Clean slate theory does not wipe out tax dues arising during CIRP, and insolvency forums cannot decide tax assessments.

The clean slate theory under the Insolvency and Bankruptcy Code does not extinguish statutory tax dues arising during CIRP if they are not covered by the approved resolution plan; such current-period liabilities remain exigible. The Court treated clean slate authorities as confined to pre-CIRP claims and stressed that the insolvency framework requires continued compliance with fiscal law during CIRP. It also held that insolvency forums cannot be used as substitutes for the statutory tax hierarchy to decide income tax or GST assessment and recovery disputes, because Section 60(5) does not confer ordinary public law jurisdiction over such matters.

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Issues: (i) Whether the clean slate theory under the Insolvency and Bankruptcy Code, 2016 extinguishes statutory tax dues that arise during the currency of the corporate insolvency resolution process and are not included in the resolution plan; (ii) Whether the insolvency forum can be treated as the forum to adjudicate or override assessment and recovery disputes arising under income tax and GST enactments during the insolvency period.

Issue (i): Whether the clean slate theory under the Insolvency and Bankruptcy Code, 2016 extinguishes statutory tax dues that arise during the currency of the corporate insolvency resolution process and are not included in the resolution plan.

Analysis: The binding effect of an approved resolution plan under Section 31 of the Insolvency and Bankruptcy Code, 2016 was held to protect the successful resolution applicant from surprise claims relating to the pre-CIRP period. The line of authorities on clean slate theory was treated as having dealt with pre-CIRP liabilities, not with liabilities arising after commencement of CIRP. The Court held that tax dues arising during CIRP are not shown to be claims capable of being extinguished by the approved plan, and that the statutory scheme contemplates continued compliance with law during CIRP, including the responsibility of the resolution professional to ensure observance of fiscal laws. The Court also held that extending clean slate to current-period tax dues would create inconsistency with the statutory scheme and with the constitutional character of taxing powers.

Conclusion: The clean slate theory does not wipe out tax dues that arise during CIRP and are not dealt with in the resolution plan; such dues remain exigible.

Issue (ii): Whether the insolvency forum can be treated as the forum to adjudicate or override assessment and recovery disputes arising under income tax and GST enactments during the insolvency period.

Analysis: The residuary jurisdiction under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 was held not to extend to ordinary public law assessment disputes under income tax or GST, since those matters are within the domain of the statutory tax authorities and their appellate fora. The Court held that NCLT and NCLAT cannot be converted into forums for judicial review of tax assessments, and that parallel adjudication would create administrative chaos and conflicting orders. The Court also held that any restriction on the sovereign power to levy and collect tax must be express, and cannot be inferred merely from the object of insolvency law.

Conclusion: Insolvency forums cannot adjudicate tax assessment disputes as a substitute for the statutory tax hierarchy, and tax liabilities arising during CIRP must be examined under the relevant tax law framework.

Final Conclusion: The batch was disposed of by remitting several matters for fresh consideration and by directing the authorities to examine the resolution plan, the CIRP-cost issue, and the effect of insolvency proceedings on the impugned tax actions, while holding that clean slate does not automatically extinguish tax liabilities arising during CIRP.

Ratio Decidendi: Clean slate under the Insolvency and Bankruptcy Code, 2016 extinguishes only pre-CIRP claims that are not part of an approved resolution plan, and it does not by itself nullify statutory tax liabilities that arise during CIRP or confer on insolvency forums jurisdiction to finally determine tax assessments.

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