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2025 (4) TMI 1231 - HC - GSTJurisdiction to initiate or continue proceedings under Section 73 of the Central Goods and Services Tax Act 2017 - Approval of a Resolution Plan under the statutory regime constructed in terms of the Insolvency and Bankruptcy Code 2016 - HELD THAT - Once a Resolution Plan is duly approved under Section 31 (1) of the IBC the debts as provided for in the Resolution Plan alone shall remain payable and such position shall be binding on among others the Central Government and various authorities including the tax authorities. All dues which are not part of the Resolution Plan would stand extinguished and no person would be entitled to initiate or continue any proceedings in respect of any claim for any such due. No proceedings in respect of any dues relating to the period prior to the approval of the resolution plan can be continued or initiated. In this clear view of the matter there can be no doubt that the Impugned Proceedings and their continuation against the Petitioner-Assessee are wholly misconceived and untenable. The Impugned Order is essentially for the Financial Year 2019-20. Evidently such proceedings pertain to the period prior to the approval of the Resolution Plan. The Resolution Plan came to be approved on 26.10.2020. The conduct of such proceedings which has resulted in the passing of the Impugned Order would be directly in conflict with the law declared in Ghanshyam Mishra 2021 (4) TMI 613 - SUPREME COURT . Consequently nothing in the Impugned Proceedings can legitimately survive. Evidently and admittedly the Impugned Order relates to the period prior to the approval of the Resolution Plan of the Petitioner-Assessee and therefore the claim made in the Impugned Order stands extinguished. This is why the Supreme Court has clearly ruled that initiation and continuation of proceedings relating to the period prior to the approval of the Resolution Plan cannot be indulged in. Upon completion of the CIRP the Petitioner-Assessee has completely changed hands and has begun on a clean slate under new ownership and management. Conclusion - i) The Resolution Plan s binding effect precluded the Revenue from initiating or continuing proceedings for dues not included in the Plan thereby invalidating the impugned order. ii) The tax authorities had no jurisdiction to proceed against the Petitioner for the Financial Year 2019-2020 as the Resolution Plan was approved on 26.10.2020 and the claims for the period prior to that date stood extinguished. The impugned SCN and Order issued u/s 73 of the CGST Act are quashed and set aside - petition allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court in this matter are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Jurisdiction of tax authorities to proceed against claims prior to Resolution Plan approval Relevant legal framework and precedents: Section 31(1) of the IBC provides that once the NCLT approves a Resolution Plan, it becomes binding on the corporate debtor, its employees, creditors, including the Central Government, State Government, local authorities, guarantors, and other stakeholders. The Supreme Court judgments in Ghanashyam Mishra and Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company and Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta & Ors have clarified that claims not included in the approved Resolution Plan stand extinguished and no proceedings can be initiated or continued in respect of such claims. Court's interpretation and reasoning: The Court emphasized that the statutory language of Section 31(1) is clear and unambiguous in making the Resolution Plan binding on all stakeholders, including tax authorities. The approval of the Resolution Plan effectively freezes and extinguishes claims not incorporated therein. The Court relied heavily on the Supreme Court's elucidation in Ghanashyam Mishra which states that "all dues including the statutory dues owed to the Central Government, any State Government or any local authority, if not part of the resolution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the date on which the adjudicating authority grants its approval under Section 31 could be continued." Key evidence and findings: The facts established that the Resolution Plan was approved by the NCLT on 26.10.2020. The impugned proceedings and order pertain to the Financial Year 2019-2020, i.e., a period prior to the approval of the Resolution Plan. The Petitioner communicated the approval of the Resolution Plan to the Revenue authorities well before the issuance of the Show Cause Notice and the Impugned Order. Application of law to facts: Since the impugned proceedings relate to a period before the Resolution Plan approval, the Court held that the Revenue's initiation and continuation of proceedings were in direct conflict with the binding effect of Section 31(1) of the IBC and the settled legal position established by the Supreme Court. Treatment of competing arguments: The Revenue contended that the Petitioner's submissions regarding extinguishment of claims were not considered due to oversight and issued instructions to halt recovery proceedings. However, the Court found that the initiation of proceedings itself was impermissible and that the Revenue's oversight could not validate the continuation of such proceedings. Conclusions: The Court concluded that the tax authorities were divested of jurisdiction to proceed against claims predating the Resolution Plan approval and that the impugned proceedings and order were legally untenable. Issue 2: Binding effect of Section 31(1) of the IBC on statutory authorities and extinguishment of claims Relevant legal framework and precedents: Section 31(1) of the IBC explicitly includes statutory authorities such as the Central Government and local authorities within the ambit of parties bound by the Resolution Plan. The Supreme Court decisions in Ghanashyam Mishra and Essar Steel affirm that claims not included in the Resolution Plan stand extinguished and no proceedings can be initiated or continued in respect of such claims. Court's interpretation and reasoning: The Court reiterated that the Resolution Plan approved under Section 31(1) is binding on all stakeholders, including tax authorities. The extinguishment of claims not included in the Plan is a statutory consequence meant to ensure finality and certainty in insolvency resolution. Key evidence and findings: The Court noted that the Petitioner had undergone the Corporate Insolvency Resolution Process ("CIRP") and the Resolution Plan had been approved, resulting in a change of ownership and management, effectively starting on a clean slate. Application of law to facts: The Court applied the binding effect of Section 31(1) to quash the impugned order and related proceedings, holding that claims for the period prior to approval of the Resolution Plan were extinguished and could not be enforced by the Revenue. Treatment of competing arguments: The Court observed that the Revenue had failed to submit claims during the CIRP as required under the IBC and that the impugned notices were issued in violation of the Code's provisions. Conclusions: The Court held that the Resolution Plan's binding effect precluded the Revenue from initiating or continuing proceedings for dues not included in the Plan, thereby invalidating the impugned order. Issue 3: Precedential support from coordinate benches and application to the instant case Relevant legal framework and precedents: The Court referred to coordinate bench decisions in Alok Industries Ltd. v. Assistant Commissioner of Income-tax and AMNS Khopoli Limited v. Assistant Commissioner of Income Tax and Others, where reassessment and other proceedings against corporate debtors post-Resolution Plan approval were quashed. Court's interpretation and reasoning: These decisions reinforced the principle that statutory authorities cannot initiate or continue proceedings for claims predating the Resolution Plan approval. The Court highlighted paragraphs from the AMNS Khopoli judgment emphasizing that impugned notices and proceedings are bad in law if they relate to claims prior to the effective date of the Resolution Plan. Application of law to facts: The Court found the instant case factually and legally analogous to these precedents and thus applicable. Conclusions: The Court ruled that the impugned proceedings are liable to be quashed following the settled legal position and consistent judicial pronouncements. 3. SIGNIFICANT HOLDINGS The Court held that: "Once a Resolution Plan is duly approved by the adjudicating authority under sub-section (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by the adjudicating authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan." "Consequently all the dues including the statutory dues owed to the Central Government, any State Government or any local authority, if not part of the resolution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the date on which the adjudicating authority grants its approval under Section 31 could be continued." The Court conclusively determined that the tax authorities had no jurisdiction to proceed against the Petitioner for the Financial Year 2019-2020, as the Resolution Plan was approved on 26.10.2020, and the claims for the period prior to that date stood extinguished. Accordingly, the impugned Show Cause Notice and Order issued under Section 73 of the CGST Act were quashed and set aside. The Court emphasized that the Petitioner, having undergone the CIRP, had changed hands and commenced afresh under new ownership and management, and thus no proceedings for pre-approval claims could be sustained.
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