2019 (1) TMI 1314 - Tri - Insolvency and Bankruptcy

Service tax refund not operational debt under Insolvency & Bankruptcy Code

Cyient Limited Versus Techwave Infotech PVt. Limited

The Tribunal held that the petitioner, M/s. Cyient Ltd., did not qualify as an operational creditor under the Insolvency and Bankruptcy Code. The unpaid ... Corporate insolvency process - corporate debtor failed to refund the service tax even though there was an obligation under the undertaking memorandum to refund service tax - whether failure to refund the service tax received from Government authorities falls within the meaning of operational debt as contained in section 5(21) of the Code - Held that:- May be petitioner sold its shares to Techwave Holdings P. Ltd., which the petitioner is having in the corporate debtor-company. Now the question whether there is liability on the part of purchaser Techwave Holdings P. Ltd., to discharge, as far as the petitioner is concerned, in respect of sale of shares. The corporate debtor is not purchaser of shares. Techwave Holdings P. Ltd., is the purchaser. There is no dispute between the petitioner who is seller and Techwave Holdings P. Ltd., who is the purchaser in respect of sale of shares. Thus, the present dispute is not in any way connected to the transaction of sale of shares. There is a separate undertaking memorandum under which the corporate debtor undertakes to refund the service tax if any refunded by the Government authorities for the past period. This is a separate undertaking not connected to the sale transactions but it is an independent undertaking given by the corporate debtor. The dispute is not in connection with any liability to discharge in connection with sale of shares. Even though definition of goods as contained in the Sale of Goods Act includes shares, but from the facts of the case, there is no dispute with regard to sale transaction of shares between the petitioner and the purchaser, i.e., Techwave Holdings P. Ltd. Thus, undertaking given by the corporate debtor in pursuant to the undertaking memorandum for refund of service tax does not fit into the definition of operational debt. Thus, the petitioner is not an operational creditor and failure to refund service tax is not an operational debt. Therefore, the petitioner cannot maintain this petition under section 9 of the Code. The petition therefore deserves to be rejected Issues Involved:1. Whether the petitioner qualifies as an 'operational creditor' under the Insolvency and Bankruptcy Code (IBC), 2016.2. Whether the unpaid service tax refund constitutes an 'operational debt' under the IBC.3. Whether the petitioner can initiate corporate insolvency resolution process (CIRP) against the corporate debtor under Section 9 of the IBC.Detailed Analysis:Issue 1: Qualification as an Operational CreditorThe petitioner, M/s. Cyient Ltd., claimed to be an operational creditor under Section 9 of the Insolvency and Bankruptcy Code, 2016. The corporate debtor, Techwave Infotech P. Ltd., contended that the petitioner does not fall within the definition of 'operational creditor' as per Section 5(20) of the IBC. The petitioner argued that the liability arose in connection with selling its shares, which qualifies as goods under the Sale of Goods Act, 1930. However, the Tribunal found that the dispute was not related to the sale of shares but to a separate undertaking for the refund of service tax, which does not fit into the definition of operational debt. Therefore, the petitioner does not qualify as an operational creditor.Issue 2: Unpaid Service Tax Refund as Operational DebtThe petitioner asserted that the unpaid service tax refund of Rs. 1,40,35,232 received by the corporate debtor from the government constitutes an operational debt. The corporate debtor argued that the claim did not arise from the provision of goods or services, employment, or repayment of dues under any law, and hence, it is not an operational debt. The Tribunal referred to Section 5(21) of the IBC, which defines operational debt, and concluded that the obligation to refund the service tax under the undertaking memorandum does not fall within this definition. Consequently, the unpaid service tax refund does not constitute an operational debt.Issue 3: Initiation of CIRP under Section 9 of the IBCThe petitioner sought to initiate the corporate insolvency resolution process against the corporate debtor for failing to remit the service tax refund. The corporate debtor contended that the petitioner should resolve the dispute through arbitration as provided in the agreements or under general law. The Tribunal examined the agreements, including the share purchase agreement and the tax modalities undertaking, and found that the dispute over the service tax refund was not connected to the sale transaction of shares. Since the petitioner is not an operational creditor and the unpaid service tax refund is not an operational debt, the petition under Section 9 of the IBC is not maintainable. Therefore, the Tribunal rejected the petition.Conclusion:The Tribunal concluded that the petitioner does not qualify as an operational creditor, and the unpaid service tax refund does not constitute an operational debt under the IBC. Consequently, the petition to initiate the corporate insolvency resolution process against the corporate debtor was rejected.