NCLT Kochi Order “Preposterous” And “Untenable” Exceeding Jurisdiction In Declaring Tax Assessment Order Void: Kerala High Court

NCLT Kochi had held an Assessment Order by Kerala Value Added Tax ('KVAT') Works Contract Authorities against Albana Engineering (India) Pvt. Ltd. (Respondent 2) to be void ab initio in violation of Section 14(1)(a) of the Insolvency and Bankruptcy Code, 2016.

Background Facts:

On 02.12.2021, Respondent 2 was entered into Liquidation. Irregularities were found on verification of assessment records of Respondent 2, post completion of assessment for the year 2015-16, the total liability of KVAT was determined to be Rs. 11.76 crores.

Respondent 2 filed an application before NCLT Kochi Bench seeking permission to an appeal against the order of assessment dated 25.02.2021. On 26.10.2022, NCLT passed an Order stating that the Assessment Order was passed in violation of the prohibition provided under Section 14(1)(a) of IBC declaring the Assessment Order void ab initio. The Tribunal directed Respondent 2 to independently consider the claim ignoring the Assessment Order.

Deputy Commissioner (Works Contract) (Petitioner) has filed the present writ petition under Article 227 of the Constitution of India against the Order dated 26.10.2022 passed by the NCLT Kochi Bench.

Verdict of the Court:

The Kerala High Court allowing the writ petition held NCLT Kochi Bench's Order to be preposterous and untenable on the tribunal exceeding jurisdiction in declaring tax assessment of the Corporate Debtor to be void ab initio.

The Court referred to Section 14 of the IBC and observed that NCLT is mandated to impose a moratorium on the initiation of any coercive legal action or parallel proceedings against the Corporate Debtor to reduce the possibility of conflicting outcomes. It noted the Supreme Court's decision in Sundaresh Bhatt, Liquidator of ABG Shipyard v. Central Board of Indirect Taxes & Customs which laid down the purpose of the moratorium is to keep the assets of the Corporate Debtor together during the insolvency resolution process and to facilitate orderly completion of the processes envisaged under the Statute.

Justice Dinesh Kumar Singh held that the Tribunal was not vested with the authority to declare the KVAT assessment order void ab initio by observing:

The Company Law Tribunal has no power and authority under the IBC to declare an assessment order as void ab initio and non-est in law. Such an order only reflects the competence of the persons who are manning such an important Tribunal. The Order shows the lack of basic understanding of the law. Instead of considering the application by the 2nd respondent for permission to file an appeal against the assessment order, the National Company Law Tribunal, Kochi Bench, has assumed the jurisdiction of the Constitutional Court to declare the assessment order as void ab initio.

The High Court took note of observations of the Supreme Court's decision in S V Kandoakar v. V M Deshpande and held after declaring the moratorium, there is an embargo on enforcing the demand, but there is no embargo under Section 14, read with Section 33(5) of the IBC, for determining the quantum of tax and other levies, if any, against the Corporate Debtor.

In conclusion, the Kerala High Court set aside the order of NCLT Kochi and remitted the matter to the Tribunal.

Case Title: Deputy Commissioner (Works Contract), Kerala State Goods and Services Tax Department vs. National Company Law Tribunal

Case No.: WP(C) No. 39185 of 2022

Citation: 2024 LiveLaw (Ker) 89

Counsel for Petitioner: Adv. Government Pleader Arun Chandy

Counsel for Respondents: Adv. K.B. Arunkumar

Click Here to Read/Download Order