TMI Blog2015 (12) TMI 1771X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 3.44 lakhs (rupees three lakhs forty-four thousand only) as the balance remaining in the separate account being maintained in terms of the interim orders passed by the Division Bench. - These acts of subterfuge has rendered the attachment order, passed by the Tax Recovery Officer, redundant for, even if the writ petitions were to be dismissed later, the Income-tax Department would be left only with ₹ 3.44 lakhs Whether an interlocutory order, which travels beyond even the main relief sought for in these writ petitions and, in effect, results in the writ petitions being allowed, without even a counter-affidavit being filed by the respondent-Income-tax Department, can be passed at the stage of admission of the writ petitions? Held that:- Power to grant ad interim ex parte orders should be exercised with great circumspection - Ordinarily ad interim orders, which have the effect of granting the main relief itself, should not be passed - Interim orders should not be passed for the mere asking. Are the parameters for grant of, and in continuing, the interim orders, fulfilled in the present cases? - Held that:- Courts have to strike a balance between two extreme positi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceeds must be, and is hereby, vacated. As a substantial part of the sale proceeds have already been paid by APBCL to the petitioners and the Government of Andhra Pradesh, what orders can this court pass consequent upon the interim orders, passed earlier, being vacated in part ? An order of stay, granted pending disposal of a writ petition or other proceeding, comes to an end with the dismissal of the substantive proceeding. It is the duty of the court, in such a case, to put the parties in the same position they would have been but for the interim order of the court, applying the doctrine of restitution. The jurisdiction to make restitution is inherent in every court, and should be exercised whenever justice of the case demands. The petitioners herein and the Government of Andhra Pradesh shall forthwith and, in any event, on or before January 20, 2016, redeposit the amounts received by them from APBCL on the sale of the stocks (beer, foreign liquor and Indian made foreign liquor) attached by the Income-tax Department. Such redeposit would ensure that the entire sale proceeds (i.e., ₹ 489.07 crores less the TDS of ₹ 4.81 crores) remain in the separate account di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dmission of the writ petitions ? 2. Facts in brief, are that the Deputy Commissioner of Income-tax passed an assessment order, for the assessment year 2012-13 under section 143(3) of the Income-tax Act, levying tax on APBCL for ₹ 1,468.64 crores. The assessing authority relied on the earlier orders of the Income-tax Appellate Tribunal, passed in the appeals preferred by APBCL for the assessment years 2006-07, 2008-09 and 2009-10 ; and disallowed the deductions claimed by APBCL for the amount paid by them to the Government of Andhra Pradesh, towards value added tax, privilege fee, special privilege fee, special privilege fee for sports aggregating to ₹ 2304.70 crores, as inadmissible expenditure. The disallowance was added back to the returned income and, consequently, APBCL was held liable to pay income- tax of ₹ 1468.64 crores. 3. Aggrieved thereby, APBCL carried the matter in appeal to the Commissioner of Income-tax (Appeals) ( CIT(A) for short). While matters stood thus, the Deputy Commissioner issued a notice of demand under section 156 of the Income-tax Act on January 14, 2015 informing APBCL that they should pay the demanded amount, failing which, pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the stocks lying in the godowns of APBCL (which were attached by the Income-tax Department) belonged to them ; and any delay in the sale of the attached stock of beer would result in wastage of the entire stock. The petitioners contended that the title over these goods (beer, foreign liquor and Indian made foreign liquor) had not passed on to APBCL ; beer was a perishable product and, as such, had a restricted shelf life of only six months, that too if it was stored in conducive conditions in terms of the temperature of storage ; the shelf life would reduce in hot climatic conditions ; they had also issued an advisory, printed on each bottle of beer, that beer should ideally be consumed within six months from the date of bottling ; the stocks of beer, stored in warehouses of the APBCL, were already three months old ; and if the stock of beer, lying in the godowns of APBCL, was let to languish, it would be rendered unfit for consumption, and would have to be drained as per the strict quality parameters laid down by the petitioners themselves. 7. What weighed with the Division Bench, in admitting W. P. No. 9254 of 2015 filed by one of the manufacturers, and in passing an ex p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old and the sale proceeds directed to be kept in a separate bank account, sought to protect the interests of both the petitioners and the Income-tax Department, and are, therefore, made absolute. 9. The sale of the attached property (beer, foreign liquor and Indian made foreign liquor), in terms of the interim orders passed by this court, yielded ₹ 489.07 crores. While the order, in W. P. M. P. No. 12189 of 2015 in W.P. No. 9254 of 2015, dated April 2, 2015 whereby incidental expenses were permitted to be deducted, has not been modified, in the writ petitions filed thereafter, the Division Bench clarified that manufacturing expenses and incidental expenses for delivery should be deducted from the gross sale proceeds. 10. Under the guise of deducting manufacturing expenses, and incidental expenses for delivery, almost the entire sale proceeds of ₹ 489.07 crores has been handed over by APBCL to the petitioners and the Government of A.P, leaving a paltry sum of ₹ 3.44 lakhs (rupees three lakhs forty-four thousand only) as the balance remaining in the separate account being maintained in terms of the interim orders passed by the Division Bench. These acts of sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment levies and cost of sales to the suppliers ; and the statement, showing the same, was communicated to the Income-tax Department from time to time. 12. In the counter-affidavit filed by the Income-tax Department, it is stated that, if the petitioner or any other third party had any grievance against the attachment made by the Department, they could approach the Tax Recovery Officer under rule 11 of the Second Schedule to the Income-tax Act ; in some of the Writ affidavits, it is admitted that the stocks belong to APBCL ; it is, therefore, clear that the Department had attached the stocks held by APBCL as per law, as they failed to pay the demand raised for the assessment year 2012-13 ; it is the responsibility of APBCL to pay up the taxes due to the Department, keeping in mind the shelf life of the goods at its depots across the State ; otherwise the same are liable to be sold, in auction by the Tax Recovery Officer, as per law ; after the stocks were attached, the Income-tax Department was contemplating to proceed further in accordance with the provisions of the Income-tax Act ; in the meanwhile, the petitioners had approached this court seeking release of the attached stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of the Division Bench, in W.P. No. 5616 and 5606 of 2015, is inapposite. The Telangana State Beverages Corporation Limited ( TSBCL for short) filed W.P. No.5606 of 2015 to declare the prohibitory orders issued by the Tax Recovery Officer as illegal and without jurisdiction ; and W. P. No. 5616 of 2015 to declare the warrant of attachment of moveable property, issued by the Tax Recovery Officer as illegal and without jurisdiction. By a common order dated May 1, 2015 both the writ petitions were allowed. The Division Bench held that TSBCL came into being as a company, and it was a separate legal entity on being incorporated on May 30, 2014 ; the tax dues, in relation to which recovery was sought to be made, related to the assessment year 2012-13 ; at that time TSBCL was not in existence ; admittedly TSBCL was not an assessee nor a deemed assessee or an assessee in default ; no assessment order was passed against it nor was any notice of demand issued ; TSBCL was not a person holding any money for, or on account of, the assessee for the tax dues of APBCL to be recovered from it ; TSBCL was not the successor in interest of APBCL, and was a separate legal entity ; it had not started ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of all the parties to these writ proceedings. We shall, therefore, confine our examination to the question whether the interim orders passed earlier should be vacated or made absolute ; and consequential orders, if any, to be passed pursuant thereto. 17. Along with its counter-affidavit, APBCL has filed a tabular statement which contains the name of the supplier ; payment made by the supplier, Income-tax deducted at source, amount paid towards value added tax, amount paid towards assessment fee on foreign liquor, amount paid towards privilege fee from clubs, amount paid towards additional privilege fee under the Andhra Pradesh Excise Act, amount paid towards special privilege fee under the Andhra Pradesh Excise Act, and privilege fee on the retailers in terms of rule 16(9) of the Andhra Pradesh Excise Rules. The tabular statement discloses that, as against the gross sale receipts of ₹ 489.070 crores, ₹ 489.036 crores was deducted under different heads, leaving the differential amount of ₹ 3,44,755 (rupees three lakhs forty- four thousand and seven hundred and fifty-five) lying in the separate account being maintained pursuant to the interim orders of this court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orders, no doubt, permitted manufacturing expenses to be deducted, the reasons, which weighed with this court in permitting such deductions, are not reflected therein. In any event, permission to deduct manufacturing expenses cannot be equated to payment to the suppliers of the sale price itself. 20. What is even more disconcerting is that APBCL, even without filing a writ petition and without obtaining any order from this court in their favour, has, under the guise of the interim orders passed at the petitioners' behest, paid the Government of Andhra Pradesh ₹ 302.02 crores towards value added tax, ₹ 6.98 crores towards assessment fee, ₹ 3.39 crores towards privilege fee, ₹ 11.52 crores towards additional privilege fee, ₹ 1.08 crores towards special privilege fee, and ₹ 1.91 crores towards additional privilege fee, though these very items, claimed by APBCL as permissible deductions under the Income-tax Act, had been disallowed by the Deputy Commissioner in his assessment order dated January 14, 2015. While the petitioners were paid the entire amount due to them of ₹ 166.64 crores, the State Government was paid ₹ 323 crores tow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel for the petitioner, would submit that as notices were served on the Income-tax standing counsel, the interim order passed by this court cannot be construed as an ex parte ad interim order. A copy of the writ petition is served on the standing counsel, before it is filed in the court, in compliance with rule 7(a) of the Writ Proceeding Rules, 1977, which stipulates that, whenever a petition or application is presented against the Government, or any authority, the copies of the petition, application and the accompanying affidavit and documents shall be served on the Government pleader or the standing counsel concerned, and the said petition or the application shall not be accepted in the Registry unless it contains an endorsement of service signed by the Government pleader or the standing-counsel concerned, or by the Secretary of the Government pleaders' office or by someone authorised by him in this behalf, not below the rank of a Superintendent, or by a registered clerk of the standing counsel concerned, as the case may be, or by a person so authorised by the standing counsel concerned under intimation to the Registry. 24. The mere fact that a copy of the writ petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has already been passed, and petitions to vacate the said orders have been filed by the Income-tax Department, we must examine whether the interim orders granted earlier should be vacated or made absolute. Before doing so, let us examine the contention of Sri J. V. Prasad, Learned standing counsel for the Income-tax Department, that the interim orders granted earlier go even beyond the main relief sought for in these writ petitions. II. Ordinarily ad interim orders, which have the effect of granting the main relief itself, should not be passed : 28. Interim ex parte orders, which result in granting the main relief in the writ petition, should not be passed. It is a well-known rule of practice and procedure that, at the interlocutory stage, a relief, which is asked for and is available at the disposal of the matter, is not granted. (U. P. Junior Doctors' Action Committee v. Dr. B. Sheetal Nandwani, AIR 1992 SC 671). Ad interim ex parte orders, which practically have the effect of the grant of the main relief in the petition under article 226 of the Constitution, must not be passed. (Dunlop India Ltd. [1985] 154 ITR 172 (SC) ; Calcutta Hardware Stores,). An interim order, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gal and arbitrary ; and for a consequential direction to the respondents to release the petitioner's stock, lying in the godowns and warehouses of APBCL, to retail vendors and realise the sale proceeds thereof. 31. The main relief sought for, in W. P. No. 9789 of 2015 filed by the United Spirits Limited, is to declare the action of the respondents in withholding the Indian made foreign liquor manufactured by the petitioner, lying in the godowns and warehouses of APBCL under the guise of the attachment order, as arbitrary and high-handed. A consequential direction is sought to the respondents to release the petitioner's stocks, lying in the godowns and warehouses of APBCL, to retail vendors and realize the sale proceeds thereof. The main relief sought for, in W. P. No. 10109 of 2015 filed by Pernod Ricard India (P) Limited, is to declare the action of the Income-tax Officials, and the Tax Revenue Officials, in attaching the stocks of the petitioner company as illegal, arbitrary, contrary to article 14 of the Constitution of India, and without jurisdiction. A consequential direction is sought to the Income-tax officials to lift the attachment of the stocks of the petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be signally failing in our duty if we do not do so-some courts, of late, appear to have developed an unwarranted tendency to grant interim orders-interim orders with a great poten tial for public mischief-for the mere asking. We feel greatly dis turbed. We find it more distressing that such interim orders, often ex parte and non-speaking, are made even by the High Courts while entertaining writ petition under article 226 of the Constitution, and in the Calcutta High Court, on oral application too. Recently in Samarias Trading Co. Pvt. Ltd. v. S. Samuel (Civil Appeal No. 4466 of 1984), we had occasion to condemn and prohibit this practice of entertaining oral applications under article 226 and passing interim orders thereon. In several other cases, Siliguri Municipality v. Amal endu Das [1984] 146 ITR 624 (SC), Titaghur Paper Mills Co. Ltd. v. State of Orissa [1983] 142 ITR 663 (SC), Union of India v. Oswal Woollen Mills Ltd. [1985] 154 ITR 135 (SC), Union of India v. Join Shudh Vanaspati Ltd. (C. A. No. 11450 of 1983), this court was forced to point out how wrong it was to make interim orders so soon as an application was but presented, when a second thought (or a second's th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fg. Co. Ltd. v. Bombay Environmental Action Group [2005] 5 SCC 61). Unless there is any special reason, to be indicated in clear terms in the interlocutory order, as a rule final relief cannot be granted at the interlocutory stage. (Dr. B. Sheetal Nandwani, AIR 1992 SC 671). 36. While, in exceptional circumstances, an interim order may be passed which has the effect of allowing the writ petition itself, the court is bound to assign reasons why it considers appropriate to pass such an order. We find considerable force in the submission that, let alone referring to any special reasons for grant of such an ex parte ad interim order at the stage of admission, there is not even a reference, in the interim order (under the cover of which almost the entire sale proceeds have been taken away), to the petitioner's claim nor is there any finding, even prima facie, that the petitioners continue to retain title over the attached goods lying in the godowns of APBCL. 36. IV. Are the parameters for grant of, and in continuing, the interim orders, fulfilled in the present cases : 37. Courts do not, normally, pass interlocutory orders, which would affect a person, without giving him an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S. Ravi and Sri R. Raghunandan, learned senior counsel, and Sri K. Vivek Reddy, learned counsel appearing on behalf of the petitioners, would submit that title to the goods continues to remain with the petitioners till the goods are sold by APBCL to the licenced retailers ; it is at the point of sale by APBCL, to the licenced retailers, that back to back sales take place, firstly by the petitioners to APBCL, and immediately thereafter by APBCL to the licenced retailers ; transfer of title to the goods does not take place when the goods are still lying in the godowns of APBCL, prior to its being sold to the licenced retailers ; as the subject goods, hitherto lying in the godowns of APBCL, were attached prior to its sale to the licenced retailers, the title over these goods remained with the petitioners, and was not passed on to APBCL ; and, consequently, the Income-tax Department could not have attached these movable properties for recovery of the tax dues of APBCL as it only the properties of APBCL which can be attached for realization of its tax dues. 40. On the other hand Sri J. V. Prasad, learned senior standing counsel for the Income-tax Department, would submit that, not o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chment or sale. Rule 11(5) enables the Tax Recovery Officer to disallow the claim if he is satisfied that the property belongs to the defaulter. Rule 11(6) provides that, where a claim or an objection is preferred, the party against whom an order is made may institute a suit in a civil court to establish the right which he claims to the property in dispute ; but, subject to the result of such suit, if any, the order of the Tax Recovery Officer shall be continued. 42. An elaborate procedure is prescribed, in the Second Schedule of the Income-tax Act, for a person, claiming to be the owner of the property attached for recovery of the Income-tax dues of another, to file objections and establish their claim before the Tax Recovery Officer. The remedy of a suit is also provided to the claimant, under rule 11(6) of the Second Schedule, against the order of the Tax Recovery Officer rejecting the claim. As the Income-tax Department contends that the petitioners ought to have approached the Tax Recovery Officer for adjudication of their claim, that the attached stocks hitherto lying in the godowns of APBCL belong to them and not to APBCL, it matters little that they have not specifically ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... writ proceedings under article 226 of the Constitution are also matters to be considered when the writ petitions are finally heard. The rights and obligations of the parties would only be crystallised after the lis is adjudicated upon (Andhra Bank (supra)), and the question whether the petitioners continue to retain title over the goods, even after its supply to APBCL and till these goods are sold by APBCL to licenced retailers, are not matters for examination at the interlocutory stage, more so, as it is debatable whether this court would, even at the stage of final hearing of these writ petitions, examine questions of title in summary proceedings under article 226 of the Constitution of India. 45. As the writ petitions have already been admitted, it must, necessarily, be presumed that the petitioners have made out a prima facie case. The fact, however, remains that a strong prima facie case, of a standard much higher than just a prima facie case, must be made out for an interim order to be passed, which would amount to granting the final relief in the writ petition. We are afraid that the petitioners have not made out a strong prima facie case for the grant of such relief. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 1468.64 crores. It must not be lost sight of that, even if the entire sale proceeds of ₹ 489.07 crores were to be paid to the Income-tax Department, the amount still due from APBCL, towards the balance Income-tax dues, would be in excess of ₹ 978 crores. By no stretch of imagination can the interim orders, granted in this batch of writ petitions, be categorised as those rare and exceptional cases where withholding of the interim order can be said to result in the conscience of the court being pricked, or in doing violence to its sense of justice. As the petitioners could have been paid these amounts later also, there were no compelling circumstances, for APBCL not to retain the sale proceeds in a separate bank account, otherwise than on account of the interim orders passed by this court earlier. The interim orders, to the extent it permitted the manufacturing expenses and incidental expenses for delivery, to be adjusted from the sale proceeds must be, and is hereby, vacated. VII. Conclusion : 48. As a substantial part of the sale proceeds have already been paid by APBCL to the petitioners and the Government of Andhra Pradesh, what orders can this court pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se questions can only be in the affirmative. Failure to restore status quo ante, at least in part, would result in travesty of justice, and cause grave prejudice and irreparable injury to the Income-tax Department for, even if the writ petitions were to be dismissed later, it would only be a pyrrhic victory as there would hardly be any money left in the account to be adjusted against the Income-tax dues of APBCL. 50. The petitioners herein and the Government of Andhra Pradesh shall forthwith and, in any event, on or before January 20, 2016, redeposit the amounts received by them from APBCL on the sale of the stocks (beer, foreign liquor and Indian made foreign liquor) attached by the Income-tax Department. Such redeposit would ensure that the entire sale proceeds (i.e., ₹ 489.07 crores less the TDS of ₹ 4.81 crores) remain in the separate account directed to be maintained by this court. The interests of the petitioners, the Income-tax Department, and the Government of Andhra Pradesh would be secured thereby as, after the writ petitions are finally heard and decided, these amounts can be paid to those entitled thereto. 51. The amount lying in the separate account, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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