Facts of the Case

The petitioner, ERA Infra Engineering Limited, was engaged in the construction industry and underwent corporate insolvency resolution proceedings under the Insolvency and Bankruptcy Code, 2016 pursuant to an application filed by Union Bank of India under Section 7 of the IBC in June 2017. An Interim Resolution Professional was appointed, later confirmed as Resolution Professional by the NCLT, Delhi. During the CIRP, the GST Department filed its claim amounting to ₹4,02,30,448, which was subsequently crystallised to ₹1,94,26,381. The GST registration of the petitioner was cancelled on 22.07.2020. The resolution plan submitted by M/s S.A. Infrastructure Consultants Private Limited was approved by the NCLT, Delhi on 11.06.2024, and new management took over the petitioner company. Thereafter, the GST authorities issued demand-cum-show cause notices dated 02.08.2024 and passed impugned orders dated 14.11.2024 and 25.11.2024 for Financial Years 2017-18, 2018-19 and 2019-20 raising substantial tax demands. These demands were challenged before the Delhi High Court.

Issues Involved

Whether GST demands pertaining to periods prior to approval of a resolution plan under the IBC can be raised after such approval, whether statutory dues not forming part of the approved resolution plan stand extinguished under Section 31 of the IBC, and whether the GST authorities can issue demand orders post resolution merely for crystallisation of dues.

Petitioner’s Arguments

The petitioner contended that all claims of the GST Department were duly lodged, considered, and dealt with during the CIRP and stood subsumed in the approved resolution plan. It was argued that once the resolution plan was approved by the NCLT on 11.06.2024, no further demands could be raised for periods prior thereto. Reliance was placed on the judgments of the Supreme Court in Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta and Ghanashyam Mishra & Sons Pvt. Ltd. vs. Edelweiss Asset Reconstruction Company Limited, which hold that all claims not part of the resolution plan stand extinguished upon approval.

Respondent’s Arguments

The respondents submitted that the impugned orders were passed only for crystallisation of tax liability and that no recovery proceedings had been initiated pursuant to such orders. It was contended that the issuance of the impugned orders did not violate the provisions of the IBC.

Court Order / Findings

The Delhi High Court noted that the resolution plan approved by the NCLT on 11.06.2024 was binding on all stakeholders, including the Central Government and statutory authorities. Relying on the law laid down by the Supreme Court in Ghanashyam Mishra & Sons Pvt. Ltd. vs. Edelweiss Asset Reconstruction Company Limited, the Court held that once a resolution plan is approved, all claims not forming part of the plan, including statutory dues for periods prior to approval, stand extinguished. The Court rejected the contention that post-approval orders could be issued merely for crystallisation of dues and held that such demands were untenable. The impugned GST demand orders relating to periods prior to approval of the resolution plan were therefore unsustainable in law.

Important Clarification

The Court clarified that Section 31 of the Insolvency and Bankruptcy Code gives overriding and binding effect to an approved resolution plan on all stakeholders, including tax authorities. Statutory dues not provided for in the resolution plan cannot be revived, reassessed, or recovered after approval, irrespective of whether such action is described as crystallisation or recovery.

Final Outcome

The writ petitions were allowed, and the impugned GST demand-cum-show cause notices and consequential orders pertaining to periods prior to approval of the resolution plan were quashed as being contrary to the Insolvency and Bankruptcy Code and settled judicial precedents.

Source Link- https://delhihighcourt.nic.in/app/showFileJudgment/75415122025CW22812025_154656.pdf

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