2025 (5) TMI 1907 - AT - Central Excise

Miscellaneous application under Section 35B of the Central Excise Act 1944 - change of the management of the company - Clearance of blended yarn - nil rate of duty under Notification No. 30/2004-CE - availing Cenvat Credit on inputs - demand of duty alongwith interest and penalty - HELD THAT - We find that the identical matter has been considered by two coordinate benches of the Tribunal; by Mumbai Bench in the case of M/s Jet Airways (India) Limited vs. Commr of Service Tax-V Mumbai 2023 (5) TMI 767 - CESTAT MUMBAI and Hyderabad Bench in the case of Icomm Tele Ltd. vs. Commr of Central Tax Puducherry 2023 (10) TMI 1344 - CESTAT HYDERABAD . It is pertinent to refer the findings of Mumbai Bench of the Tribunal in the case of M/s Jet Airways (India) Limited (supra) wherein it was ordered that the appeals stand abated once the Resolution Plan has been approved by NCLT and the CESTAT has become functus officio in the matters relating to this appeal. By following the ratio of the above said decision and upon taking note of the fact that the NCLT has approved the resolution plan we are of the considered view that the present appeal stands abated as the CESTAT has become functus officio in the matter relating to the present appeal. The appeal is disposed of as abated. Miscellaneous application is also disposed of accordingly.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

(i) Whether the appellant's clearance of blended yarn at nil rate of duty under Notification No. 30/2004-CE, after availing Cenvat Credit on inputs, was in contravention of the applicable excise provisions, thereby justifying recovery of central excise duty along with interest and penalty.

(ii) Whether the extended period of limitation for recovery of duty could be invoked in the facts and circumstances of the case.

(iii) Whether the appeal filed by the appellant after change of management pursuant to the Insolvency and Bankruptcy Code (IBC), 2016, and approval of the Resolution Plan by the National Company Law Tribunal (NCLT), could be continued or must be abated.

(iv) The legal effect of the approval of the Resolution Plan by the NCLT on pending appeals and recovery proceedings involving statutory dues, including central excise duty.

(v) The entitlement of the appellant to refund of pre-deposit made at the time of filing the appeal.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Validity of clearance of blended yarn at nil rate of duty under Notification No. 30/2004-CE

The appellant manufactured cotton, polyester, and blended yarn and initially cleared these goods under Notification No. 29/2004-CE on payment of duty after availing Cenvat Credit. From 01.05.2006, they opted for Notification No. 30/2004-CE, clearing finished goods for home consumption at nil rate of duty. The department observed that the appellant cleared blended yarn manufactured from duty-paid inputs at nil rate under Notification No. 30/2004-CE, which was contrary to the provisions of that notification.

The legal framework involves the Central Excise Act, 1944, and the relevant notifications governing rates of duty and Cenvat Credit. The department issued a show cause notice demanding recovery of Rs. 32,05,704/- along with interest and penalty for wrongful availment of credit and clearance at nil rate.

The adjudicating authority confirmed the demand and penalty, and the Commissioner (Appeals) upheld this decision. The Tribunal did not delve into the merits of this issue in the present order because the matter was rendered infructuous by subsequent developments under the IBC.

Issue (ii): Invocation of extended period of limitation

The department invoked the extended period of limitation for recovery of duty. The Tribunal did not explicitly analyze this issue in the present order, as the appeal was ultimately abated following the approval of the Resolution Plan by the NCLT. Thus, the question of limitation was not adjudicated in this proceeding.

Issue (iii) & (iv): Effect of change of management under IBC and approval of Resolution Plan on the appeal

The appellant underwent a change of management pursuant to initiation of Corporate Insolvency Resolution Process (CIRP) under Section 7 of the IBC, 2016, by the NCLT Chandigarh Bench on 06.07.2018. The Interim Resolution Professional (IRP) took over management under Section 17 of the IBC, suspending the old management's powers. The department submitted claims amounting to Rs. 9.63 crores, of which Rs. 5.89 crores were admitted and treated as secured financial creditors, and Rs. 4.09 crores were paid in proportion to other secured creditors.

Subsequently, the NCLT approved the Resolution Plan on 27.04.2023. The appellant contended that in light of the Supreme Court's decision in Ghanashyam Mishra & Sons Pvt Ltd vs. Edelweiss Asset Reconstruction Company Ltd & Ors (Civil Appeal No. 8129 of 2019), the appeal must be abated as the Tribunal becomes functus officio post approval of the Resolution Plan.

The Tribunal relied on two coordinate Bench decisions - Mumbai Bench in M/s Jet Airways (India) Limited vs. Commr of Service Tax-V, Mumbai and Hyderabad Bench in Icomm Tele Ltd. vs. Commr of Central Tax, Puducherry - which held that once the Resolution Plan is approved by the NCLT, all claims not part of the plan stand extinguished, and no proceedings can be continued against the corporate debtor or the Resolution Applicant.

The Supreme Court in Ghanashyam Mishra clarified the settled legal position that upon approval of the Resolution Plan under Section 31(1) of the IBC, claims including statutory dues stand frozen and binding on all stakeholders, including government authorities. Any claims not included in the Resolution Plan are extinguished and cannot be pursued further. The 2019 amendment to Section 31 was held clarificatory, applying retrospectively.

The Tribunal also referred to CBIC Instruction No. 1083/04/2022-CX9 dated 23.05.2022, which provides a Standard Operating Procedure for handling NCLT cases, emphasizing that GST and Customs authorities are operational creditors who must submit claims during insolvency proceedings and cannot raise demands post approval of the Resolution Plan.

Applying this legal framework, the Tribunal concluded that the appeal filed by the appellant post approval of the Resolution Plan stands abated as the Tribunal is functus officio. The appeal cannot be pursued further since the claims are either settled or extinguished under the Resolution Plan.

Issue (v): Refund of pre-deposit made at the time of filing the appeal

The appellant sought refund of the pre-deposit made when filing the appeal. The Tribunal relied on the Supreme Court's decision in Ruchi Soya Industries Ltd. [2022 (380) ELT 8 (SC)], which held that claims not lodged during insolvency proceedings do not survive post approval of the Resolution Plan. Consequently, amounts deposited in relation to such claims must be refunded along with interest.

Accordingly, the Tribunal directed refund of the pre-deposit amount to the appellant, consistent with the binding Supreme Court precedent.

3. SIGNIFICANT HOLDINGS

"Once a resolution plan is duly approved by the Adjudicating Authority under subsection (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the Corporate Debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stakeholders. On the date of approval of resolution plan by the Adjudicating Authority, all such claims, which are not a part of resolution plan, shall stand extinguished and no person will be entitled to initiate or continue any proceedings in respect to a claim, which is not part of the resolution plan."

"2019 amendment to Section 31 of the I&B Code is clarificatory and declaratory in nature and therefore will be effective from the date on which I&B Code has come into effect."

"Consequently all the dues including the statutory dues owed to the Central Government, any State Government or any local authority, if not part of the resolution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior the date on which the Adjudicating Authority grants its approval under Section 31 could be continued."

"GST and Customs authorities have been classified as operational creditors and are required to submit their claims against corporate debtors when the Corporate insolvency and resolution process is initiated and public announcement inviting claims is made by the insolvency professional. Once the Resolution plan is approved by NCLT, no demands can be raised on the Resolution Applicant."

"The appeals deserve to be allowed only on this ground. It is held that the claim of the respondent, which is not part of the Resolution Plan, does not survive. The amount deposited by the appellant at the time of admission of the appeals along with interest accrued thereon is directed to be refunded to the appellant."

Final determination: The appeal filed by the appellant against the demand of central excise duty was abated following the approval of the Resolution Plan by the NCLT, rendering the Tribunal functus officio. The claims not included in the Resolution Plan stand extinguished, and no further proceedings can be maintained. The appellant is entitled to refund of the pre-deposit amount made at the time of filing the appeal.