2023 (5) TMI 5 - HC - VAT and Sales Tax

Jurisdiction of State GST Department to initiate proceedings for recovery of any nature for the period prior to acceptance of the Resolution Plan - HELD THAT - Law is well-settled that with the finalization of insolvency resolution plan and the approval thereof by the NCLT, all dues of creditors, Corporate, Statutory and others stand extinguished and no demand can be raised for the period prior to the specified date. The impugned show cause notices and the demand orders came to be passed in reference to the Financial Years 2017-18 and 2018-19, which are much prior to the date of finalization of the Resolution Plan, i.e. 12.10.2019 - The Deputy Commissioner, State GST Department exercises quasi judicial functions while acting under the provisions of the GST Act and thus, it is expected from such officer to act judiciously, consider the reply of the party, apply mind to the facts and law and pass a reasoned order. However, a bare perusal of the impugned orders dated 22.04.2020 is sufficient to satisfy us that the officer acted in gross defiance of the settled legal position as expounded by Hon'ble Supreme Court in the case of Committee of Creditors of Essar Steel India Ltd. 2019 (11) TMI 731 - SUPREME COURT and this Court in the case of Ultra Tech Nathdwara Cement Ltd. 2020 (4) TMI 269 - RAJASTHAN HIGH COURT . Such laconic approach of the authority exercising quasi judicial powers reflects sheer incompetency and pedantic approach and adds to the evergrowing dockets of cases in the courts - While passing the impugned orders, the Deputy Commissioner failed to consider the replies of the party and acted with sheer non-application of mind. His conduct deserves to be deprecated. The impugned orders and demand notices do not stand to test of law, i.e. mandate of Section 31 read with Section 238 of the IBC and the interpretation thereof as made by Hon'ble the Supreme Court in the case of Committee of Creditors of Essar Steel India Ltd. Hence, the same are declared to be invalid and quashed. Petition allowed.

Summary

Issues:
1. Validity of show cause notices and orders by the Deputy Commissioner, State Tax, Anti-Evasion, Bhilwara.
2. Extent of jurisdiction of the State GST Department post-approval of Corporate Insolvency Resolution Plan (CIRP).
3. Compliance of legal provisions under the Insolvency and Bankruptcy Code (IBC) in relation to tax liabilities.
4. Quashing of demand orders and show cause notices for Financial Years 2017-18 and 2018-19.
5. Consideration of replies by the Deputy Commissioner and quasi-judicial functions under the GST Act.

Issue 1: Validity of show cause notices and orders by the Deputy Commissioner
The writ petitions challenged the show cause notices and orders issued by the Deputy Commissioner, State Tax, Anti-Evasion, Bhilwara, seeking an explanation for the reversal of Input Tax Credit (ITC) claimed by the petitioner for the Financial Years 2017-18 and 2018-19. The petitioner contended that these demands were arbitrary and ignored the approval of the Corporate Insolvency Resolution Plan (CIRP) by the National Company Law Tribunal (NCLT), which extinguished all tax dues prior to the effective date of the plan.

Issue 2: Extent of jurisdiction of the State GST Department post-approval of CIRP
The respondents acknowledged that all demands of the Department for periods before the effective date of the Resolution Plan stood extinguished post-NCLT approval. The demands in question pertained to the Financial Years 2017-18 and 2018-19, predating the approval of the Resolution Plan on 21.10.2019. The settled legal position highlighted the extinguishment of pre-resolution plan tax liabilities upon NCLT approval, emphasizing the binding nature of the approved plan on all stakeholders.

Issue 3: Compliance of legal provisions under the Insolvency and Bankruptcy Code
Sections 31 and 238 of the Insolvency and Bankruptcy Code (IBC) made the approved Resolution Plan binding on the Corporate Debtors, creditors, guarantors, and other stakeholders, including governmental authorities to whom dues were owed. The judgment cited precedents emphasizing the extinguishment of statutory creditor demands upon NCLT approval of the Resolution Plan, underscoring the supremacy of the IBC in case of legal inconsistencies.

Issue 4: Quashing of demand orders and show cause notices
The Deputy Commissioner's orders and demand notices for the Financial Years 2017-18 and 2018-19 were deemed invalid and quashed for failing to adhere to the provisions of the IBC and overlooking the extinguishment of pre-resolution plan tax liabilities. The quasi-judicial functions of the Deputy Commissioner required a reasoned consideration of the petitioner's reply, which was not evident in the perfunctory issuance of demands.

Issue 5: Consideration of replies by the Deputy Commissioner and quasi-judicial functions
The Deputy Commissioner's failure to consider the petitioner's detailed reply and the non-application of mind in issuing demands were criticized for lacking judiciousness. The judgment deprecated the Deputy Commissioner's conduct and declared the impugned orders and demand notices as invalid, emphasizing the need for compliance with legal mandates and due consideration of relevant facts and laws in quasi-judicial proceedings.

In conclusion, the High Court allowed the writ petitions, quashed the impugned orders and demand notices, and directed the Commissioner, State Goods and Service Tax, Kar Bhawan, Jaipur to take appropriate action. No costs were awarded in the matter.