The Clean Slate Theory does not apply to tax dues arising during the Corporate Insolvency Resolution Process; compliance with tax obligations remains necessary.

ORDER

The present batch of writ petitions raise an important question viz., whether “Clean Slate Theory”, propounded by the Supreme Court in the case of Ghanashyam Mishra and Sons Private Limited Vs. Edelweiss Asset Reconstruction Company Limited, (2021) 9 SCC 657, would apply to dues that arise during the period of Corporate Insolvency Resolution Process (hereinafter referred to as “CIRP”) i.e., after the admission of the “Corporate Debtor” (hereinafter referred to as “CD”), into insolvency and covers the period in which the CD continues to be in insolvency under Goods and Service Tax and Income Tax dues.

2. Though facts obtaining in these writ petitions are different, however they were heard together and common orders are passed inasmuch as it was submitted by Counsel for petitioners and respondents that there is a common question/issue underlying rather overlapping in all these petitions viz., inter play between fiscal laws viz., Income Tax Act (hereinafter referred to as “IT Act” ), Goods and Services Tax Act (hereinafter referred to as “GST Act”) and Insolvency and Bankruptcy Code (hereinafter referred to as “IBC”).

3. Brief Facts:

3.1. I shall briefly refer to Writ Petitions wherein the subject matter in controversy relates to demands arising under GST Act:

a. Empee Distilleries Limited v. Assistant Commissioner(ST) and 7 others - WP.No.30364 of 2024:

i) M/s. Empee Distilleries Ltd. / petitioner is a company engaged in the business of manufacturing of liquor and a registered dealer bearing GSTIN 33AAACE1687N1ZF.

ii) CIRP was initiated by Union Bank of India under Section 7 of IBC, before the National Company Law Tribunal (hereinafter referred to as “NCLT”), Chennai and the same was admitted on 01.11.2018. An order of moratorium was declared in terms of Section 14 of IBC.

iii) Claims were invited through paper publication on 04.11.2018 by fixing the last date for filing of the claim on 17.11.2018. No claims were made by the Respondent Department.

iv) A Resolution Plan submitted by M/s. SNJ Distilleries for Rs.475 Crores was approved by the Committee of Creditors (hereinafter referred to as “CoC”) on 22.07.2019, and approved by NCLT under Section 31(1) of IBC on 20.01.2020.

v) The above order of NCLT stood confirmed by National Company Law Appellate Tribunal (hereinafter referred to as “NCLAT”) vide Order dated 27.08.2020, and thereafter by the Hon'ble Supreme Court on 26.11.2020, in Civil Appeal No.3283 of 2020.

vi) Petitioner submits that a show cause notice dated 31.05.2024 came to be issued under Tamil Nadu Goods and Service Tax Act (hereinafter referred to “TNGST”), on the premise that certain discrepancies were found in the case of petitioner company for the Financial Year 2019-20 and proposed to reverse ITC, levy penalty and interest.

vii) On 27.06.2024 petitioner submitted an objection to the aforesaid notice inter alia submitting that the proposal to reverse ITC and to levy penalty under Section 73 of TNGST is unsustainable inasmuch as the proposal pertains to tax period 2019-20, which is prior to the Resolution Plan dated 22.07.2019 and approved on 20.01.2020. Resolution Plan having been approved is binding on the department/State.

viii) However, petitioner received another reminder notice dated 10.07.2024 and submitted a reply also on 16.07.2024.

ix) Impugned order came to passed under Section 73 of TNGST on 29.08.2024, whereby the proposal of reversal and recovery of ITC and levy of penalty and interest is confirmed according to petitioner without considering the detailed objection and reply to the show cause notices issued by the respondent. Challenging the same writ petition is filed.

b) Kamachi Industries Limited v. Assistant Co