State Tax Authorities cannot recover dues from corporate debtor after resolution plan approval under Section 14 IBC

The HC ruled that State Tax Authorities cannot recover dues from a corporate debtor after approval of a resolution plan under IBC. The petitioner, a Special Purpose Vehicle for highway development, underwent CIRP from January 2020 to May 2022. During this period, a moratorium under Section 14 IBC prevented recovery actions. The State failed to approach the Resolution Professional with their claims before the resolution plan's approval by Committee of Creditors and NCLT. Under IBC's waterfall mechanism, government dues rank lower in priority under Section 53(1)(e) compared to secured creditors and workmen. The HC allowed writ petitions, restraining State from recovery proceedings under assessment orders.

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Issues Involved:
1. Extinguishment of tax demands under BGST Act due to non-inclusion in the resolution plan under IBC.
2. Validity of tax assessment and recovery proceedings during CIRP moratorium.
3. Status of statutory dues and secured creditor under IBC.

Summary:

Issue 1: Extinguishment of Tax Demands under BGST Act
The petitioner, a company under CIRP u/s IBC, challenged the tax demands raised under the BGST Act for the assessment years 2020-21 and 2022-23. The petitioner argued that these demands were extinguished as the State Tax Authorities did not move the NCLT to include their demands in the resolution plan. The court referenced the Supreme Court decision in Ghanshyam Mishra & Sons Private Ltd. v. Edelweiss Asset Reconstruction Company Ltd., which held that once a resolution plan is approved by the NCLT, all claims not included in the plan are extinguished and no proceedings can be initiated or continued for such claims.

Issue 2: Validity of Tax Assessment and Recovery Proceedings During CIRP Moratorium
The State argued that the moratorium u/s 14 of the IBC did not preclude them from proceeding with the assessment, though recovery could not be effected. The court noted that the first notice was issued after the resolution plan was approved, and the assessment was within the time provided under the BGST Act. However, the court emphasized that the claims for the assessment years were not included in the resolution plan, thus standing extinguished.

Issue 3: Status of Statutory Dues and Secured Creditor under IBC
The State contended that u/s 82 of the BGST Act, a statutory charge on the assets of the assessee made the government a secured creditor, referencing the Supreme Court decision in State Tax Officer v. Rainbow Papers Ltd. The court distinguished this case, noting that the State did not challenge the resolution plan or approach the RP within the stipulated period. The court reiterated that statutory dues, if not included in the resolution plan, are extinguished as per the IBC, supporting the petitioner's stance with precedents from Ghanshyam Mishra, CoC of Essar Steel India Limited, and M/s Ruchi Soya.

Conclusion:
The court held that the tax demands for the years 2020-21 and 2022-23 stood extinguished as they were not part of the resolution plan approved by the NCLT. The writ petitions were allowed, restraining the State from proceeding with recovery under the impugned assessment orders. The court did not address the exemption on annuity, as it was not argued before them.

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