NCLT Order Prevails Over GST Demand, Even If State Is Not Notified About Pending NCLT Proceedings: Andhra Pradesh High Court

The Division Bench of Justices R. Raghunandan Rao and Harinath N. observed that “the contention of the department that the order of NCLT is not binding on the State of Andhra Pradesh in view of Section 88 of the GST Act would have to be negatived in as much as Section 238 of the Insolvency and Bankruptcy Code provides for a non-obstante clause overriding all other laws.”

Section 88 of the GST Act, 2017 provides that when a company is being wound up, the appointed liquidator must inform the Commissioner within 30 days of their appointment. The Commissioner, after necessary inquiries, will notify the liquidator within three months of the tax, interest, or penalty that needs to be provided for. If a private company's tax, interest, or penalty cannot be recovered after liquidation, its directors, during the period when the tax was due, are jointly and severally liable unless they can prove that the non-recovery was not due to their neglect, misfeasance, or breach of duty.

Section 238 of the Insolvency and Bankruptcy Code, 2016 states that the IBC's provisions take precedence over other laws in the event of a conflict.

Facts of the case:

The assessee/petitioner (company) faced financial difficulties and underwent insolvency proceedings under the Insolvency and Bankruptcy Code, 2016. During these proceedings, the company's creditors prepared a resolution plan, which was approved by the National Company Law Tribunal (NCLT), Mumbai, on 4^th September 2019. This plan stated that all the company's debts, including those owed to the government, would be settled using funds provided by the successful applicants in the resolution process.

The assessee/company was placed under new management and recommenced its operations. The company had previously registered its Kakinada and Ampapuram plants under the AP VAT Act. These two registrations were carried over under the GST regime, and the assessee was operating under two separate GST registrations for its Kakinada plant and Ampapuram plant.

Subsequently, the company received two tax demand-cum-adjudication orders. The first came from the Assistant Commissioner in Kakinada, demanding payment of Rs. 20,21,420 in taxes, interest, and penalties for the period from July 2017 to March 2020. The second was issued by the Deputy Commissioner in Vijayawada, demanding Rs. 2,87,15,819 for the same period. The assessee has challenged these orders/notices of demand before the Andhra Pradesh High Court.

The assessee contended that the assessee is not liable to pay any of the aforesaid amounts in view of the order of the National Company law Tribunal. The resolution plan, which was approved by the NCLT, provided for payment of Rs.25 crores towards clearing all the statutory dues, including claims by all Government authorities. Upon approval of this offer, the assessee would not be liable to clear any of such statutory duties set out in the scheme.

The Department submitted that the order of NCLT would not be binding upon the State of A.P as no notice of any nature was issued to the State of Andhra Pradesh in relation to the insolvency proceedings pending before the NCLT. Though publication of notice or proceedings before NCLT, Mumbai Bench had been published in the newspapers circulating all over the country, no such publication was made in any of the newspaper circulating in the State of Andhra Pradesh.

Observations of the High Court:

The bench referred to the case of Ghanshyam Mishra and Sons Pvt. Ltd. Vs. Edelweiss Asset Reconstruction Company [(2021)9 SCC 657] where the question of extinguishment of liability of corporate which have undergone the CIRP process was considered by the Supreme Court. It was 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.”

The bench opined that the liability of the assessee/petitioner, arising out of the AP VAT Act or the GST Act stands extinguished to the extent of its liability up to the NCLT Order i.e. 4^th September, 2019.

The Court stated that the contention of the department that the order of NCLT is not binding on the State of Andhra Pradesh in view of Section 88 of the GST Act would have to be negatived in as much as Section 238 of the Insolvency and Bankruptcy Code provides for a non-obstante clause overriding all other laws.

“The further contention of the department that the order would not be binding as no notice had been given to the State of Andhra Pradesh prior to passing of the said order would also have to be negatived as such the plea only, can be taken for setting aside the said order. It must be held that as long as the said order holds, it would not be open for any person, who is bound by the order, to contend that such an order is not binding,” added the bench.

In view of the above, the bench allowed the petition.

Counsel for Petitioner/ Assessee: Vivek Chandra Sekhar

Counsel for Respondent/ Department: GP for Commercial Tax

Case Title: Patanjali Foods Limited v. The Assistant Commissioner St Fac and Others

Case Number: WRIT PETITION NO: 28529/2023

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