2024 (10) TMI 233 - HC - Customs

Extinguishment of claims - demand(s) for which no claims were submitted and which were not part of the approved Resolution Plan - Exemption as per notification dated 1.3.2002 - denial on the ground that the imported Crude Palm Oil was not of edible grade - Section 32A of the IBC - HELD THAT - During the pendency of the appeal before the CESTAT the proceedings under IBC against Ruchi Soya had commenced and also culminated with the acceptance of the modified resolution plan consequent to which Patanjali has continued the business of Ruchi Soya which is also forthcoming from the certificate dated 24.6.2022. It is further undisputed that the revenue has not made any claim before the IRP during CIRP process under the IBC - the revenue not having made any claim before the IRP during the CIRP process and the demand not having been part of the resolution plan has stood extinguished and cannot be continued. It is relevant to note that a Division Bench of the Gujarat High Court in the case of The Commissioner of Customs 2022 (8) TMI 1459 - GUJARAT HIGH COURT while considering an appeal filed by the revenue in the case of Patanjali after noticing Section 32A of the IBC as well as the amended Section 31 of the IBC as also the judgment of the Hon ble Supreme Court in the case of Ghanshyam Mishra 2021 (4) TMI 613 - SUPREME COURT has held Thus taking into consideration the fact of the completion of the resolution process of the respondent by the NCLT and undisputed fact that the appellant has not lodged any claim in the capacity of the Operational Creditor before the Resolution Professional this appeal is required to be disposed of as having become infructuous and abated with regard to any liability of any nature whatsoever having extinguished in view of the implementation of the Resolution Plan and change in management and control of the assessee in view of the provisions of section 31 and section 32A of the IBC. It is clear from Section 5 (26) of the IBC as noticed above that the resolution plan is proposed by the applicant for continuing the business of the company as a going concern . It is forthcoming that under the Scheme of the IBC Part II contemplates Insolvency Resolution and Liquidation for Corporate Persons. Chapter II in Part II contemplates Corporate Insolvency Resolution Process and Section 6 to Section 32A deals with the same. Chapter III in Part contemplates Liquidation Process and Section 33 to Section 54 deals with the same. Hence it is clear that by a resolution process the company continues its business and only by a liquidation process the business of the company would be wound up. In the present case the resolution plan in respect of the assessee having been accepted by the Tribunal the question of the assessee being wound up does not arise. Hence it is clear that Rule 22 of the 1982 Rules would not be attracted in a case where the resolution plan has been approved by the IBC. Hence the Tribunal ex facie erred in holding that by virtue of Rule 22 of the 1982 Rules the appeal would abate. The substantial question of law is answered in favour of the assessee and against the revenue - Appeal allowed.

Summary

Issues Involved:

1. Whether the Appellate Tribunal erred in law by not extinguishing the customs duty demand as it was not part of the approved Resolution Plan under the Insolvency and Bankruptcy Code (IBC).
2. Applicability of Rule 22 of the CESTAT (Procedure) Rules, 1982 in the context of a resolution plan approved under the IBC.

Detailed Analysis:

Issue 1: Extinguishment of Customs Duty Demand under IBC

The primary issue in this case revolves around whether the customs duty demand against the assessee, which was not part of the approved Resolution Plan under the IBC, stands extinguished. The High Court examined the legal framework under the IBC and relevant Supreme Court judgments, particularly Ghanshyam Mishra v. Edelweiss Reconstruction Company Ltd. and Ruchi Soya Industries Ltd. v. Union of India. The Court noted that once a resolution plan is approved by the adjudicating authority under Section 31 of the IBC, all claims not included in the plan are extinguished. This includes statutory dues owed to government authorities. The Court emphasized that the revenue did not lodge a claim with the Interim Resolution Professional (IRP) during the Corporate Insolvency Resolution Process (CIRP), and hence, the demand was not part of the resolution plan. Consequently, the demand stood extinguished as per the legal precedents set by the Supreme Court, which clarified that no proceedings can continue for claims not included in the resolution plan.

Issue 2: Applicability of Rule 22 of the CESTAT (Procedure) Rules, 1982

The Tribunal had held that the appeal abated under Rule 22 of the 1982 Rules, which pertains to the abatement of proceedings upon the death or insolvency of a party. The High Court, however, clarified that Rule 22 is not applicable in cases where a resolution plan under the IBC has been approved. The Court highlighted that the resolution plan allows the company to continue as a "going concern" and does not equate to the company being wound up. Therefore, the Tribunal erred in applying Rule 22, as the resolution process under the IBC does not result in the winding up of the company but rather its continuation. The Court emphasized that the resolution plan's approval negates the applicability of Rule 22, which is intended for situations involving insolvency leading to winding up.

Conclusion:

The High Court concluded that the customs duty demand against the assessee, which was not part of the approved resolution plan, is extinguished. The Tribunal's reliance on Rule 22 of the CESTAT (Procedure) Rules, 1982 was misplaced, as the resolution plan under the IBC allows the company to continue its operations. The Court set aside the Tribunal's order, allowed the appeal, and declared that the demand of Rs. 19,40,00,646/- against the assessee has abated and is extinguished.