2021 (9) TMI 157 - HC - VAT and Sales Tax

Creation of demand and recovery of amount - Resolution plan was accepted - HELD THAT - Various questions are being framed for determination with the consent of the learned counsels for the parties - (i) Whether the element of entry tax falls in the definition of the term Tax as contained in Annexure-1 of the Resolution Plan. If not, then its effect? (ii) Whether the definition of Court/Tribunal as a governmental authority would include Supreme Court and High Court? (iii) Whether the adjudicating authority or resolution professional is bound by the decision rendered under Article 226 of the Constitution of India and in proceeding under Article 136 and Article 141 of the Constitution of India? (iv) Whether the interim order granted by the Hon'ble Supreme Court, which is in the nature of an undertaking will be taken to be covered in the Resolution Plan in view of the operation of Article 144 of the Constitution of India? (v) Whether the petitioner obtained the order from the adjudicating authority in contravention of Section 30 and Section 31 of the IBC Code, 2016 read with CIRP Regulations without disclosing in the Resolution Plan, the liability towards Entry tax when it was simultaneously contesting the proceedings before the Hon'ble High Court in its writ jurisdiction and also did not move any application before the Hon'ble High Court intimating the Hon'ble High Court about appointment of the interim Resolution Professional? (vi) Whether on account of active concealment of facts the petitioner has disentitled itself in equity for any relief from this Hon'ble Court and to maintain judicial discipline, conflicting orders by coordinate benches cannot be passed? (vii) Whether the amount of tax collected by the petitioner from their customers or end consumers is a tax which goes in the corpus of the petitioner or it is a delegated duty being discharged by the petitioner fulfilling the obligations of the State in the capacity of Trustee? (viii) Whether being in the position of Trustee and admittedly not in a position to restitute, the principles of unjust enrichment will come into play or not? (ix) Whether the power to tax being sovereign, any incidental law can take away the sovereign power of the State? (x) Whether statutory frame work under which tax was collected by the petitioner having pith and substance in List-Il of the VIIth Schedule to the Constitution of India, a law relating to insolvency, which is essentially a law under List-III of the VIIth Schedule to the Constitution of India can encroach the field occupied by a subject in List-II? (xi) Whether first charge as employed under Section 77 of U.P. VAT Act is relatable to the exercise of the sovereign power of the State or is it relatable to a common law of the term Charge employed under the statutory law. (xii) Whether Section 238 of IBC Code,2016 will have any consequences when it is pithily operating in a different field and will not override the provisions of the VAT Act or U.P. Tax on Entry of Goods Act, 2007 or Central Sales Tax Act, 1956? (xiii) Whether the date of taxable event will be relevant consideration or the date of assessment/demand will be relevant consideration for the effective date under the resolution plan as per the provision of U.P. VAT Act or U.P. Tax on Entry of Goods Act,2007? (xiv) Whether controversy involved in these writ petitions is concluded by the judgement of Hon ble Supreme Court in Ghanshyam Mishra and sons Pvt. Ltd. vs. Edelweiss Asset Reconstructions Company Ltd., 2021 (4) TMI 613 - SUPREME COURT ? (xv) Whether in view of Section 31 of the Insolvency and Bankruptcy Code, 2016 ( Code ) (as amended till date), the terms of the Resolution Plan once approved by the NCLT, is binding on all creditors of the Petitioner, including the Respondents? (xvi) Whether in view of Section 238 of the Code, the provisions of the Code have an overriding effect on the claims of creditors of the Petitioner, including the Respondents? 6. Put up for further hearing along with all connected writ petitions, on 03.09.2021 at 2 P.M.

Summary

Issues Involved:
1. Definition and inclusion of entry tax under the term "Tax" in the Resolution Plan.
2. Inclusion of Supreme Court and High Court under the definition of Court/Tribunal as a governmental authority.
3. Binding nature of decisions under Article 226, Article 136, and Article 141 of the Constitution on the adjudicating authority or resolution professional.
4. Coverage of interim orders by the Supreme Court in the Resolution Plan under Article 144 of the Constitution.
5. Alleged contravention of Section 30 and Section 31 of the IBC Code, 2016, and CIRP Regulations by the petitioner.
6. Impact of active concealment of facts by the petitioner on its entitlement to relief.
7. Nature of tax collected by the petitioner as a trustee or for its corpus.
8. Applicability of principles of unjust enrichment to the petitioner.
9. Sovereign power of the State to tax versus incidental laws.
10. Encroachment of insolvency law on the field occupied by State tax laws.
11. Interpretation of "first charge" under Section 77 of U.P. VAT Act.
12. Overriding effect of Section 238 of IBC Code, 2016, on VAT Act or U.P. Tax on Entry of Goods Act, 2007.
13. Relevance of taxable event date versus assessment/demand date under VAT Act or U.P. Tax on Entry of Goods Act, 2007.
14. Applicability of the Supreme Court judgment in Ghanshyam Mishra and Sons Pvt. Ltd. vs. Edelweiss Asset Reconstructions Company Ltd.
15. Binding nature of the Resolution Plan approved by NCLT on all creditors.
16. Overriding effect of the Code provisions on creditors' claims.

Detailed Analysis:

1. Definition and Inclusion of Entry Tax Under the Term "Tax":
The court examined whether entry tax falls under the definition of "Tax" as per Annexure-1 of the Resolution Plan. The implications of its inclusion or exclusion were considered, particularly in the context of the petitioner's obligations and liabilities.

2. Inclusion of Supreme Court and High Court Under the Definition of Court/Tribunal:
The issue was whether the Supreme Court and High Court qualify as governmental authorities under the Resolution Plan's definitions. This determination impacts the authority and jurisdiction of these courts in relation to the Resolution Plan.

3. Binding Nature of Decisions Under Article 226, Article 136, and Article 141:
The court discussed whether decisions rendered under these constitutional articles are binding on the adjudicating authority or resolution professional. This involves understanding the interplay between constitutional mandates and the IBC framework.

4. Coverage of Interim Orders by the Supreme Court:
The question was whether interim orders by the Supreme Court, considered as undertakings, are covered in the Resolution Plan under Article 144. This affects the enforceability and compliance with such orders within the insolvency proceedings.

5. Alleged Contravention of IBC Code and CIRP Regulations:
The petitioner was alleged to have contravened Sections 30 and 31 of the IBC Code and CIRP Regulations by not disclosing entry tax liabilities while contesting proceedings in the High Court. The court examined the impact of this on the validity of the Resolution Plan.

6. Impact of Active Concealment of Facts:
The court considered whether the petitioner's alleged concealment of facts disqualified it from equitable relief. This involves principles of judicial discipline and the consistency of judicial orders.

7. Nature of Tax Collected by the Petitioner:
The issue was whether the tax collected by the petitioner is for its corpus or as a trustee fulfilling state obligations. This distinction affects the petitioner's liability and the application of trust law principles.

8. Applicability of Principles of Unjust Enrichment:
The court examined whether the principles of unjust enrichment apply to the petitioner, especially in the context of its inability to restitute collected taxes.

9. Sovereign Power of the State to Tax:
The court discussed whether any incidental law can override the sovereign power of the State to tax. This involves the constitutional division of powers and the supremacy of state taxation laws.

10. Encroachment of Insolvency Law on State Tax Laws:
The issue was whether insolvency law, under List-III, can encroach on the field occupied by state tax laws under List-II. This involves constitutional interpretation and the demarcation of legislative competence.

11. Interpretation of "First Charge" Under Section 77 of U.P. VAT Act:
The court considered whether "first charge" under this section relates to the exercise of sovereign power or common law principles. This affects the priority of tax claims in insolvency proceedings.

12. Overriding Effect of Section 238 of IBC Code:
The court examined whether Section 238 of the IBC Code, which provides for the Code's overriding effect, applies to the provisions of the VAT Act or U.P. Tax on Entry of Goods Act, 2007.

13. Relevance of Taxable Event Date Versus Assessment/Demand Date:
The court discussed whether the date of the taxable event or the date of assessment/demand is relevant for determining liabilities under the Resolution Plan.

14. Applicability of Supreme Court Judgment in Ghanshyam Mishra Case:
The court considered whether the issues in the present writ petitions are concluded by the Supreme Court judgment in Ghanshyam Mishra and Sons Pvt. Ltd. vs. Edelweiss Asset Reconstructions Company Ltd.

15. Binding Nature of the Resolution Plan Approved by NCLT:
The court examined whether the terms of the Resolution Plan, once approved by NCLT, are binding on all creditors, including the respondents, under Section 31 of the IBC Code.

16. Overriding Effect of the Code Provisions on Creditors' Claims:
The court discussed whether the provisions of the IBC Code, under Section 238, have an overriding effect on the claims of creditors, including the respondents.

Conclusion:
The court framed these questions for determination and set the matter for further hearing, ensuring a comprehensive examination of all legal and factual issues involved in the writ petitions. The outcome will significantly impact the interpretation and application of insolvency laws in relation to state tax claims and judicial orders.