2022 (9) TMI 425 - HC - VAT and Sales Tax

High Court orders refund of pre-deposit amounts exceeding Rs. 61.05 Crores approved under resolution plan.

The Rajasthan High Court held that the Tax Board's decision to reject the refund of pre-deposit amounts was unfounded. The court ruled that the department ... Refund of statutory pre-deposit - mandatory pre-deposit under Section 82(3) - refund provisions and interest under Section 53 and Rule 27 - extinguishment of pre-existing liabilities by approved resolution plan - effect of NCLAT approval of resolution plan on tax claims - burden of proof under Section 53(5) - unjust enrichmentRefund of statutory pre-deposit - mandatory pre-deposit under Section 82(3) - refund provisions and interest under Section 53 and Rule 27 - extinguishment of pre-existing liabilities by approved resolution plan - effect of NCLAT approval of resolution plan on tax claims - burden of proof under Section 53(5) - unjust enrichment - Pre-deposit amounts paid with appeals are refundable with interest where the NCLAT-approved resolution plan fixed the tax liability of the corporate debtor and extinguished all other pre-resolution claims, and the department has disposed of pre-resolution demands accordingly. - HELD THAT: - The appeals were filed with mandatory pre-deposits under Section 82(3) and the amounts so deposited formed part of the tax liability of the original assessee for the specified financial years. The petitioner became successful resolution applicant under an NCLAT-approved resolution plan which restricted the Department's claim to a quantified sum and, by operation of the resolution process and authoritative decisions (including the doctrine in Essar Steel and the Supreme Court's exposition in Ghanshyam Mishra), extinguished all other pre-resolution claims. Once the liability was fixed by the NCLAT and the Department formally disposed of pre-resolution demands, any sums held by the Department in excess of the quantified liability could not be retained. The Tax Board's conclusion that refund could be denied because the pre-deposit was not expressly claimed in the insolvency proceedings misapplied Section 53(5): the resolution plan and NCLAT order discharged the petitioner's liability and thereby satisfied the petitioner's burden to show that the retained amounts exceeded the approved claim. Consequently, the Tax Board's view that refund was contingent on the appeals being decided on merits was incorrect where the appeals became infructuous by reason of extinguishment of liabilities under the approved resolution plan. Refund must be granted in terms of Section 53 (and Rule 27) with applicable interest; retention would amount to unjust enrichment. [Paras 23, 24, 32, 33, 34]The Tax Board's rejection of the refund applications was set aside; the pre-deposit amounts are to be reimbursed to the petitioner with interest within three months.Final Conclusion: Revisions allowed: the Tax Board's order refusing refund of mandatory pre-deposits was set aside and the amounts deposited while filing the appeals (relating to the listed financial years) shall be reimbursed to the petitioner with interest within three months, the entitlement flowing from the NCLAT-approved resolution plan which fixed and limited the Department's claim. Issues Involved:1. Jurisdiction and material irregularity by the Rajasthan Tax Board.2. Contradiction in the Tax Board's decision regarding the amount recoverable and refund of pre-deposit.3. Refund of mandatory statutory obligation pre-deposit with interest.4. Application of the Insolvency and Bankruptcy Code (IBC) and the approved Resolution Plan.Issue-wise Detailed Analysis:1. Jurisdiction and Material Irregularity by the Rajasthan Tax Board:The petitioner, M/s. UltraTech Nathdwara Cement Limited, challenged the Rajasthan Tax Board's order dated 28.12.2020, which rejected their applications for a refund of mandatory statutory obligation pre-deposit with interest. The petitioner argued that the Tax Board ignored the order dated 14.11.2018 by NCLAT, New Delhi, and the orders by the Hon'ble Supreme Court, as well as the judgment dated 07.04.2020 by the Division Bench of the Rajasthan High Court. The Tax Board's decision was seen as excessive and materially irregular for not adhering to these higher authorities' orders and the true spirit of the law.2. Contradiction in the Tax Board's Decision:The Tax Board held that the maximum amount recoverable from the petitioner was Rs. 61.05 Crores, as per the NCLAT's order and the Supreme Court's judgments. However, it simultaneously rejected the refund of the pre-deposit amount lying with the respondent department in excess of Rs. 61.05 Crores. This contradiction was challenged by the petitioner, arguing that the Tax Board's decision was materially irregular and inconsistent.3. Refund of Mandatory Statutory Obligation Pre-deposit with Interest:The petitioner argued that the pre-deposit amounts made as a mandatory statutory obligation should be refunded with interest. The pre-deposit was a proportion of the VAT liability imposed by the assessing authority. The petitioner contended that if the appeals had been accepted on merits, the pre-deposit amounts would have been reimbursed. Since the Tax Board did not decide the appeals on merits due to the Department's decision to dispose of all liabilities as per the NCLAT's resolution plan, the appeals became infructuous. Therefore, the petitioner argued that the pre-deposit amounts should be refunded.4. Application of the Insolvency and Bankruptcy Code (IBC) and the Approved Resolution Plan:M/s. Binani Cement Limited became sick, leading to insolvency proceedings under the IBC, 2016. The NCLAT approved the petitioner's resolution plan, fixing the liability towards the respondent department at Rs. 61.05 Crores. The petitioner argued that any demand or amount retained by the department beyond this sum would be invalid. The Tax Board's reasoning that the pre-deposit amounts were not part of the resolution plan was challenged, as the entire tax liability was comprehensively decided by the NCLAT. The petitioner contended that the department could not hold on to any payment made in excess of Rs. 61.05 Crores, and the pre-deposit amounts should be refunded as per Section 53 (3A) of the Act of 2003 and Rule 27 of the Rules of 2006.Conclusion:The Rajasthan High Court concluded that the Tax Board's decision to reject the refund of pre-deposit amounts was without foundation. The court held that the department could not retain any amount beyond the Rs. 61.05 Crores approved under the resolution plan. The appeals became infructuous with the acceptance of the resolution plan, and the petitioner was entitled to a refund of the pre-deposit amounts with interest. The court set aside the Tax Board's order dated 28.12.2020 to the extent it rejected the refund applications and directed the reimbursement of the pre-deposit amounts within three months with applicable interest. The revisions were allowed in these terms.