Customs demands extinguished under Section 32A IBC when revenue authority fails to file claims during CIRP proceedings

The Karnataka HC held that customs demands against a company under insolvency resolution process are extinguished under Section 32A of the IBC when the revenue authority fails to file claims before the Interim Resolution Professional during CIRP proceedings. The court distinguished between resolution and liquidation processes, noting that in resolution cases, the company continues as a going concern rather than being wound up. Following precedent from Gujarat HC and SC in similar matters, the court ruled that unapproved demands not included in the resolution plan cannot be pursued post-resolution. The tribunal's application of Rule 22 of 1982 Rules was deemed erroneous. Appeal allowed in favor of the assessee.

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Issues Involved:

1. Whether the Appellate Tribunal erred in law by not extinguishing the customs duty demand as it was not part of the approved Resolution Plan under the Insolvency and Bankruptcy Code (IBC).
2. Applicability of Rule 22 of the CESTAT (Procedure) Rules, 1982 in the context of a resolution plan approved under the IBC.

Detailed Analysis:

Issue 1: Extinguishment of Customs Duty Demand under IBC

The primary issue in this case revolves around whether the customs duty demand against the assessee, which was not part of the approved Resolution Plan under the IBC, stands extinguished. The High Court examined the legal framework under the IBC and relevant Supreme Court judgments, particularly Ghanshyam Mishra v. Edelweiss Reconstruction Company Ltd. and Ruchi Soya Industries Ltd. v. Union of India. The Court noted that once a resolution plan is approved by the adjudicating authority under Section 31 of the IBC, all claims not included in the plan are extinguished. This includes statutory dues owed to government authorities. The Court emphasized that the revenue did not lodge a claim with the Interim Resolution Professional (IRP) during the Corporate Insolvency Resolution Process (CIRP), and hence, the demand was not part of the resolution plan. Consequently, the demand stood extinguished as per the legal precedents set by the Supreme Court, which clarified that no proceedings can continue for claims not included in the resolution plan.

Issue 2: Applicability of Rule 22 of the CESTAT (Procedure) Rules, 1982

The Tribunal had held that the appeal abated under Rule 22 of the 1982 Rules, which pertains to the abatement of proceedings upon the death or insolvency of a party. The High Court, however, clarified that Rule 22 is not applicable in cases where a resolution plan under the IBC has been approved. The Court highlighted that the resolution plan allows the company to continue as a "going concern" and does not equate to the company being wound up. Therefore, the Tribunal erred in applying Rule 22, as the resolution process under the IBC does not result in the winding up of the company but rather its continuation. The Court emphasized that the resolution plan's approval negates the applicability of Rule 22, which is intended for situations involving insolvency leading to winding up.

Conclusion:

The High Court concluded that the customs duty demand against the assessee, which was not part of the approved resolution plan, is extinguished. The Tribunal's reliance on Rule 22 of the CESTAT (Procedure) Rules, 1982 was misplaced, as the resolution plan under the IBC allows the company to continue its operations. The Court set aside the Tribunal's order, allowed the appeal, and declared that the demand of Rs. 19,40,00,646/- against the assessee has abated and is extinguished.

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