In the case of TUF Metallurgical Pvt. Ltd. [1] (Taxpayer 1) & Delhi Baroda Road Carrier Pvt. Ltd. [2] (Taxpayer 2), the issue before Delhi high court was whether the tax authority can recover the tax dues pertaining to a taxpayer for a period prior to the admission of the taxpayer to Corporate insolvency resolution process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC) after such process is completed.
In the case of Taxpayer 1, the last date for submission of claims by creditors before the resolution professional (RP) was 21 January 2019. But until such date and even after that date, the tax authority did not submit any claim before the RP. The resolution plan was approved by National Company Law Tribunal (NCLT) on 5 November 2019. On 2 December 2019, the information of the approval of the resolution plan and taking over of the IBC company by the Taxpayer was provided to the tax authority. Post such intimation, on 12 December 2019, the tax department passed an assessment order and demand notice (in respect of tax year 2016-17) against the Taxpayer 1. The tax authority also issued a demand notice on the Taxpayer 1.
In case of Taxpayer 2, a public announcement was made on 30 September 2019 about initiation of corporate insolvency resolution. The resolution plan was approved by NCLT on 21 February 2022. In the intervening period, on 31 March 2021, the tax authority issued notice for reassessment in respect of tax year 2013-14 asking the Taxpayer 2 to file its return. The tax authority issued further notices from November 2021 to February 2022, seeking certain information for the purpose of assessment/reassessment. Taxpayer 2 requested the tax authority to withdraw the aforesaid notices and to terminate the reassessment proceedings for tax year 2013-14 but the tax authority still passed the assessment order on 19 March 2022 (i.e., after approval of resolution plan) and issued a demand notice.
The tax authority contended that it being state exchequer, it cannot be bound by the resolution process under IBC.
Placing reliance on Supreme Court rulings in cases of Ghanshyam Mishra (Civil appeal No.8129 of 2019) and Ruchi Soya (Civil Appeal Nos. 447448 of 2013), the Delhi HC held that the tax dues not submitted before the RP for the period prior to admission to CIRP would stand extinguished once the RP is approved by NCLT and hence the tax authority cannot recover such tax dues from the Taxpayer.
[1] W.P.(C) 10528/2022
[2] W.P.(C) 10628/2022
