2025 (11) TMI 1189 - HC - VAT / Sales Tax

Assessment Order Quashed: s.31(1) IBC Resolution Plan Binds Tax Authorities, Writ Remedy Upheld Over Appellate Route

Goutam Hui Versus The Commissioner, Directorate of Commercial Taxes, Government of West Bengal & Ors.

HC held that a resolution plan approved under s.31(1) IBC is binding on all stakeholders, including tax authorities, relying on SC precedent in Essar ... Dismissal of application on the ground of availability of statutory appellate remedy - resolution plan referred to in the order passed by the National Company Law Tribunal binding on assessing officer or not - the resolution plan is a wrong understanding of the legal position or not - HELD THAT:- In Committee of Creditors of Essar Steel India Limited through Authorised Signatory v. Satish Kumar Gupta & Ors. [2019 (11) TMI 731 - SUPREME COURT], the Hon’ble Supreme Court held that section 31(1) of the IBC Code makes it clear that once a resolution plan is approved by the Committee of Creditors, it shall be binding on all stakeholders including guarantors. This is for the reason that this provision ensures that the successful resolution applicant starts running business of corporate debtor on a fresh slate as it were. The assessment order, which was impugned before the learned tribunal calls for interference. Accordingly, the writ petition is allowed. The order passed by the learned tribunal is set aside and the assessment order dated 10th December, 2024 is set aside. Appeal disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether the writ petitioner should be relegated to the statutory appellate remedy, or whether the matter involves a pure question of law permitting exercise of writ jurisdiction. 2. Whether an approved resolution plan under the Insolvency and Bankruptcy Code (IBC) binds revenue authorities such that input tax credit cannot be denied to a purchaser where the supplying dealer was subject to insolvency proceedings and a resolution plan was sanctioned. 3. Whether the assessing officer correctly interpreted the tax law provisions (section 22 of the Act and Rule 20 of the Rules) to deny input tax credit on the basis that the resolution plan is not binding on the assessing authority. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Writ Jurisdiction vs. Statutory Remedy Legal framework: Availability of statutory appellate remedy under the taxation statute versus the exercise of writ jurisdiction by the High Court where only questions of law arise. Precedent Treatment: The Court relied on the principle that purely legal questions, not requiring adjudication of disputed facts, may be decided on writ petitions despite availability of an appellate remedy (as applied in the impugned judgment's reasoning). Interpretation and reasoning: The Court found the controversy to be entirely legal in nature - centring on the legal effect of an approved IBC resolution plan on tax consequences - and no factual dispute required resolution. Consequently, the Court concluded that writ jurisdiction was properly invoked for determination of the legal issue. Ratio vs. Obiter: Ratio - where the dispute is a pure question of law, writ jurisdiction may be exercised notwithstanding statutory appellate remedies; Obiter - none necessary beyond reaffirmation of the legal principle. Conclusion: The petition was properly maintainable in writ jurisdiction because the issue was purely legal and amenable to determination without remand for factual enquiries. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Binding Effect of an Approved IBC Resolution Plan on Revenue Authorities and Input Tax Credit Legal framework: Section 31(1) of the IBC (as stated in the judgment) provides that an approved resolution plan is binding on stakeholders; the statutory scheme of the tax Act and Rules (noted as section 22 and Rule 20) conditions input tax credit on deposit/charging of tax by the supplier. Precedent Treatment: The Court applied and followed authoritative Supreme Court jurisprudence holding that once a resolution plan is approved by the adjudicating authority/committee of creditors, it is binding on the corporate debtor and all stakeholders, for the purpose of allowing the successful resolution applicant to run the business on a fresh slate. The Court treated those precedents as directly applicable and binding. Interpretation and reasoning: The Court reasoned that the legal effect of an approved resolution plan is to bind stakeholders so as to facilitate revival and continuity of the corporate debtor as a running concern. Given that the supplying dealer had been subject to insolvency proceedings and a resolution plan had been sanctioned, the revenue authority could not deny input tax credit to the purchaser on grounds connected to the supplier's insolvency or the practicalities of tax deposit/charging. The Court further observed that a literal reading of the tax provisions (section 22 and Rule 20) does not create an automatic corollary enabling denial of credit where a resolution plan has effect; indeed, a contrary corollary would produce anomalous consequences (e.g., allowing credit whenever a supplier deposited tax irrespective of whether it was charged). Ratio vs. Obiter: Ratio - an approved IBC resolution plan, being binding on stakeholders, precludes revenue authorities from denying input tax credit to purchasers on grounds that would conflict with the binding effect of that plan; Obiter - observations on hypothetical converse implications of reading tax provisions strictly (i.e., deposit without charge) are illustrative but not essential to the decision. Conclusion: The sanctioned resolution plan bound the revenue authorities in the circumstances, and therefore the purchaser was entitled to input tax credit; the assessment denying credit was unsustainable. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Correctness of Assessing Officer's Interpretation of Tax Statute and Rules Legal framework: The statutory condition for availability of input tax credit as set out in the tax Act and Rule 20 of the Rules; assessing officer's duty to interpret tax law in light of binding external statutory instruments (here, an approved IBC resolution plan). Precedent Treatment: The Court treated prior higher-court pronouncements on the binding nature of approved resolution plans as controlling and thereby as requiring subordinate authorities (including assessing officers) to give effect to such plans. Interpretation and reasoning: The Court held that the assessing officer's view - that the resolution plan was not binding on the assessing authority and thus could justify denial of input tax credit - was a misapprehension of law. The Court emphasized that the assessing officer ought to have recognized the primacy of the binding effect of the approved resolution plan and that the tax provisions do not operate to nullify that effect in the facts of the case. Because no contested factual matrix required resolution, the assessing officer's interpretation was reversed as legally incorrect. Ratio vs. Obiter: Ratio - an assessing officer cannot refuse input tax credit on the ground that an approved IBC resolution plan is not binding when the law treats such a plan as binding on stakeholders; Obiter - analytical remarks on how the tax provisions might be read in other hypotheticals. Conclusion: The assessing officer's interpretation was erroneous; the assessment order denying input tax credit must be set aside. FINAL CONCLUSIONS AND RELIEF The Tribunal's order dismissing the petitioner's challenge on the ground of availability of statutory appeal was set aside because the Court found the core issue to be a pure question of law. The assessment order denying input tax credit was held to be legally unsustainable in view of the binding effect of an approved IBC resolution plan; accordingly, the assessment order was set aside and the writ petition allowed. No costs were awarded.