2024 (9) TMI 1348 - HC - GST

Corporate Tax Claims Nullified Under Insolvency Resolution, Landmark Ruling Protects Restructured Business Interests Under IBC Section 238

Patanjali Foods Limited Versus The Assistant Commissioner St Fac and Others, Deputy Commissioner State Tax and Others.

HC of AP resolved a complex insolvency case involving a company's tax liability post-resolution plan. The court upheld NCLT's order, finding that claims ... Liability to clear statutory dues, post-insolvency proceedings under the Insolvency and Bankruptcy Code 2016 - It is contended that the resolution plan, which was approved by the NCLT, on 04.09.2019, provided for payment of Rs. 25 crores towards clearing all the statutory dues, including claims by all Government authorities - HELD THAT:- The question of extinguishment of liability of corporate which have undergone the CIRP process came to be considered by the Hon’ble Supreme Court of India in the case of Ghanshyam Mishra and Sons Pvt. Ltd. Vs. Edelweiss Asset Reconstruction Company [2021 (4) TMI 613 - SUPREME COURT]. The Hon’ble Supreme Court held that 'On the date of approval of resolution plan by the adjudicating authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan.' In the circumstances, it must be held that the liability of the petitioner, arising out of the AP VAT Act or the GST Act stands extinguished to the extent of its liability up to 4th September, 2019. The contention of the learned Government Pleader for Commercial Taxes that the order of NCLT is not binding on the State of Andhra Pradesh in view of Section 88 of the GST Act would have to be negatived in as much as Section 238 of the Insolvency and Bankruptcy Code provides for a non-obstante clause overriding all other laws. Both the Writ Petitions are allowed by setting aside the Demand-cum-Adjudication orders dated 03.06.2023, issued by the Assistant Commissioner (ST)(FAC), Kakinada and the order dated 25.11.2023 passed by the Deputy Commissioner (ST), Vijayawada - Petition allowed. Issues:1. Liability of a company post-insolvency proceedings under the Insolvency and Bankruptcy Code 2016.2. Extent of liability under the AP VAT Act and GST Act after approval of a resolution plan by NCLT.3. Binding nature of NCLT's order on the State of Andhra Pradesh.4. Applicability of Section 88 of the GST Act in relation to insolvency proceedings.5. Interpretation of Section 238 of the Insolvency and Bankruptcy Code.6. Notice requirements to the State of Andhra Pradesh in insolvency proceedings.7. The impact of the Hon'ble Supreme Court's judgment in Ghanshyam Mishra and Sons Pvt. Ltd. Vs. Edelweiss Asset Reconstruction Company (2021) 9 SCC 657.Analysis:The High Court of Andhra Pradesh addressed the issue of a company's liability post-insolvency proceedings under the Insolvency and Bankruptcy Code 2016. The petitioner, a company previously known as 'Ruchi Soya Industries Limited,' underwent insolvency proceedings and had a resolution plan approved by the NCLT, Mumbai Bench. The resolution plan aimed to clear all dues of creditors, including the State, out of amounts paid by successful applicants in the resolution process. The NCLAT dismissed the appeal against the NCLT's order, making it final.Regarding the liability under the AP VAT Act and GST Act post-resolution plan approval, the court considered the contention that the petitioner's liability stood extinguished up to the date of approval of the resolution plan by the NCLT. The court referred to the Hon'ble Supreme Court's judgment in Ghanshyam Mishra and Sons Pvt. Ltd. case, emphasizing that claims not part of the resolution plan would be extinguished post-approval.The court examined the binding nature of the NCLT's order on the State of Andhra Pradesh and the applicability of Section 88 of the GST Act. The Government Pleader for Commercial Taxes argued that the NCLT's order was not binding due to lack of notice to the State and Section 88 requirements. However, the court held that Section 238 of the Insolvency and Bankruptcy Code overrides other laws, including the GST Act, extinguishing the petitioner's liability.Addressing the notice issue, the court ruled that as long as the NCLT's order remains valid, it binds parties, and lack of notice does not invalidate the order. Consequently, the court allowed the writ petitions, setting aside the demand-cum-adjudication orders issued to the petitioner. However, fresh assessments were permitted for the period not covered by the NCLT's order. The court emphasized that such assessments must comply with the law, and no costs were awarded.