.] [Provided that nothing contained in this rule shall apply to molasses produced in a Khandsari sugar factory.] 23.2. Rule 9 of the Central Excise Rules of 1944 reads as under: 9. TIME AND MANNER OF PAYMENT OF DUTY.(1) No excisable goods shall be removed from any place where they are produced, cured or manufactured of any premises appurtenant thereto, which may be specified by the [Commissioner] in this behalf whether for consumption, export, or manufacture of any other commod .....

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appointed or [registered] under Rule 140 or may be exported under bond as provided in rule 13. [Provided further that the molasses produced in a khandsari sugar factory may be removed without payment of duty leviable thereon and the duty of excise leviable on such molasses shall be paid by the procurer, as if such molasses has been manufactured by such procurer on the date of receipt of such molasses in his factory.] [Provided further that such goods may be [removed without payment or on partpay .....

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rent of the duties payable thereon and such account shall be settled at intervals, not exceeding one month, and the account holder shall periodically make deposit therein sufficient in the opinion of the [Commissioner] to cover the duty due on the goods intended to be removed from the place of production, curing, manufacturer or storage. [1A] Where a person keeping an accountcurrent under the third proviso to subrule (1) makes an application to the [Commissioner] for withdrawing an amount from s .....

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roper officer, whether such demand is delivered personally to him or is left at his dwelling house, and shall also be liable to penalty which may extend to two thousand rupees, and [such goods] shall be liable to confiscation.] [Explanation :For the purposes of this rule, excisable goods produced, cured or manufactured in any place and consumed or utilized (i) as such or after subject to any process or processes; or (ii) for the manufacture of any other commodity. Whether in continuous process o .....

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y is not paid by the manufacturer, the Department issues the showcause notice and thereafter the adjudication takes place only with a view to give an opportunity to the assessee about its liability as well as for imposition of penalty and interest in case of default. Therefore, the liability cannot be said to have arisen on the date of adjudication or on the date on which the order in original is passed. 25. The aforesaid submission of learned counsel is prima facie attractive. However, so far a .....

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o a local authority at the relevant date as defined in clause (c) of subsection (8), and having become due and payable within the twelve months next before that date; 26. Thus, in view of the aforesaid provisions all revenue taxes, cesses and rates due from the company to the Government or the local authority at the relevant date as defined in subsection (8) of Section 530 which becomes due and payable within the twelve months next before that date shall be paid in priority to all other debts su .....

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and 28. Thus, the words due and payable are relevant words which are required to be considered. In the present case, concerned Chartered Accountant has specifically stated that raising of demand by Excise Department which is contested by the assessee cannot be treated as debt which has become due and payable. The excise duty becomes due and payable only when the adjudication order is passed in favour of the Department. The debt becomes due and payable on the date of the order. In the opinion of .....

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nt case the winding up order was passed on 24.01.2001. Hence, any excise duty/debt which becomes due between 24.01.2000 to 23.01.2001 shall be considered and treated as preferential debt under the provisions of Section 530 of the Companies Act, 1956. 29. In the present case the objection raised by the department was considered twice by the concerned Chartered Accountant and thereafter he was of the opinion that one order in original passed by the officer in favour of the department during the re .....

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other submission of learned Senior Counsel Mr. R.J.Oza is that as per Section 11E of the Central Excise Act, 1944, the department is having first charge on the property of the assessee and is having preference over all dues which might have prescribed in any Central Act or State Act except the sum payable as provided in Section 529A of the Companies Act, Recovery of Debts Due to Banks and the Financial Institutions Act and the Securitization and Reconstruction of Financial Assets and Enforcement .....

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Act or the rules made thereunder shall, save as otherwise provided in section 529A of the Companies Act, 1956 (1 of 1956), the Recovery of Debts Due to Banks and the Financial Institutions Act, 1993 (51 of 1993) and the Securitisation and Reconstruction of Financial Assets and the Enforcement of Security Interest Act, 2002 (51 of 2002), be the first charge on the property of the assessee or the person, as the case may be. 32. As per Section 11E of the Central Excise Act, an amount of duty, pena .....

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w for the time being in force, in the winding up of a company ( a) workmen's dues; and (b) debts due to secured creditors to the extent such debts rank under clause (c) of the proviso to subsection (1) of section 529 pari passu with such dues, shall be paid in priority to all other debts. (2) the debts payable under clause (a) and clause (b) of subsection (1) shall be paid in full, unless the assets are insufficient to meet them, in which case they shall abate in equal proportions. 33. Thus, .....

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ing priority over all other debts including the claim of the Excise Department. 35. It is pertinent that Section 530 of the Companies Act prescribes order of priority means various categories of creditors and Section 529A of the Companies Act confers right of priority and preference in matter of payment in favour of secured creditors and workmen. 36. The Hon ble Supreme Court in the case of KTC Tyres (India) Ltd. (Supra) has specifically held in para 4 that: 4. Having regard to the clear languag .....

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mpanies Act in clear terms provides that in a winding up, in priority to all other debts all revenues, taxes, cesses, etc. shall be paid but this is made expressly subject to the provisions of section 529A. The Act, therefore, does not treat the revenue taxes as liquidation expenses. Reading sections 529A and 530 together, there is no escape from the conclusion that the liability towards workmen's dues and debts due to secured creditors as provided under clause (b) of section 529A(1), has to .....

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, the Companies Act, 1956 does not treat the revenue taxes as liquidation expenses and from aforesaid two Sections it is clear that the liability towards workmen's dues and debts due to secured creditors as provided under Section 529A(1)(b) has to be paid in priority to all other debts including tax dues to the Revenue. 37. There is no dispute with regard to the ratio laid down by the Hon'ble Supreme Court in the case of Shree Synthetics Ltd. (Supra) as well as in case of Wallace Flour M .....

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f twelve months next before that date is required to be seen and if the debt is due and payable within the said period then and then the same can be considered to be debt due and payable under Section 530 of the Companies Act. Hence, the aforesaid decisions are not helpful to the Excise Department in the facts and circumstances of the present case. 38. Thus, in view of the aforesaid no interference is required in the opinion given by the concerned Chartered Accountant with regard to the objectio .....

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2015 that Incometax Department has issued the notices as well as letters invoking various provisions of the Income Tax Act to the Official Liquidator and the Official Liquidator was called upon to file the returns and pay Incometax on realization of the sale of the assets of the company. Therefore, request is made by the Official Liquidator to set apart ₹ 3,32,00,000/towards the future expenses and ₹ 3,03,637/towards misc. expenses (contingent) and out of total amount of ₹ 6,5 .....

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