Sargam Foods Pvt. Ltd. Vs State of Maharashtra (Bombay High Court)
The Bombay High Court recently quashed an order by the Cess Officer of the Navi Mumbai Municipal Corporation (NMMC) to attach the cash credit account of Sargam Foods Pvt. Ltd. The company, a small-scale unit manufacturing compounded asafoetida, had challenged the NMMC’s competence to levy and collect cess in the Maharashtra Industrial Development Corporation (MIDC) area, a matter that had been sub judice in a separate writ petition (Writ Petition No. 2787/2001).
Sargam Foods was issued demand notices for property taxes and cess, accumulating a liability of ₹13,90,129. Following non-payment, the NMMC proceeded with a best judgment assessment and, on November 29, 2007, attached Sargam Foods’ bank account under Rule 35 of the Bombay Provincial Municipal Corporation (Cess on entry of goods) Rules, 1996. The company argued that a cash credit account, being an overdraft facility, does not constitute “money due” from the bank to the assessee, and therefore, could not be attached under Rule 35.
The High Court drew parallels between Rule 35 and Section 46(5A) of the Income Tax Act, citing judicial precedents from the Madras High Court in Adam v. Income Tax Officer (Vol. XXXIII, Income Tax Reports 26) and the Karnataka High Court in Karnataka Bank Limited v. Commissioner of Commercial Taxes (1999 Sales Tax Cases 19). These judgments held that an unutilized overdraft account does not make the bank a debtor to the customer, nor does it mean the bank holds money for the customer. Therefore, such provisions cannot be used as a “credit-freeze.”
