2023 (3) TMI 333 - HC - Service Tax

Framing of an assessment during pendency of CIRP - Moratorium period or not - proceedings for assessment had commenced after the petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 was admitted by the National Company Law Tribunal (NCLT) and a Corporate Insolvency Resolution Process (CIRP) had commenced - petitioner claims that in terms of Section 14 of the IBC, no such proceedings could be commenced against the petitioner - demand of service tax - CENVAT Credit. HELD THAT - Pendency of CIRP confers no impediment in framing the assessment. But no recovery proceedings can be initiated for recovery of the liability assessed. This is clear from the following extract from the decision in SUNDARESH BHATT, LIQUIDATOR OF ABG SHIPYARD VERSUS CENTRAL BOARD OF INDIRECT TAXES AND CUSTOMS 2022 (8) TMI 1161 - SUPREME COURT where it was held that the respondent could only initiate assessment or reassessment of the duties and other levies. They cannot transgress such boundary and proceed to initiate recovery in violation of Sections 14 or 33(5) of the IBC. The interim resolution professional, resolution professional or the liquidator, as the case may be, has an obligation to ensure that assessment is legal and he has been provided with sufficient power to question any assessment, if he finds the same to be excessive. Merits of the case - HELD THAT - This Court does not consider it apposite to entertain this challenge as the petitioner has an equally efficacious remedy of filing an appeal. The petitioner is, essentially handicapped on account of requirement of making a pre-deposit for availing the statutory remedy of an appeal. Given the nature of challenge and also the fact that the petitioner s company is undergoing CIRP, it is considered apposite to direct that in the event, the petitioner prefers appeal(s) within a period of two weeks from today, the same would be entertained uninfluenced by any question of delay or insistence of any pre-deposit. Petition disposed off.

Summary

Issues:
Challenging assessment orders post IBC admission, Ex-parte orders, High-pitched assessment, Jurisdiction during CIRP, Applicability of Sundaresh Bhatt case, Statutory remedy of appeal, Pre-deposit requirement.

Challenging Assessment Orders Post IBC Admission:
The petitioner challenged two orders-in-original assessing service tax and CENVAT Credit for specific years post IBC admission. Claimed proceedings violated Section 14 of IBC, preventing such actions during CIRP. Alleged errors in assessment due to not considering subsidiary companies' financials.

Ex-parte Orders and High-Pitched Assessment:
Petitioner contended that assessments were ex-parte and erroneous, with service tax liability exceeding turnover. Claimed lack of representation during assessment process.

Jurisdiction During CIRP and Applicability of Sundaresh Bhatt Case:
Respondent argued that assessment during CIRP is permissible, citing Sundaresh Bhatt case. Court agreed, allowing assessment but prohibiting recovery actions during moratorium, aligning with IBC provisions.

Statutory Remedy of Appeal and Pre-Deposit Requirement:
Court advised the petitioner to pursue appeal instead of challenging orders on merits. Recognized financial constraints due to CIRP, directed appeal filing within two weeks without pre-deposit requirement, ensuring fair access to legal remedy.

In conclusion, the court disposed of the petitions, permitting assessment during CIRP but restricting recovery actions. Emphasized the importance of statutory appeal remedy, offering relief from pre-deposit obligations considering the petitioner's circumstances.