2021 (12) TMI 1408 - HC - GST

Recovery proceedings - effect of moratorium on proceedings under Section 138 of the Negotiable Instruments Act and on Section 75 (1) of the GST Act - HELD THAT - A plain reading of Section 14 of the IBC will clearly indicate that there is a complete/total embargo/bar to initiate and continue proceedings against the petitioner before any other authority including the respondent-authority also during the pendency of proceedings before the NCLT and appeal(s) to be filed against the same, if any, when the moratorium/CIRP is in force and has not been lifted; it is relevant state that neither the words 'proceedings' nor 'authority' have been defined under the IBC and consequently giving the said words their plain grammatical meaning, the only inference that arises from a reading of Section 14 would be that the said provision is an all pervasive and omnibus provision which includes and encompasses proceedings initiated by the respondent-department against the petitioner also. It is also relevant to state that in P. Mohan Raj's case 2021 (3) TMI 94 - SUPREME COURT , a three Judge Bench of the Apex Court has categorically held that the moratorium provision contained in Section 14 of the IBC would include proceedings under Section 138 of the Negotiable Instruments Act also and by token of the same reasoning, proceedings initiated by the respondent under the GST Act would also attract the embargo contained in Section 14 of the IBC. Insofar as the contention urged by the respondent - state with regard to proceedings to be initiated later by the respondent against the petitioner as being barred by limitation is concerned, the said contention cannot be accepted in view of the non-obstante clause contained in Section 60 (6) of the IBC which excludes the entire period during which the moratorium is in force; so also Section 75 (1) of the GST Act also excludes the entire period from 29.09.2021 onwards when this court passed an order of stay up to the date of completion of the CIRP and lifting of the moratorium and as such, even this contention urged by the respondent cannot be accepted. All proceedings pursuant to the impugned notices, intimations, orders, etc. issued/passed by the respondent against the petitioner are stayed/suspended/kept in abeyance till disposal of the proceedings before the NCLT, Bengaluru - Petition disposed off.

Summary

Issues Involved:
1. Validity of notices and orders issued by the respondent under KGST and CGST Rules and Acts during the moratorium period declared under the Insolvency and Bankruptcy Code (IBC).
2. Applicability of Section 14 of the IBC to the proceedings initiated by the respondent.
3. Impact of the moratorium on the limitation period for initiating proceedings under the GST Act.

Issue-Wise Detailed Analysis:

1. Validity of Notices and Orders Issued by the Respondent:

The petitioner sought to quash several notices and orders issued by the respondent under the KGST and CGST Rules and Acts for the period July 2017 to March 2018 and subsequent financial years. The petitioner argued that these proceedings could not continue due to the moratorium declared by the National Company Law Tribunal (NCLT) under the IBC, which prohibits any suits or proceedings against the corporate debtor during the moratorium period. The petitioner cited various judicial decisions to support this contention.

2. Applicability of Section 14 of the IBC:

Section 14 of the IBC imposes a moratorium prohibiting the institution or continuation of suits or proceedings against the corporate debtor. The petitioner argued that this moratorium should extend to the proceedings initiated by the respondent under the GST Act. The respondent contended that the moratorium only applied to recovery proceedings and not to assessment/adjudication proceedings. However, the court found that Section 14 of the IBC is an all-encompassing provision that includes proceedings initiated by the respondent. The court cited decisions from the Delhi High Court, Madras High Court, and the Supreme Court, which held that the moratorium under Section 14 of the IBC applies to various types of proceedings, including those under the Income Tax Act and the Negotiable Instruments Act.

3. Impact of the Moratorium on the Limitation Period:

The respondent argued that quashing the proceedings would lead to a time-barred situation for initiating future proceedings after the moratorium is lifted. The petitioner countered this by referring to Section 60(6) of the IBC, which excludes the period of moratorium from the limitation period. The court agreed with the petitioner, stating that both Section 60(6) of the IBC and Section 75(1) of the GST Act exclude the moratorium period from the limitation period, thereby allowing the respondent to initiate proceedings after the completion of the Corporate Insolvency Resolution Process (CIRP) without being time-barred.

Conclusion:

The court concluded that the proceedings initiated by the respondent against the petitioner during the moratorium period are to be stayed/suspended/kept in abeyance until the completion of the CIRP and lifting of the moratorium. The court also provided liberty to the respondent to continue or initiate proceedings against the petitioner after the moratorium is lifted and the CIRP is completed. The petition was disposed of with these directions.