GST demands for pre-resolution-plan period after IBC s.31 approval, despite CIRP claims filed, struck down as invalid.

Fresh GST demands for a period prior to NCLT approval of a resolution plan under the IBC were challenged as impermissible post-approval. Applying SC precedent that all dues, including statutory dues, not forming part of the approved resolution plan stand extinguished upon approval under s.31 and no proceedings for prior-period dues can continue, the HC held the tax department, having participated in the CIRP and filed claims, could not raise further demands thereafter, and the new management could not be burdened with additional past-period liabilities. The impugned orders-in-original and consequential demands were set aside and the petitions were disposed of.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the tax authorities, after approval of a resolution plan under the Insolvency and Bankruptcy Code, 2016, can raise fresh demands for statutory dues pertaining to periods prior to such approval.

1.2 Whether the participation of the tax department in the corporate insolvency resolution process and crystallisation of its claim in the resolution plan bars further or additional demands for the same pre-resolution periods.

1.3 Whether the characterization of the impugned orders as merely "crystallizing" amounts, without commencement of recovery steps, affects their legality post-approval of a resolution plan.

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2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 & 2: Post-approval demands for pre-resolution period statutory dues; effect of participation and crystallisation of tax claims in the resolution plan

(a) Legal framework as discussed

2.1 The Court considered the scheme of the Insolvency and Bankruptcy Code, 2016, particularly Section 31, in light of the resolution plan approved by the adjudicating authority (NCLT). The relevant NCLT order expressly recorded that the approved resolution plan is binding on the corporate debtor, its employees, shareholders, creditors and, specifically, the Central Government, any State Government or any local authority to whom statutory dues are owed, as well as the successful resolution applicant and other stakeholders.

2.2 The Court applied the principles laid down by the Supreme Court in:

(i) The decision holding that once a resolution plan is duly approved under Section 31(1) of the IBC, (a) the claims as provided in the resolution plan stand frozen; (b) the resolution plan is binding on all stakeholders including governmental authorities; (c) all claims not part of the resolution plan stand extinguished; and (d) no person is entitled to initiate or continue any proceedings in respect of a claim not forming part of the resolution plan, including statutory dues for the period prior to approval.

(ii) The decision clarifying that statutory authorities have limited jurisdiction to determine and assess the quantum of operational debt so as to lodge their claims under the IBC waterfall, but cannot execute or recover such claims beyond the framework of the IBC and the approved plan.

(b) Interpretation and reasoning

2.3 The Court noted that the corporate debtor had undergone a corporate insolvency resolution process before the NCLT; an interim resolution professional and then a resolution professional were appointed; claims were invited; and the tax department participated by filing its claims during the CIRP. The tax department's claim was thereafter crystallised to a specific amount and formed part of the resolution process.

2.4 The NCLT approved the resolution plan on 11 June 2024, and the new management took over pursuant to that order. The NCLT order made the resolution plan binding on all creditors, including governmental authorities to whom statutory dues were owed.

2.5 The Court interpreted the Supreme Court's pronouncements to mean that, upon the approval of the resolution plan under Section 31:

* All claims included in the plan stand frozen, and no new or additional claims for the same pre-approval period can be raised outside the plan.

* All claims not forming part of the resolution plan, including statutory dues for the period prior to the approval, stand extinguished and cannot be pursued by way of fresh proceedings.

2.6 The Court held that allowing the tax department, which had already participated in the insolvency proceedings and filed its claims, to issue further demands for the same pre-resolution periods after the resolution plan's approval would be contrary to the finality mandated by the IBC. The insolvency process must reach a definitive conclusion, and the new management cannot be burdened with liabilities that are not provided for in the approved plan.

2.7 The Court further observed that, in light of the Supreme Court's clarification, authorities under other statutes may determine and assess the quantum of operational debt only for the purpose of staking their claim under the IBC, but they cannot travel beyond the confines of the IBC scheme and the approved resolution plan to raise additional enforceable demands for past periods.

(c) Conclusions

2.8 The Court concluded that no demand can be raised by the tax department after the approval of the resolution plan in respect of periods prior to the date of such approval.

2.9 Since the tax department had already participated in the CIRP and its claim was crystallised within the resolution plan framework, it was barred from raising further demands in relation to the same pre-approval periods.

2.10 Consequently, the impugned orders seeking recovery for the financial years prior to 11 June 2024, together with consequential demands, were held to be not legally tenable and were set aside.

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Issue 3: Effect of describing impugned orders as merely "crystallizing" amounts without recovery steps

(a) Interpretation and reasoning

3.1 The tax department argued that the impugned orders only sought to "crystallize" the amounts and that no recovery action had been initiated. The Court, however, treated the orders as demands raised for liabilities pertaining to pre-resolution periods, issued after the approval of the resolution plan.

3.2 In view of the binding and extinguishing effect of an approved resolution plan under the IBC, as interpreted in the above Supreme Court decisions, the Court held that the characterisation of the impugned orders as mere crystallisation did not alter their substantive legal effect of asserting fresh or additional claims outside the resolution plan.

(b) Conclusions

3.3 The Court held that even if no recovery steps had yet been taken, the issuance of orders-in-original and consequential demands for pre-approval periods, post-approval of the resolution plan, was impermissible. The orders themselves were unsustainable and were therefore quashed, without examining the merits of the underlying assessments or quantification.

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