2024 (5) TMI 1151 - AT - Insolvency and Bankruptcy

CIRP - VAT / Sales Tax dues - Treatment of claims as Secured claims vis-a -vis Unsecured claims - Rejection of application of appellant to treat its claim as Secured Creditor during the liquidation under waterfall arrangement as stipulated in Section 53 of IBC - HELD THAT - The Appellant during the moratorium period could determine the tax, interest, fine or any penalty which is due, however, the Appellant could not enforce his claims for recovery or levy of interest on the tax due during the period of Moratorium. It has been brought out that the Claims of Assessment Orders passed during the moratorium under Section 14 33(5) of the Code, have been rightly considered and admitted as 'Unsecured' Operational Debt. It is significate to take into consideration that the Appellant vide its own letter dated 23.06.2023 acknowledged the fact that for A.Y. 2014-15, 2015-16 2016-17, the assessments were carried on during moratorium. It has been brought to notice that the Appellant passed attachment orders on the property of the Corporate Debtor i.e., 16.10.2018 in alleged and contravention of Section 14 of the Code Regulation therein, even after order dated 15.06.2023 passed by Adjudicating Authority whereby, the Appellant was directed to lift the attachment within ten days of receipt of such intimation from the Respondent, however, till date, the Appellant continues illegally and unlawfully attachment on the subject property of the Corporate Debtor. The time period of 330 days prescribed in the Code is indicative and directory in nature and not mandatory. In fact, large number of cases, due is several reasons, are not able to be resolved within such stipulated period and if the contentions of the Appellant is accepted then the Resolution Process of the Corporate Debtor, in most of the cases, may not take off at all. Thus, the pleadings of the Appellant on this grand, stand rejected. The Rainbow Paper 2022 (9) TMI 317 - SUPREME COURT held that tax dues covered under section 48 of the VAT Act which clearly stipulate the Appellant s right over the assets of the Corporate Debtor as first charge. This similar provisions, however, was not available in Gujarat Sales Tax Act and therefore, the tax claims were not treated as Secured Creditors. To the credit of the Appellant, he fairly concluded that this period was not covered in the ratio of Rainbow Paper. Hence the Respondent classified remaining admissible outstanding dues as Unsecured debts. The Adjudicating Authority, therefore, also passed the Impugned Order accordingly based on Resolution Plan put up for approval by CoC through the Respondent - there are no infirmity in the Impugned Order on this account. Appeal dismissed.

Summary

Issues Involved:
1. Treatment of claims as Secured Creditors vs. Unsecured Creditors.
2. Applicability of moratorium under Section 14 and Section 33(5) of the Insolvency & Bankruptcy Code, 2016.
3. Validity of tax demands and attachment orders during moratorium and liquidation periods.
4. Interpretation of relevant judgments including Rainbow Papers Limited and Sundaresh Bhat cases.

Summary:

Issue 1: Treatment of Claims as Secured Creditors vs. Unsecured Creditors
The Appellant, Commissioner of State Tax Department, challenged the rejection of its claim to be treated as a Secured Creditor during the liquidation process of M/s Anil Limited. The Respondent, the Liquidator, classified claims for Assessment Years (AY) 2007-08 to 2012-13 as Secured Creditors based on Section 48 of the VAT Act and the judgment in Rainbow Papers Limited. However, claims for AY 1994-95 to 1997-98 were treated as Unsecured Creditors since the Gujarat Sales Tax Act did not contain equivalent provisions. Claims for AY 2013-14 to 2016-17 were also treated as Unsecured Creditors due to their assessment during the moratorium period.

Issue 2: Applicability of Moratorium u/s 14 and Section 33(5) of the Code
The moratorium under Section 14 came into effect on 23.08.2017 with the initiation of CIRP and continued under Section 33(5) during liquidation. The Appellant's claims for AY 2013-14 and 2014-15, assessed after the moratorium, were found to be in violation of Section 14. Similarly, claims for AY 2015-16 and 2016-17, assessed during liquidation, violated Section 33(5) of the Code.

Issue 3: Validity of Tax Demands and Attachment Orders During Moratorium and Liquidation Periods
The Appellant issued attachment orders on 16.10.2018, during the moratorium, which was deemed illegal. The Respondent was directed to lift these attachments, but the Appellant continued the attachment unlawfully. The Appellant's argument that the CIRP/liquidation process should have been completed within 330 days was rejected, as this period is indicative, not mandatory.

Issue 4: Interpretation of Relevant Judgments
The judgment in Rainbow Papers Limited was pivotal, establishing that tax dues under Section 48 of the VAT Act are secured. However, this did not apply to claims under the Gujarat Sales Tax Act. The judgment in Sundaresh Bhat confirmed that any legal proceedings, including tax assessments, during the moratorium are invalid. The Appellant's reliance on other judgments was found inapplicable.

Conclusion:
The appeal was dismissed, and the classification of claims by the Respondent was upheld. Claims for AY 2007-08 to 2012-13 were correctly treated as Secured Creditors, while claims for AY 1994-95 to 1997-98 and AY 2013-14 to 2016-17 were rightfully treated as Unsecured Creditors. The actions of the Appellant during the moratorium and liquidation periods were found to be in violation of the Code.