GST recovery demands against company under approved resolution plan ruled illegal under Section 31 IBC

HC ruled that GST recovery demands against a company under approved resolution plan were illegal and arbitrary. The court held that Section 31 of IBC makes resolution plans binding on Central and State governments, including tax authorities. Once COC approves a resolution plan, it creates a clean slate for the company's revival, and statutory dues existing before the plan's finalization fall within the resolution professional's exclusive domain. The department's demand notices for pre-resolution period dues were quashed as they violated the binding nature of the approved resolution plan.

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Issues Involved:
1. Validity of demands raised by the Central Goods and Service Tax Department for the period before the petitioner took over Binani Cements Ltd.
2. Binding nature of the resolution plan approved under the Insolvency and Bankruptcy Code (IBC) on the Central Government, State Government, and local authorities.
3. Jurisdiction of the GST Department to raise demands post-approval of the resolution plan.
4. Impact of the amendment to Section 31 of the IBC on the binding nature of the resolution plan.
5. Role and precedence of financial creditors versus operational creditors in the resolution process.

Detailed Analysis:

1. Validity of Demands Raised by GST Department:
The petitioner, Ultra Tech Nathdwara Cement Ltd., challenged various notices and orders issued by the Central Goods and Service Tax Department demanding GST dues for the period before the petitioner took over Binani Cements Ltd. The petitioner argued that these demands were invalid as they pertained to a period before the resolution plan was finalized and approved under the IBC.

2. Binding Nature of the Resolution Plan:
The court emphasized that the resolution plan, once approved by the Committee of Creditors (COC) and the adjudicating authority, is binding on all stakeholders, including the Central Government, State Government, and local authorities. This is in line with the amended Section 31 of the IBC, which explicitly states that the resolution plan is binding on all creditors, including statutory authorities.

3. Jurisdiction of GST Department Post-Approval of Resolution Plan:
The court noted that the GST Department had no jurisdiction to raise demands for the period before the petitioner took over Binani Cements Ltd. once the resolution plan was approved. The court highlighted that the resolution plan had been affirmed by the National Company Law Appellate Tribunal (NCLAT) and the Supreme Court, making it final and binding.

4. Impact of Amendment to Section 31 of IBC:
The amendment to Section 31 of the IBC, which came into effect on 6.8.2019, clarified that the resolution plan approved by the adjudicating authority is binding on all creditors, including the Central Government, State Government, and local authorities. The court referred to the Finance Minister's statement in Parliament, which confirmed that the government would not raise any further claims after the resolution plan is approved.

5. Role and Precedence of Financial Creditors:
The court reiterated that financial creditors are given precedence in the resolution process under the IBC. The resolution plan is primarily designed to maximize the value of the assets and ensure the revival of the distressed industry. The court referred to the Supreme Court's judgment in the Essar Steel case, which emphasized that the commercial wisdom of the COC is paramount and that operational creditors, including statutory authorities, do not have a right of audience in the resolution process.

Conclusion:
The court quashed the impugned demand notices and orders issued by the GST Department for the period before the resolution plan was finalized. The court held that these demands were illegal and arbitrary, as the resolution plan, once approved, is binding on all creditors, including statutory authorities. The court also criticized the GST authorities for persisting with the demands despite the clear legislative intent and judicial pronouncements, thereby unnecessarily burdening the courts with frivolous litigation. The writ petition was allowed, and no costs were awarded.

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