Resolution plan cannot defeat tax recovery where insolvency process appears staged or fraudulent.

A resolution plan approved in insolvency cannot be relied on to defeat VAT and CST recovery notices where the process appears staged or fraudulent. The Madras HC noted the rapid sequence of insolvency steps, the treatment of statutory dues as contingent liabilities, and the absence of convincing disclosure of creditor participation. On that factual assessment, the court held that the commercial tax department was not bound by the plan for the purpose of quashing the demand notices, and the writ challenge to the tax recovery notices failed.

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Issues: Whether the demand notices issued for arrears of VAT and CST could be quashed on the basis of the resolution plan approved in the insolvency proceedings, and whether the insolvency process was shown to be a bona fide resolution process binding on the Commercial Tax Department.

Analysis: The challenge was founded on the approval of the resolution plan and the claim that liabilities shown as contingent or disputed stood extinguished. The Court found that the insolvency proceedings were initiated in a manner that appeared staged and designed to defeat the rights of creditors, including the tax department. It noted the rapid sequence of steps in the insolvency process, the treatment of statutory dues as contingent liabilities, and the lack of convincing disclosure of creditor participation. On that view, the approval of the resolution plan could not be used to invalidate the tax demand raised on the petitioner.

Conclusion: The challenge to the impugned demand notices failed, and the writ petition was not maintainable on the footing of the approved resolution plan.

Final Conclusion: The tax recovery notices were sustained, and the petition was dismissed.

Ratio Decidendi: A resolution plan obtained through a process found to be staged or fraudulent cannot be relied upon to defeat statutory tax recovery claims.

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