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IN THE HIGH COURT OF KERALA AT ERNAKULAM
DINESH KUMAR SINGH, J.
Empee Distilleries Ltd - Petitioner
Versus
The Deputy Commissioner of State Tax, State GST Department, Palakkad - Respondent
WP(C) No. 35261 of 2023
Decided On : 27-02-2024
IB Code - Assessment of Turnover Tax - Kerala General Sales Tax Act, 1963 - Section 14, Section 31 - The judgment discusses the approval of a resolution plan under the Insolvency and Bankruptcy Code, 2016 and its impact on the assessment of turnover tax under the Kerala General Sales Tax Act, 1963. It examines the binding nature of the resolution plan on statutory dues and the authority's jurisdiction to proceed with the assessment after the approval of the resolution plan.
Fact of the Case:
The petitioner, a company registered under the Companies Act, 1956, was subjected to an assessment order for turnover tax by the State Tax Officer. The petitioner challenged the assessment order, arguing that the claims provided in the resolution plan approved by the National Company Law Tribunal (NCLT) were frozen, and any claims not part of the plan would be extinguished under Section 31 of the Insolvency and Bankruptcy Code, 2016 (IB Code). The petitioner contended that the assessment order was illegal and without jurisdiction due to the approval of the resolution plan.
Finding of the Court:
The court found that the resolution plan's approval by the NCLT had implications on the assessment of turnover tax. It held that the resolution plan's approval would freeze the claims provided in the plan and extinguish any claims not part of the plan. The court also noted that the IB Code's provisions have an overriding effect on other laws, as stated in Section 238 of the IB Code. The court set aside the assessment order and remitted the matter to the State Tax Officer to examine whether the resolution plan complied with Section 30(2) of the IB Code and to pass a fresh order accordingly.
Issues: The issues involved in the case included the impact of the approval of a resolution plan under the IB Code on the assessment of turnover tax, the binding nature of the resolution plan on statutory dues, and the jurisdiction of the assessing authority to proceed with the assessment after the approval of the resolution plan.
Ratio Decidendi: The court's decision was based on the interpretation of the IB Code's provisions, particularly Section 31, and their implications on the assessment of turnover tax under the Kerala General Sales Tax Act, 1963. The court emphasized that the approval of the resolution plan would freeze the claims provided in the plan and extinguish any claims not part of the plan. It also highlighted the overriding effect of the IB Code's provisions on other laws, as stated in Section 238 of the IB Code.
Final Decision: The court set aside the assessment order and remitted the matter to the State Tax Officer to examine whether the resolution plan complied with Section 30(2) of the IB Code and to pass a fresh order accordingly. The petitioner was directed to appear before the State Tax Officer with all relevant documents, and the assessing authority was instructed to pass a fresh order expeditiously.
JUDGMENT :
The petitioner is a company registered under the Companies Act, 1956 and is a dealer registered under the provisions of the Kerala General Sales Tax Act, 1963 (‘the Act’ for short). The Union Bank of India (Financial Creditor) filed a Company Petition against the petitioner company (Corporate debtor) before the National Company Law Tribunal, Chennai (“the NCLT” for short) under the Insolvency and Bankruptcy Code, 2016 (“ the IB Code” for short). The NCLT admitted the petition and ordered commencement of the Corporate Insolvency Resolution Process. Mr. S. Rajendran, had been appointed as Resolution Professional of the petitioner company as per the NCLT order dated 13.12.2018. Vide the order dated 01.11.2018 (Ext.P1), the NCLT issued moratorium till the completion of Corporate insolvency resolution process for the purposes referred to in Section 14 of the Code, in respect of the following :
(ii) transferring, encumbering, alienating or disposing of by the corporate debtors any of its assets or any legal right or beneficial interest.
(iii) any action of foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002)
(iv) the recovery of any property by an owner or lessor where such properties are occupied by or in the possession of the corporate debtor.”
2. The resolution Professional had called for submission of resolution plans from prospective resolution applicants for taking over the company as a going concern. The plan submitted by M/s SNJ Distillers Private Ltd having its registered office at No.72, Greams Road, Thousand Lights, Chennai, Pin code – 600 006 was approved by the Committee of Creditors unanimously with 100% voting, and the same plan was approved by NCLT on 20.01.2020 without any modification. The said order of the NCLT dated 20.1.2020 was challenged before the National Company Law Appellate Tribunal in Company Appeal (AT) No.551 of 2020. However, the said Company Appeal came to be dismissed by the order dated 20.08.2020. The order passed by the NCLT dated 20.08.2020 was affirmed by the Supreme Court by the order dated 26.11.2020 in Civil Appeal No. 3283 of 2020.
3. In view of the aforesaid and after dismissal of the Civil Appeal No. 3283 of 2020 by the Supreme Court, M/s SNJ Distillers Pvt Ltd took over the management of M/s Empee Distilleries Ltd as a going concern with effect from 01.04.2020 as per the order of the NCLT dated 20.01.2020. The resolution plan dated 17.07.2019 as approved by the NCLT inter-alia provides as under :-
Once a resolution plan is approved under the IBC, the claims provided in the plan are binding and any claims not included in the plan are extinguished.
The main legal principle established in the judgment is the binding effect of the resolution plan approved by the NCLT on stakeholders, as well as the extinguishment of claims not part of the approve....
The approval of a resolution plan under the IBC extinguishes all claims not included in the plan, including tax liabilities.
The approval of a resolution plan under the IBC extinguishes all claims not included in the plan, including tax liabilities, ensuring a fresh start for the corporate debtor.
Approved resolution plans under the Insolvency and Bankruptcy Code extinguish all pre-CIRP claims not included, including statutory dues from tax authorities.
Tax liabilities arising during corporate insolvency resolution cannot be extinguished by a resolution plan unless explicitly provided, as affirmed by recent Supreme Court rulings.
Approved resolution plan under IBC Section 31(1) extinguishes all pre-CIRP unsubmitted statutory dues; tax reassessment proceedings post-approval are barred by Section 238's overriding effect and cle....
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