2025 (4) TMI 1635 - HC - GST

Tax authorities cannot issue ex-parte assessment orders under Section 73 against corporate debtor after NCLT approves Resolution Plan during CIRP

The HC held that tax authorities cannot issue ex-parte assessment orders and demand notices under Section 73 of CGST/UPGST Act, 2017 against a corporate ... Issuance of ex-parte assessment order and demand notice under Section 73 of the CGST/UPGST Act, 2017 against a corporate debtor undergoing Corporate Insolvency Resolution Process (CIRP), after the approval of the Resolution Plan by the National Company Law Tribunal (NCLT) - HELD THAT:- This Court in M/S NS Papers Limited and another Vs. Union of India through Secretary and others] [2024 (12) TMI 989 - ALLAHABAD HIGH COURT], after dealing with a catena of judgments rendered by the Supreme Court and also other High Courts held as 'the arguments raised by the learned counsel appearing on behalf of the respondents is without any merit on two counts. Firstly, it is clear by the letter dated March 8, 2021 that the petitioner had informed the Income Tax Authorities with regard to approval of resolution plan. Secondly, the department itself had filed a claim before the Resolution Professional, and accordingly, the argument that the department was not aware of the IBC proceedings holds no water.' Conclusion - The principle is crystal clear that once Resolution Plan has been approved by the NCLT, all other creditors are barred from raising their claims subsequently, as the same would disrupt the entire resolution process. Petition allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in the judgment are:(a) Whether the GST department can issue an ex-parte assessment order and demand notice under Section 73 of the CGST/UPGST Act, 2017, for the financial year 2019-20 against a corporate debtor undergoing Corporate Insolvency Resolution Process (CIRP), after the approval of the Resolution Plan by the National Company Law Tribunal (NCLT).(b) Whether the impugned notifications extending the period of limitation for determination of tax under Section 73(10) of the CGST/UPGST Act, 2017, without exigency as per Explanation to Section 168A of the Act, are valid.(c) Whether the respondents can recover tax, interest, and penalty imposed pursuant to the impugned demand notice issued under Section 73 of the CGST/UPGST Act, 2017, after approval of the Resolution Plan.2. ISSUE-WISE DETAILED ANALYSISIssue (a): Validity of ex-parte assessment order and demand notice under Section 73 post-approval of Resolution PlanRelevant legal framework and precedents: The CGST/UPGST Act, 2017 governs assessment and demand of tax. Section 73 deals with determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for any reason other than fraud or willful misstatement. The Insolvency and Bankruptcy Code (IBC), 2016, particularly Sections 14 (Moratorium) and 31 (Approval of Resolution Plan), provide the framework for CIRP and the effect of approval of Resolution Plan.Leading Supreme Court judgments relied upon include:Ghanshyam Mishra and Sons (P) Ltd. Vs. Edelweiss Asset Reconstruction Co. Ltd.Vaibhav Goyal and another Vs. Deputy Commissioner of Income Tax and anotherCommittee of Creditors of Essar Steel India Ltd. Vs. Satish Kumar Gupta and othersThese cases establish that once a Resolution Plan is approved by the NCLT under Section 31 of the IBC, no new claims or dues can be raised against the corporate debtor that were not part of the Resolution Plan. This principle is aimed at providing a 'fresh start' to the resolution applicant and ensuring that the moratorium and resolution process are not undermined by belated claims.Court's interpretation and reasoning: The Court noted that the petitioner entered CIRP on 10.10.2020, with a Resolution Professional appointed and the NCLT approving the Resolution Plan on 19.07.2023. The GST department had filed claims before the Resolution Professional and was informed of the CIRP proceedings. Despite this, the department issued an ex-parte assessment order and demand notice dated 29.08.2024 for the financial year 2019-20.The Court relied heavily on the principle elucidated in the cited precedents, particularly the Supreme Court's ruling in Vaibhav Goyal, which held that all statutory dues not included in the approved Resolution Plan stand extinguished. The Court emphasized that allowing the GST department to raise fresh demands post-approval would violate the moratorium and the fundamental purpose of the IBC to provide a clean slate to the resolution applicant.Key evidence and findings: The petitioner had duly informed the Income Tax Authorities about the approval of the Resolution Plan, and the department had participated in the CIRP by filing claims. The assessment order was issued ex-parte after the Resolution Plan approval, which the Court found impermissible.Application of law to facts: The Court applied the principle that no new claims can be raised post-approval of the Resolution Plan to quash the impugned assessment order and demand notice. The issuance of the demand notice under Section 73 after approval of the Resolution Plan was held to be illegal and contrary to the IBC framework.Treatment of competing arguments: The GST department's contention that the assessment related to a prior period and was quantified post-approval was rejected as sophistry. The Court reasoned that accepting such an argument would allow authorities to indefinitely delay assessments and saddle the resolution applicant with unknown liabilities, defeating the purpose of the moratorium and fresh start under the IBC.Conclusion: The impugned assessment order and demand notice under Section 73 of the CGST/UPGST Act, 2017, issued post-approval of the Resolution Plan, are quashed.Issue (b): Validity of notifications extending limitation period under Section 73(10) without exigencyRelevant legal framework: Section 73(10) of the CGST/UPGST Act, 2017, allows extension of limitation periods for tax determination under certain conditions, including exigency as explained in Section 168A.Court's interpretation and reasoning: The writ petition challenged Notification No. 9/2023 dated 31.03.2023 and subsequent notifications extending the limitation period without any exigency as required under the Explanation to Section 168A. However, the Court did not elaborate extensively on this issue in the judgment, focusing primarily on the principal issue regarding the effect of CIRP and Resolution Plan approval on tax demands.Conclusion: The judgment does not expressly hold on this issue, implying no separate relief was granted or denied specifically on the validity of the limitation extension notifications.Issue (c): Recovery of tax, interest, and penalty post-approval of Resolution PlanRelevant legal framework and precedents: The IBC moratorium under Section 14 prohibits institution or continuation of suits or proceedings against the corporate debtor during CIRP. Post-approval of the Resolution Plan under Section 31, all claims not included are extinguished. The Supreme Court in Vaibhav Goyal and Committee of Creditors of Essar Steel India Ltd. clarified that no new claims can be enforced against the corporate debtor after approval.Court's interpretation and reasoning: The Court held that recovery of tax, interest, and penalty pursuant to the impugned demand notice issued post-approval of the Resolution Plan would violate the moratorium and the settled principle that the resolution applicant takes over the corporate debtor on a clean slate.Application of law to facts: Since the impugned demand notice was issued after the Resolution Plan approval and was not part of the claims in the CIRP, the Court held recovery cannot be enforced.Conclusion: The respondents are restrained from recovering tax, interest, and penalty imposed pursuant to the impugned demand notice.3. SIGNIFICANT HOLDINGSThe Court crystallized the following legal principles:'Once the Resolution Plan has been approved by the NCLT, all other creditors are barred from raising their claims subsequently, as the same would disrupt the entire resolution process.''The resolution applicant cannot be saddled with new claims once a resolution plan has been approved.''Any new liability being fastened after the approval of the Resolution Plan would inherently and palpably be illegal and go beyond the Lakshman Rekha of the Code.''The underlying principle of the Code is to give a fresh start to the Resolution Applicant.''The demands raised by the first respondent against the corporate debtor in respect of prior assessment years are invalid and cannot be enforced.'The Court quashed the impugned ex-parte assessment order dated 29.08.2024 and the corresponding demand notice issued under Section 73 of the CGST/UPGST Act, 2017, relating to the financial year 2019-20.The writ petition was allowed, thereby restraining the GST department from recovering the disputed tax demands post-approval of the Resolution Plan.