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TMI Blog2023 (8) TMI 663X X X X Extracts X X X X X X X X Extracts X X X X ..... , and the operational creditor has not raised any issue about the non-payment of related operational debt. It is thus, clear that there is no operational debt due to be paid by the corporate debtor to the operational creditor, but the disputed amount is only regarding the service tax amounting to Rs. 40,37,816/-, which was paid by the operational creditor to the Government. It is thus clear that there is a dispute in relation to the service tax paid by the operational creditor. Clearly, this was a dispute between the operational creditor and the corporate debtor regarding how credit or refund service tax amount could be claimed and by whom - this dispute existed before the issue of statutory demand notice under section 8 and the corporate debtor had clearly mentioned this dispute in its reply dated 1.4.2019 to the section 8 demand notice. Regarding the necessary condition for examining the presence of a pre-existing dispute in relation to an operational debt, we refer to the judgment of Hon ble Supreme Court in the matter of MOBILOX INNOVATIONS PRIVATE LIMITED VERSUS KIRUSA SOFTWARE PRIVATE LIMITED [ 2017 (9) TMI 1270 - SUPREME COURT ], wherein it is held all that the ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in short Impugned Order ) passed by the Adjudicating Authority (NCLT, Chandigarh Bench) in CP(IB) No. 296/Chd/Hry/2019, whereby an application under section 9 of the Insolvency and Bankruptcy Code, 2016 (in short IBC ) filed by the Respondent/Operational Creditor has been admitted thereby initiating Corporate Insolvency Resolution Process (in short CIRP ) of the corporate debtor. The Appellant is a suspended Director of the Corporate Debtor ZTE Telecom India Private Limited. 2. In brief, the facts of the case, as stated by the Appellant, is that a Master Service Agreement ( MSA ) was signed between the corporate debtor and the operational creditor on 17.9.2015 with the validity of five years upto 16.9.2020. In accordance with the MSA, the Respondent as Sub-Contractor or Service Contractor was expected to execute the Works as stated in the MSA, which included Site Construction, Network Planning and Optimization, Telecom Implementation, and Final Acceptance, as covered in the Scope of Works in the MSA. Subsequently, supplementary agreements were executed between the corporate debtor and operational creditor/respondent in continuation of the MSA which covered various aspec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regime. He has added that the operational creditor acknowledged payment of the invoices issued with GST included vide e-mail dated 30.4.2018 and therefore, against the four new invoices, there is no debt owed to the operational creditor by the corporate debtor and therefore, the section 9 petition should not be admitted since the said operational debt is disputed. 5. We heard the arguments advanced by the Learned Senior Counsels for both the parties and perused the record with their able assistance. 6. The Learned Senior Counsel for Appellant has argued that four invoices were issued incorporating the service tax, which were not acceptable to the corporate debtor, and therefore, these invoices were rejected by the payment system, and after mutual discussion between the corporate debtor and operational creditor, four fresh invoices incorporating GST were issued, which were fully honoured and paid by the corporate debtor. He has further argued that with regard to 15% service tax paid by the operational creditor, he (operational creditor) could seek refund from the tax authorities, but instead of doing so the operational creditor is insisting that the corporate debtor makes good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te debtor to the operational creditor under the terms of the contract. He has emphasized that merely stating the conclusion cannot constitute a reason and therefore, the Impugned Order which lacks any reasoning regarding pre-existence or otherwise of dispute ought to be set aside. The Learned Senior Counsel for Appellant has also pointed out that the corporate debtor is a solvent company and going concern with a sizeable number of employees and has discharged its liabilities, including other liabilities owed to the operational creditor, and it is not a fit case for resolution of insolvency merely on a disputed claim of non-payment of certain amount made by the operational creditor without considering the presence of a pre-existing dispute. 9. The Learned Counsel for Respondent No. 1 has argued that the Adjudicating Authority has duly noted the e-mail communication between the two parties in paragraph 7 of the Impugned Order and has given its findings in paragraph 11 by considering at the clauses of MSA and Supplementary Agreements and the liability of the corporate debtor. He has further argued that the reason that the corporate debtor is a healthy and solvent company cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. xx xx xx xx 11. The next issue for consideration is whether the operational debt was disputed by the corporate debtor. It is deposed by the petitioner by way of affidavit that the operational creditor had received baseless, bogus and sham notice of dispute under Section 8(2) relating to the Operational Debt. The corporate debtor had rejected the demand of the operational creditor raising the false dispute of incorrect invoices and refused to make the payment of the Operational Debt against the pending invoices. 12. It is noted that a demand notice dated 14.2.2019 under section 8 of the IBC (attached at pp.246-319 of appeal paperbook, Vol.II), was sent by the operational creditor to the corporate debtor. The demand notice notes in Sr. No. 7 of the Particulars of the Operational Debt as follows:- 7. The Operational Creditor, vide an email dated November 20, 2017, informed the Corporate Debtor that the Operational Creditor has already deposited the Service Tax amount with the tax authorities for the invoices raised by the Operational Creditor, on or before June 30, 2017. Hereto annexed and marked as Annexure A3 is a print of email dated November 20, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the MSA dated 17.9.2015 which relate to the payment terms and issuing of invoices are reproduced below:- 5.2 The price in accordance with, Pricing Payment Terms in the SOW is all-inclusive and the maximum price payable by the Contractor and no additional payments will be made for work carried out in the execution of the Works other than reward and penalty as defined in Contract Metrics mentioned in the Supplementary TI/RF/MS/TSP/OFC and all other Service Agreement of this MSA. In addition, and without limiting the generality of the foregoing itis expressly stated that the said price is fully inclusive of all Works described according to Scope of Works and Responsibility. Matrix, and elsewhere in this Agreement and comprises all costs and expenses incurred in the provision of the Works such as all personnel, costs, overheads, profit ,supervision, social costs, Products, personal and work-related transport, communication costs, duties, freight, insurance, packing, storage, unpacking and removal of waste, positioning, installation, commissioning, testing and preparatory work as well as all other charges, expenses whether direct or indirect and whether they are expre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the operational creditor. The MSA and Supplementary Agreement stipulate that payments against invoices should be made within 45 days from the date of issue of invoices. This stipulation is also stated explicitly in each of the invoices. It is noted that when by e-mail dated 25.6.2017, the operational creditor enquired about the status of payment, he was intimated by e-mail dated 26.5.2017 that the system was in maintenance and will take one more week to be set right (both these e-mails are attached at pgs.964-966 of the appeal paperbook, vol.II). We find that later vide e-mail dated 25.9.2017 (attached at pg.175 of the appeal paperbook, vol.I) and thereafter, by e-mail dated 20.11.2017, the operational creditor raised the issue of his having paid service tax once and, therefore, not being liable to take hit of another 18% service tax. 18. It is noted that by e-mail dated 27.11.2017 addressed by the operational creditor to the corporate debtor, the operational creditor communicated his Tax Consultant PWC s opinion regarding taking credit for the service tax already deposited by the operational creditor, which stated that the credit note cannot be claimed by the operational credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the operational debt with regard to the work done, which was the subject matter of four old invoices, namely NV No. 3189000123 dated 26.12.2016 for Rs. 5,752,713.00, NV No. 3189000140 dated 28.12.2016 for Rs. 5,572,713.00, NV No. 3189000143 dated 28.12.2016 for Rs. 5,572,713.00 and NV No. 3189010008 dated 25.01.2017 for Rs. 5,572,713.00, were paid by the corporate debtor, and the operational creditor has not raised any issue about the non-payment of related operational debt. It is thus, clear that there is no operational debt due to be paid by the corporate debtor to the operational creditor, but the disputed amount is only regarding the service tax amounting to Rs. 40,37,816/-, which was paid by the operational creditor to the Government. 21. It is thus clear that there is a dispute in relation to the service tax paid by the operational creditor. Clearly, this was a dispute between the operational creditor and the corporate debtor regarding how credit or refund service tax amount could be claimed and by whom. We are, therefore, of the view that this dispute existed before the issue of statutory demand notice under section 8 and the corporate debtor had clearly mentioned this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tice. 24. We also note that clause 9.2 of the MSA provides for resolution of disputes in any matter arising between the two parties viz. corporate debtor and operational creditor in a friendly manner and if it is not possible to go for arbitration. The two parties could have taken recourse to this provision in the MSA for resolution of the dispute, and if it is not clear, why the parties have not thought fit to do so. 25. In the light of detailed discussion in the afore-mentioned paragraphs, we are of the clear view that a dispute regarding credit/refund of the service tax amount which is claimed to have been paid by the operational creditor to the government existed prior to the issue of demand notice under section 8 and further that such a dispute was a real dispute and not merely an assertion or ploy of the corporate debtor to avoid taking care of his liability. 26. In the situation as analysed above, we find the Impugned Order to be erroneous and, therefore, set it aside. The Corporate Insolvency Resolution Process which was initiated against the corporate debtor as a result of the Impugned Order will abate forthwith and the corporate debtor shall be released from th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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