Tax Demands Raised Post Approval Of IBC Resolution Plan Are Not Enforceable: Karnataka High Court
The Karnataka High Court recently reiterated that tax demands raised by revenue authorities after the approval of a resolution plan under the Insolvency and Bankruptcy Code (IBC) are unenforceable if the claims were not submitted during the Corporate Insolvency Resolution Process (CIRP).A single bench of Justice M Nagaprasanna observed,“There is no jurisdiction to parallelly...
The Karnataka High Court recently reiterated that tax demands raised by revenue authorities after the approval of a resolution plan under the Insolvency and Bankruptcy Code (IBC) are unenforceable if the claims were not submitted during the Corporate Insolvency Resolution Process (CIRP).
A single bench of Justice M Nagaprasanna observed,
“There is no jurisdiction to parallelly initiate proceedings and raise a demand. In the light of CIRP becoming moratorium kicking in resolution plan acceptance up to the date of CIRP, all the claims are, therefore, before the resolution professional. If there is no claim registered by the State or the Centre, they would lose the right to demand from the corporate debtor. In that light, the petitions deserve to succeed by obliteration of the impugned order.”
The decision came in two writ petitions filed by Olive Lifesciences Private Limited, which manufactures products like I-Coffee and I-Pulse. The company had entered CIRP in September 2017 under Section 10 of the IBC. A resolution plan was approved by the NCLT on July 9, 2019. Despite this, tax authorities issued fresh demands, a ₹88.61 lakh demand by the Commissioner of State Tax in 2020 and an ₹11.06 crore Central Excise demand in 2021.
The petitioner argued that statutory dues owed to the Central or State Government qualify as operational debts and, if not part of an approved resolution plan, stand extinguished under Section 31 of the Code. Relying on Supreme Court precedents such as Ghanshyam Mishra and Sons and Essar Steel, the petitioner submitted that authorities were barred from initiating or continuing proceedings post CIRP.
The Revenue, however, contended that the moratorium had ended when the plan was approved and that they were merely determining the dues, not enforcing them during CIRP.
The Court disagreed, holding that the demands were contrary to settled law. Relying on the precedents advanced by the petitioner, the court observed.
"What follows from the afore-quoted judgment of the Apex Court is that the assessment of duties and other levies by the revenue authorities after the declaration of moratorium is restricted to the statement of claims required to be submitted to the resolution professional."
The court further observed that if such claims are not submitted to the resolution professional during the period, the same would stand extinguished.
Accordingly, the High Court allowed the appeal, quashing the SCNs and subsequent orders issued by the Revenue.
Case Title : OLIVE LIFESCIENCES PRIVATE LIMITED v UNION OF INDIA AND ORS
Case Number : WRIT PETITION No.15951 AND 15459 OF 2021
Appearances:
For Petitioner : Advocate Vinitha M
For Respondent: Advocate Prathibha R (for Union) Advocate K Hema Kumar (for Commisioner of States Tax)