2025 (7) TMI 700 - AT - Service Tax

Service tax appeal abated after appellant enters Corporate Insolvency Resolution Process under IBC 2016

CESTAT Chandigarh disposed of the appeal as abated after the appellant was admitted under Corporate Insolvency Resolution Process under the Insolvency and ... Abatement of appeal - Failure to deposit the service tax collected to the Government Exchequer - non-filing of ST-3 returns - appellant was admitted under the Corporate Insolvency Resolution Process in accordance with the provisions of the Insolvency and Bankruptcy Code, 2016 - HELD THAT:- The identical matter has been considered by two coordinate benches of the Tribunal; by Mumbai Bench vide order dated 12.05.2023 in the case of M/s Jet Airways (India) Limited vs. Commr of Service Tax-V, Mumbai [2023 (5) TMI 767 - CESTAT MUMBAI] and Hyderabad Bench in the case of Icomm Tele Ltd. vs. Commr of Central Tax, Puducherry [2023 (10) TMI 1344 - CESTAT HYDERABAD]. It is pertinent to refer the findings of Mumbai Bench of the Tribunal in the case of M/s Jet Airways (India) Limited (supra), wherein it was ordered that the appeals stand abated once the Resolution Plan has been approved by NCLT and the CESTAT has become functus officio in the matters relating to this appeal. Thus, taking note of the fact that the NCLT has approved the resolution plan, the present appeal stands abated as the CESTAT has become functus officio in the matter relating to the present appeal. The appeal is disposed of as abated. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal in this appeal are:(i) Whether the demand of service tax, interest, and penalties confirmed by the Principal Commissioner of Central Excise on the appellant for the period 01.07.2012 to 31.03.2014 under the category of 'Renting of Immovable Property' is sustainable.(ii) Whether the appeal before the Tribunal becomes infructuous or abates upon approval of the Resolution Plan by the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code, 2016 (IBC).(iii) Whether, after the approval of the Resolution Plan by the adjudicating authority under Section 31 of the IBC, any creditor including the Central Government or any statutory authority can initiate or continue proceedings for recovery of dues not incorporated in the Resolution Plan.(iv) Whether the Tribunal becomes functus officio and the appeal stands abated upon approval of the Resolution Plan by the NCLT.(v) The entitlement of the appellant to refund of pre-deposit made at the time of filing the appeal in light of the Supreme Court's ruling on similar issues.2. ISSUE-WISE DETAILED ANALYSISIssue (i): Validity of Demand of Service Tax, Interest and PenaltiesThe appellant was engaged in renting out commercial space and discharged service tax liability under 'Renting of Immovable Property' category, filing returns regularly. The Department alleged non-deposit of collected service tax and non-filing of returns for the disputed period, leading to investigation and issuance of a show cause notice demanding Rs. 1,62,23,426/- along with interest and penalties under Sections 76 and 77 of the Finance Act. The Principal Commissioner confirmed the demand and penalties.The Tribunal noted the appellant's contention and evidence of regular filing of ST-3 returns for the disputed period and utilization of Cenvat credit on construction services. However, the Department's investigation and DGCEI's show cause notice established the demand. The Tribunal did not delve into the merits of the demand as the matter was overtaken by subsequent developments related to insolvency proceedings.Issue (ii) and (iii): Effect of Approval of Resolution Plan by NCLT on Pending ProceedingsThe appellant informed the Tribunal that it was admitted under the Corporate Insolvency Resolution Process (CIRP) under the IBC, with the NCLT, Chandigarh Bench, approving the Resolution Plan on 19.10.2023. The appellant contended that the appeal should be dismissed as infructuous or abated following the approval of the Resolution Plan.The Tribunal considered the submissions of both parties and referred to two coordinate benches of the Tribunal (Mumbai and Hyderabad Benches) which had dealt with identical issues. The Tribunal extensively relied on the Supreme Court's judgment in the case of M/s Ghanashyam Mishra & Sons Pvt Ltd vs. Edelweiss Asset Reconstruction Company Ltd & Ors (Civil Appeal No. 8129 of 2019), which clarified the legal position regarding the binding effect of approved Resolution Plans.The Supreme Court framed the key questions:Whether any creditor including the Central Government or statutory authorities is bound by the Resolution Plan once approved by the adjudicating authority under Section 31(1) of the IBC;Whether the 2019 amendment to Section 31 is clarificatory or substantive;Whether creditors can initiate or continue proceedings for recovery of dues not part of the approved Resolution Plan.The Supreme Court conclusively held:Once a Resolution Plan is approved, the claims as provided therein stand frozen and binding on all stakeholders including the Central and State Governments and statutory authorities;Claims not part of the Resolution Plan stand extinguished and no proceedings can be initiated or continued in respect of such claims;The 2019 amendment to Section 31 is clarificatory and effective retrospectively;Consequently, statutory dues not included in the Resolution Plan cannot be pursued post-approval.The Tribunal also referred to the CBIC Instruction No. 1083/04/2022-CX9 dated 23.05.2022, which provides a Standard Operating Procedure (SOP) for handling NCLT cases, reiterating that GST and Customs authorities are operational creditors required to submit claims during the CIRP. Failure to do so results in claims being extinguished post-approval of the Resolution Plan, and no demands can be raised on the Resolution Applicant thereafter.Issue (iv): Whether the Tribunal Becomes Functus Officio and Appeal Abates Upon Approval of Resolution PlanBased on the above legal position, the Tribunal held that once the Resolution Plan has been approved by the NCLT, the Tribunal becomes functus officio in relation to the appeal. The appeal stands abated as the claims outside the Resolution Plan are extinguished and no further proceedings can be maintained.The Tribunal followed the ratio of the Supreme Court's judgment and the coordinate benches' decisions, including the Mumbai Bench in M/s Jet Airways (India) Limited vs. Commissioner of Service Tax-V and the Hyderabad Bench in Icomm Tele Ltd. vs. Commissioner of Central Tax, Puducherry, which abated appeals upon approval of Resolution Plans.Issue (v): Entitlement to Refund of Pre-DepositThe appellant claimed refund of the pre-deposit made at the time of filing the appeal. The Tribunal referred to the Supreme Court decision in Ruchi Soya Industries Ltd. [2022 (380) ELT 8 (SC)], which held that claims not lodged during the CIRP and not part of the Resolution Plan stand extinguished upon approval by the NCLT. Consequently, amounts deposited in such appeals are to be refunded with interest.The Tribunal thus allowed the refund of the pre-deposit along with interest accrued thereon.3. SIGNIFICANT HOLDINGSThe Tribunal's key legal conclusions and principles established are as follows:'Once a resolution plan is duly approved by the Adjudicating Authority under subsection (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the Corporate Debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. 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.''The 2019 amendment to Section 31 of the I&B Code is clarificatory and declaratory in nature and therefore will be effective from the date on which I&B Code has come into effect.''Consequently all the dues including the statutory dues owed to the Central Government, any State Government or any local authority, if not part of the resolution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior the date on which the Adjudicating Authority grants its approval under Section 31 could be continued.''Once the Resolution Plan has been approved by the NCLT, the Tribunal becomes functus officio in the matters relating to the appeal and the appeal stands abated.''The amount deposited by the appellant at the time of admission of the appeals along with interest accrued thereon is directed to be refunded to the appellant.'Applying these principles, the Tribunal held that the appeal challenging the demand of service tax and penalties stands abated following the approval of the Resolution Plan by the NCLT, and no further proceedings can be maintained against the appellant in respect of claims not included in the approved plan.