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2021 (9) TMI 613 - HC - VAT and Sales TaxRecovery of Tax dues - First charge - Section 77 of the U.P. VAT Act - Overriding effect of IBC - Sovereign power of the State to enable the State to raise money by taxation for adequate revenue - liability of an assessee/ dealer under the U.P. VAT Act and the U.P. Tax on Entry of Goods into the Local Areas Act, 2007 - HELD THAT - The definition of the word charge in IBC shall relate to the subject matter of the IBC which cannot be read or borrowed for interpreting Section 77 of the U.P. VAT Act. Section 77 of the U.P. VAT Act, cannot be said to be referable to any of the entries of List-III Concurrent List. Overriding effect of IBC - HELD THAT - The provisions of Section 238 of the IBC cannot be read as overriding the provisions of the U.P. VAT Act including Section 77. Liability of an assessee/ dealer under the U.P. VAT Act and the U.P. Tax on Entry of Goods into the Local Areas Act, 2007 - HELD THAT - Assessment followed by demand notice crystallises the liability of an assessee/ dealer under the U.P. VAT Act and the U.P. Tax on Entry of Goods into the Local Areas Act, 2007. Most of the demands against the petitioner is subsequent to the effective date, i.e. 15.05.2018 when the adjudicating authority passed the order under Section 31 of the IBC. Therefore, for the purposes of the present case, the relevant date would be when the assessment orders were passed followed by demand notice and not the taxable even - when the interim orders were discharged, the right of the State to recover the amount has accrued. Put up tomorrow at 2 P.M. for further hearing, along with connected writ petitions.
Issues:
1. Interpretation of the power of taxation under the U.P. VAT Act in relation to the Insolvency and Bankruptcy Code (IBC). 2. Jurisdictional conflict between State laws and the IBC. 3. Extinguishment of liability under the IBC and its applicability to State taxes. 4. Interpretation of the term "first charge" under Section 77 of the U.P. VAT Act. 5. The overriding effect of the IBC on State laws. 6. Analysis of Section 238 of the IBC in relation to State laws. 7. Liability crystallization under the U.P. VAT Act and U.P. Tax on Entry of Goods into Local Areas Act, 2007 post IBC order. Analysis: 1. The judgment delves into the interpretation of the power of taxation under the U.P. VAT Act concerning the IBC. It emphasizes the sovereign power of the State to raise revenue through taxation and the necessity of conceding priority to the State in tax dues. The court highlights that the IBC, being referable to Entry-9 of the Concurrent List, does not override State laws enacted within their exclusive legislative domain under the Constitution. 2. The judgment addresses the conflict between State laws like the U.P. VAT Act and the IBC. It clarifies that the reliefs and concessions provided under the IBC are limited to matters under List-I or List-III of the Constitution, excluding State laws falling under List-II. Therefore, the inclusion of State tax dues in an IBC resolution plan without State consent is deemed impermissible and unconstitutional. 3. Regarding the extinguishment of liability under the IBC, the judgment asserts that taxes under the IBC refer only to those levied by Parliament under List-I or List-III, not State enactments under List-II. Consequently, any attempt to include State tax dues in a resolution plan without State consent is considered null and void. 4. The judgment interprets the term "first charge" under Section 77 of the U.P. VAT Act, emphasizing that its meaning should align with the Act's scheme and not be equated with the definition of "charge" under the IBC. It underscores that Section 77 does not fall under the Concurrent List, as per the Supreme Court's ruling in Central Bank of India vs. State of Kerala. 5. It clarifies that the IBC does not automatically override State laws enacted within their exclusive legislative domain under List-II. The judgment cites the Supreme Court's interpretation of Section 238 of the IBC in relation to the Mumbai Municipal Corporations Act, highlighting that the IBC does not supersede State laws like the U.P. VAT Act, including Section 77. 6. The judgment discusses the crystallization of liability under the U.P. VAT Act and U.P. Tax on Entry of Goods into Local Areas Act, 2007 post the IBC order. It notes that assessments followed by demand notices determine the taxpayer's liability, with exceptions for cases where interim orders were discharged, allowing the State to recover taxes. This comprehensive analysis provides a detailed insight into the legal issues addressed in the judgment delivered by the Allahabad High Court.
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