Revenue's tax demand extinguished after failing to file claims during company's insolvency resolution under IBC Sections 31 and 32A

Karnataka HC held that revenue's tax demand against a company undergoing CIRP was extinguished when revenue failed to file claims before the IRP during the insolvency process. The court ruled that since the resolution plan was approved and new management took control, any pre-existing liabilities not included in the resolution plan stood extinguished under Sections 31 and 32A of IBC. The court distinguished between resolution and liquidation processes, noting that Rule 22 of 1982 Rules regarding abatement upon winding up was inapplicable where resolution plan was approved rather than liquidation ordered.

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Issues Involved:

1. Whether the demand of Rs. 5,09,15,106/- against the assessee stands extinguished due to the non-filing of claims by the revenue during the Corporate Insolvency Resolution Process (CIRP).
2. Whether the assessee is entitled to a refund of Rs. 2,97,29,891/- appropriated by the revenue.
3. Whether the appeal abated under Rule 22 of the CESTAT (Procedure) Rules, 1982 due to the insolvency proceedings.

Issue-wise Detailed Analysis:

1. Extinguishment of Demand:
The core issue was whether the demand of Rs. 5,09,15,106/- against the assessee was extinguished due to the CIRP proceedings. The judgment highlighted that the revenue did not file a claim before the Interim Resolution Professional (IRP) during the CIRP process. The Supreme Court in cases like Ghanshyam Mishra v. Edelweiss Reconstruction Company Ltd. and Ruchi Soya Industries Ltd. v. Union of India established that once a resolution plan is approved by the adjudicating authority, all claims not part of the resolution plan are extinguished. The court noted that since the demand was not included in the resolution plan, it stood extinguished, and no proceedings in respect of such dues could be continued.

2. Entitlement to Refund:
The court considered whether the assessee was entitled to a refund of Rs. 2,97,29,891/-, which had been appropriated by the revenue. The revenue contended that the confirmed excise duty of Rs. 8,06,44,997/- was not part of the CIRP process, and thus, the refund should not be granted. The court agreed with the revenue's position, stating that the non-filing of a claim by the revenue before the IRP resulted in the extinguishment of the demand, but the appropriated amount was not subject to refund. Thus, the assessee was not entitled to a refund of the appropriated amount.

3. Abatement of Appeal:
The tribunal had held that the appeal abated under Rule 22 of the 1982 Rules due to the insolvency proceedings. However, the court clarified that Rule 22 applies when a company is wound up, not when a resolution plan is approved, allowing the company to continue as a going concern. The court noted that the resolution plan had been accepted, and the business continued, thus Rule 22 was not applicable. The tribunal erred in holding that the appeal abated, as the resolution process did not equate to the winding up of the company.

Conclusion:

The court allowed the appeal, setting aside the tribunal's order. It was held that the demand of Rs. 5,09,15,106/- was extinguished due to the non-filing of claims during CIRP, and the appeal did not abate under Rule 22. However, the assessee was not entitled to a refund of the appropriated amount of Rs. 2,97,29,891/-. The judgment reinforced the principle that claims not part of an approved resolution plan under the IBC are extinguished and cannot be pursued further.

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