Revenue must refund Rs 2 crore pre-deposit after resolution plan extinguished tax liability under IBC

HC quashed revenue's order refusing refund of pre-deposit amount of Rs. 2,06,31,698/- made by petitioner during CENVAT credit dispute. Court held revenue misdirected itself by misconstruing NCLT orders approving resolution plan under IBC. Since tax liability stood extinguished after resolution plan approval, retaining pre-deposit would constitute unjust enrichment. Revenue's reliance on pre-IBC circular was inapplicable. Unlike Rainbow Papers case, revenue neither filed claims before resolution professional nor challenged resolution plan. HC directed refund with statutory interest.

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Issues Involved:
1. Quashing of the order rejecting the refund application.
2. Direction for refund of the pre-deposit amount with interest.
3. Examination of the impact of insolvency proceedings on tax liabilities and refund claims.

Issue 1: Quashing of the Order Rejecting the Refund Application

The petitioner sought to quash the order dated 25.04.2023, which rejected their application for a refund of the pre-deposit amount of Rs. 2,06,31,698. The petitioner had made these pre-deposits while appealing against Orders-in-Original before the CESTAT, Kolkata. During the pendency of these appeals, insolvency proceedings were initiated against the petitioner, and a resolution plan was approved by the NCLT, Kolkata. The petitioner argued that the claims of the Revenue were extinguished as they were not filed during the insolvency resolution process. The High Court found that the Revenue had misconstrued the orders of the NCLT and that the tax liabilities stood extinguished, making the retention of the pre-deposit amount unjust enrichment.

Issue 2: Direction for Refund of the Pre-deposit Amount with Interest

The petitioner requested a direction for the immediate refund of the pre-deposit amount along with applicable statutory interest. The High Court noted that the pre-deposit was made as per Section 35F of the Central Excise Act, 1944, and that Section 35FF provides for interest on delayed refunds. The Court held that the Revenue's reliance on Circular No. 984/08/2014-CX was inapplicable as it predated the Insolvency & Bankruptcy Code, 2016. The Court directed the Revenue to refund the pre-deposit amount along with statutory interest within six weeks.

Issue 3: Examination of the Impact of Insolvency Proceedings on Tax Liabilities and Refund Claims

The High Court examined the impact of the insolvency proceedings on the petitioner's tax liabilities and refund claims. The Court referred to the Supreme Court's judgments in Ghanashyam Mishra & Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company Ltd. and M/s Ruchi Soya Industries v. Union of India, which held that once a resolution plan is approved, all claims not part of the plan are extinguished. The Court found that the Revenue did not file any claims during the insolvency resolution process, and therefore, their claims stood extinguished. The Court also noted that the Revenue had not challenged the NCLT orders, making them final and binding.

Conclusion

The High Court quashed the order dated 25.04.2023 and directed the Revenue to refund the pre-deposit amount of Rs. 2,06,31,698 along with applicable statutory interest within six weeks. The writ application was allowed, and any pending interlocutory applications were closed.

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