2020 (5) TMI 39 - HC - VAT and Sales Tax

Court rules approved resolution plan doesn't wipe out tax liabilities under VAT Act, not operational debts.

Electrosteel Steels Limited Versus The State of Jharkhand, Ranchi Joint Commissioner of State Tax (Admn.), Deputy Commissioner of State Tax, Assistant Commissioner of State Tax,

Electrosteel Steels Limited Versus The State of Jharkhand, Ranchi Joint Commissioner of State Tax (Admn.), Deputy Commissioner of State Tax, Assistant ... Issues Involved:1. Validity of the garnishee order issued under Section 46 of the Jharkhand Value Added Tax Act, 2005.2. Applicability of the Insolvency and Bankruptcy Code, 2016 (IB Code) to the tax liabilities of the petitioner company.3. Impact of the approved resolution plan on the tax liabilities.4. Jurisdiction and legality of the garnishee order post-approval of the resolution plan.5. Alternative remedies and their impact on the writ applications.Detailed Analysis:1. Validity of the Garnishee Order Issued under Section 46 of the Jharkhand Value Added Tax Act, 2005:The petitioner challenged the garnishee order dated 21.11.2019, issued by the Deputy Commissioner of Commercial Taxes, Bokaro Circle, Bokaro, directing the State Bank of India to pay Rs. 37,41,41,602/- from the petitioner’s account for tax dues from 2011-12 and 2012-13. The petitioner also contested a subsequent letter dated 22.11.2019, which demanded Rs. 75,57,000/- from the bank account.2. Applicability of the Insolvency and Bankruptcy Code, 2016 (IB Code) to the Tax Liabilities of the Petitioner Company:The petitioner argued that the tax liabilities were barred under Section 31 of the IB Code since no claim was made by the State Government during the corporate insolvency resolution process. The petitioner cited various judgments, including *Innovative Industries Limited Vs. ICICI Bank & Anr.* and *Embassy Property Developments Pvt. Ltd. Vs. State of Karnataka & Ors.*, to support the contention that the IB Code overrides other laws, and the State Government's tax claim should be considered an 'operational debt.'3. Impact of the Approved Resolution Plan on the Tax Liabilities:The petitioner contended that the approved resolution plan extinguished all tax liabilities, as per Section 31 of the IB Code. The petitioner emphasized that the State Government, being an 'operational creditor,' did not make any claims during the insolvency process, thus barring any subsequent claims post-approval of the resolution plan.4. Jurisdiction and Legality of the Garnishee Order Post-Approval of the Resolution Plan:The court noted that the re-assessment orders were passed on 17.08.2018, after the resolution plan was approved on 17.04.2018. The petitioner did not inform the Commercial Tax officials about the resolution process. The court also found that the public announcement of the insolvency process was not made in the State of Jharkhand, depriving the State Government of the opportunity to make a claim. The court held that the tax liabilities could be treated as amounts already realized from customers on behalf of the State Government, not as direct debts of the petitioner company.5. Alternative Remedies and Their Impact on the Writ Applications:The court noted that the petitioner had filed a revision petition before the Revisional Authority, indicating the availability of an alternative remedy. The court referred to *Harbanslal Sahnia & Anr. Vs. Indian Oil Corpn. Ltd. & Ors.*, stating that writ jurisdiction could be exercised despite alternative remedies in cases of fundamental rights enforcement, failure of natural justice, or wholly without jurisdiction orders. However, the court found that the petitioner did not fall within these categories.Conclusion:The court dismissed the writ applications, holding that the petitioner company did not approach with clean hands and failed to inform the Commercial Tax authorities about the insolvency process. The court emphasized that the resolution plan could not bind the State Government as it was not involved in the resolution process. The court also highlighted that the tax liabilities were amounts realized from customers, which could not be considered 'operational debts' under the IB Code. The judgment of H.C. Mishra, J. was concurred by Deepak Roshan, J., who added that the amendment to Section 31(1) of the IB Code, effective from 16.08.2019, was prospective and did not apply to the petitioner’s resolution plan approved on 17.04.2018.