2024 (10) TMI 219 - HC - Central Excise

Extinguishment of demand due to the non-filing of claims by the revenue during the Corporate Insolvency Resolution Process (CIRP) - HELD THAT - The proceedings initiated against Ruchi Soya under the IBC are also a matter of record. Hence, from the aforementioned, it is clear that during the pendency of the appeal before the CESTAT, the proceedings under IBC against Ruchi Soya had commenced and also culminated with the acceptance of the modified resolution plan, consequent to which Patanjali has continued the business of Ruchi Soya, which is also forthcoming from the certificate dated 24.6.2022. It is further undisputed that the revenue has not made any claim before the IRP during CIRP process under the IBC - the revenue not having made any claim before the IRP during the CIRP process and the demand not having been part of the resolution plan, has stood extinguished and cannot be continued. It is relevant to note that a Division Bench of the Gujarath High Court in the case of The Commissioner of Customs 2022 (8) TMI 1459 - GUJARAT HIGH COURT , while considering an appeal filed by the revenue in the case of Patanjali after noticing Section 32A of the IBC as well as the amended Section 31 of the IBC as also the judgment of the Hon ble Supreme Court in the case of Ghanshyam Mishra 2021 (4) TMI 613 - SUPREME COURT has held 'undisputed fact that the appellant has not lodged any claim in the capacity of the Operational Creditor before the Resolution Professional, this appeal is required to be disposed of as having become infructuous and abated with regard to any liability of any nature whatsoever having extinguished in view of the implementation of the Resolution Plan and change in management and control of the assessee in view of the provisions of section 31 and section 32A of the IBC.' It is clear from Section 5 (26) of the IBC that the resolution plan is proposed by the applicant for continuing the business of the company as a going concern . It is forthcoming that under the Scheme of the IBC, Part II contemplates Insolvency Resolution and Liquidation for Corporate Persons. Chapter II in Part II contemplates Corporate Insolvency Resolution Process and Section 6 to Section 32A deals with the same. Chapter III in Part contemplates Liquidation Process and Section 33 to Section 54 deals with the same. Hence, it is clear that by a resolution process the company continues its business and only by a liquidation process, the business of the company would be wound up. In the present case, the resolution plan in respect of the assessee having been accepted by the Tribunal, the question of the assessee being wound up does not arise. Hence, it is clear that Rule 22 of the 1982 Rules would not be attracted in a case where the resolution plan has been approved by the IBC. Hence, the Tribunal ex facie erred in holding that by virtue of Rule 22 of the 1982 Rules, the appeal would abate. The substantial question of law is answered in favour of the assessee and against the revenue.

Summary

Issues Involved:

1. Whether the demand of Rs. 5,09,15,106/- against the assessee stands extinguished due to the non-filing of claims by the revenue during the Corporate Insolvency Resolution Process (CIRP).
2. Whether the assessee is entitled to a refund of Rs. 2,97,29,891/- appropriated by the revenue.
3. Whether the appeal abated under Rule 22 of the CESTAT (Procedure) Rules, 1982 due to the insolvency proceedings.

Issue-wise Detailed Analysis:

1. Extinguishment of Demand:
The core issue was whether the demand of Rs. 5,09,15,106/- against the assessee was extinguished due to the CIRP proceedings. The judgment highlighted that the revenue did not file a claim before the Interim Resolution Professional (IRP) during the CIRP process. The Supreme Court in cases like Ghanshyam Mishra v. Edelweiss Reconstruction Company Ltd. and Ruchi Soya Industries Ltd. v. Union of India established that once a resolution plan is approved by the adjudicating authority, all claims not part of the resolution plan are extinguished. The court noted that since the demand was not included in the resolution plan, it stood extinguished, and no proceedings in respect of such dues could be continued.

2. Entitlement to Refund:
The court considered whether the assessee was entitled to a refund of Rs. 2,97,29,891/-, which had been appropriated by the revenue. The revenue contended that the confirmed excise duty of Rs. 8,06,44,997/- was not part of the CIRP process, and thus, the refund should not be granted. The court agreed with the revenue's position, stating that the non-filing of a claim by the revenue before the IRP resulted in the extinguishment of the demand, but the appropriated amount was not subject to refund. Thus, the assessee was not entitled to a refund of the appropriated amount.

3. Abatement of Appeal:
The tribunal had held that the appeal abated under Rule 22 of the 1982 Rules due to the insolvency proceedings. However, the court clarified that Rule 22 applies when a company is wound up, not when a resolution plan is approved, allowing the company to continue as a going concern. The court noted that the resolution plan had been accepted, and the business continued, thus Rule 22 was not applicable. The tribunal erred in holding that the appeal abated, as the resolution process did not equate to the winding up of the company.

Conclusion:

The court allowed the appeal, setting aside the tribunal's order. It was held that the demand of Rs. 5,09,15,106/- was extinguished due to the non-filing of claims during CIRP, and the appeal did not abate under Rule 22. However, the assessee was not entitled to a refund of the appropriated amount of Rs. 2,97,29,891/-. The judgment reinforced the principle that claims not part of an approved resolution plan under the IBC are extinguished and cannot be pursued further.