Sales tax demand challenged using NCLT resolution plan proposing NIL tax payment; court rejects plan as collusive, upholds dues.

The dominant issue was whether a sales tax demand notice could be invalidated on the basis of an NCLT-approved corporate insolvency resolution plan proposing NIL payment towards sales tax dues. The HC held the NCLT process appeared collusive and stage-managed by the corporate debtor's promoter to defeat creditors, noting inadequate notice, undue haste in fixing claim timelines, and absence of disclosed creditor particulars or meaningful CoC deliberation in the approval order. On this reasoning, the HC found the NCLT order could not be relied upon to nullify statutory tax dues and that the challenge to the demand notice was unsustainable; the writ petition was dismissed.

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Issues Involved:
1. Validity of the impugned notices demanding tax arrears.
2. Impact of the Corporate Insolvency Resolution Process (CIRP) on the tax demands.
3. Binding nature of the NCLT-approved resolution plan on the Commercial Tax Department.
4. Allegations of fraudulent initiation of insolvency proceedings.

Summary:

1. Validity of the Impugned Notices:
The petitioner challenged the notices dated 14.01.2020, 18.08.2020, and 05.09.2020 demanding tax arrears totaling Rs. 25,26,240/- for the assessment years 2013-14 to 2015-16 under VAT and CST. The dispute arose due to the petitioner's failure to submit necessary Form-C and Form-F, leading to an assessment order on 24.12.2018 for the year 2014-15.

2. Impact of the CIRP on the Tax Demands:
The petitioner was undergoing insolvency proceedings initiated by an operational creditor, M/s. Aries Limited, under the Insolvency and Bankruptcy Code, 2016. The NCLT, Chennai, passed a moratorium order on 16.07.2018, and a resolution plan was approved on 01.02.2019. The resolution plan proposed to pay NIL value against Rs. 0.53 crores due as Sales Tax and other contingent liabilities.

3. Binding Nature of the NCLT-Approved Resolution Plan:
The petitioner argued that the demand notices were unsustainable as the tax liability was crystallized at Rs. 53,00,000/- in the resolution plan. The respondent contended that the Commercial Tax Department was unaware of the NCLT proceedings and hence, the resolution plan was not binding on them. The court referenced the Supreme Court's decisions in Ghanashyam Mishra and Sons Private Limited and others, indicating that statutory demands payable to any State Government must be considered in the resolution plan.

4. Allegations of Fraudulent Initiation of Insolvency Proceedings:
The court observed discrepancies and undue haste in the insolvency proceedings initiated by the petitioner, suggesting it was staged to defeat the rights of creditors, including the Commercial Tax Department. The court noted that the resolution plan waived significant tax dues without proper participation from creditors. Under Section 65 of the IBC, fraudulent initiation of insolvency proceedings warrants penalties. The court criticized the NCLT for not imposing penalties and instead sanctioning the plan.

Conclusion:
The court dismissed the writ petition, stating that the challenge to the impugned demand notices based on the NCLT order was unsustainable. The proceedings before the NCLT were found to be irregular and intended to defeat creditor rights, leading to the dismissal of the petition with no costs.

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