Court Upholds Extinguishment of Pre-Effective Date Tax Claims in Insolvency Cases
The Calcutta High Court has quashed a demand notice issued by the Central Goods and Services Tax (CGST) authorities against SREI Equipment Finance Limited, following the approval of a resolution plan under the Insolvency and Bankruptcy Code, 2016. The judgment, delivered by Justice Aryak Dutt, holds that all pre-effective date statutory dues, which were not lodged during the Corporate Insolvency Resolution Process (CIRP), stand extinguished and cannot be pursued by tax authorities.
SREI Equipment Finance Limited, which had undergone CIRP, faced a demand from the CGST authorities for Integrated Goods and Services Tax (IGST) amounting to Rs. 1,68,78,057, along with interest and penalties, for the financial year 2021-22. This demand was challenged on the grounds that it was raised after the resolution plan was approved by the National Company Law Tribunal (NCLT) on August 11, 2023, and thus, stood extinguished as per Section 31(1) of the Insolvency and Bankruptcy Code (IBC).
The court emphasized that the resolution plan, once approved, binds all creditors, including governmental authorities, thereby nullifying any claims not lodged during the CIRP. The court further clarified that the distinction between tax adjudication and recovery proposed by the revenue authorities does not hold in the context of extinguished claims.
The decision also addressed the maintainability of the writ petition, asserting that the existence of an appellate remedy does not preclude the exercise of writ jurisdiction where the authority acts without jurisdiction. This aligns with precedents set by the Supreme Court, ensuring that entities emerging from insolvency can operate on a "fresh slate" without the burden of unresolved past liabilities.
In a broader context, this ruling reinforces the priority of the IBC framework in resolving corporate insolvency, providing clarity on the treatment of statutory dues in insolvency cases. The judgment sets a precedent for similar cases, ensuring that resolution plans approved by the NCLT are respected and implemented without interference from subsequent statutory claims.
Bottom Line :
Insolvency and Bankruptcy Code, 2016 - Approval of resolution plan under Section 31(1) extinguishes all pre-effective date statutory tax dues not lodged before the Resolution Professional - GST authorities cannot thereafter initiate or continue adjudication proceedings under Section 73 of the CGST Act in respect of such extinguished claims - Writ petition maintainable despite alternative appellate remedy where proceedings are wholly without jurisdiction.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 Sections 14, 31(1), 238; Central Goods and Services Tax Act, 2017 Sections 50, 73, 75, 82, 88; Constitution of India, 1950 Article 226.
SREI Equipment Finance Limited v. Union of India, (Calcutta) : Law Finder Doc id # 2989577
