TMI Blog2023 (11) TMI 202X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the approved plan will be binding on guarantors and other stakeholders involved in forging the same. Therefore, the submission advanced on behalf of the revenue that it could continue with the assessment/reassessment process concerning the AYs in issue is entirely untenable. A successful applicant whose RP has been approved should not be put in a position where it is called upon to liquidate dues of creditors, including statutory creditors, which were not embedded in the RP. A successful applicant is, in law, provided with a clean slate ; therefore, dues for the period prior to the date when the RP was approved cannot be recovered. The courts have recognized this principle in more than one case. Whether the provisions of the 2016 Code would override the provisions of the 1961 Act, where inconsistency is found between the two statutes? - When one examines the provisions of Section 238 of the 2016 Code, the underlying purpose of the provision comes through. Section 238 clearly states without any ambiguity that the provisions of the 2016 Code shall have effect, notwithstanding anything inconsistent contained in any other law for the time being in force, or any instru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AYs is Rs. 257,80,81,038/-. Besides this, the revenue via the very same notice, sought a response from TSL as to why a penalty under Section 221(1) of the Income Tax Act, 1961 [in short, Act ] ought not to be imposed. 3. TSL has approached this Court by way of the instant writ petition, questioning the very jurisdiction of the revenue to enforce the demand for tax and penalty. The broad ground on which TSL seeks to assail the demand raised by the revenue is that it concerns periods which precede the date of approval of the Resolution Plan [in short, RP ] by the concerned bench of National Company Law Tribunal [NCLT] and, therefore, fall within the ambit of the clean slate principle. In other words, the submission is that once the RP is approved, all stakeholders, i.e., secured creditors, unsecured creditors, shareholders, workers and employees, are bound by the terms contained therein. In this context, TSL asserts that the revenue is not any different from the other creditors. 3.1 Quite obviously, the revenue contends to the contrary. 4. Thus, for adjudication of the instant writ action, the following broad facts are required to be noticed: 5. The corporate entity a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23.04.2018. TSL s challenges to the orders of the CIT(A) dated 29.12.2017 and 23.04.2018 are currently pending before the Tribunal. It is against this backdrop that via the impugned order dated 28.08.2018, demands were raised for the aforementioned AYs, i.e., AYs 2009-10, 2010-11 and 2013-14. 8.1 The initiation of penalty proceedings ultimately resulted in the imposition of a cumulative penalty amounting to Rs. 2,542,869,000/- via order dated 23.04.2018 concerning AYs 2009-10, 2010-11 and 2013-14. 9. Thus, the cumulative demand, as indicated hereinabove, which included AY 2001-02, was pegged at Rs. 257,80,81,038/-. The break-up of the cumulative demand is set forth hereafter: Sr.No. AY. Total Demand 1. 2001-02 3,52,12,038/- 2. 2009-10 84,24,32,000/- 3. 2010-11 23,96,46,000/- 4. 2013-14 146,07,91,000/- Total 257,80,81,038/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BSL to the impugned notice dated 28.08.2018. 14.2 The contentions raised on behalf of BSL in the reply dated 26.09.2018 did not find favour with the revenue and, thus, resulted in the issuance of the impugned order dated 17.10.2018. 14.3 Following the issuance of the impugned order, the revenue filed an updated claim in the prescribed form dated 20.09.2018 with the Resolution Professional. The updated claim included the amounts concerning all four relevant AYs, as mentioned in the impugned notice and order, the cumulative figure being Rs. 2,57,81,51,038/-. However, the updated claim was filed, as is evident, after the date on which the RP was accepted by the NCLT, i.e., 15.05.2018. Notable, the revenue, for the first time communicated its claim vis- -vis the demand for AY 2001-02 and penalty for all four relevant AYs to the Resolution Professional, via the updated claim. 15. On 27.11.2018, BSL s name was changed to Tata Steel BSL Ltd. [TSBSL]. The record also discloses that a scheme of amalgamation was filed with NCLT (Mumbai) concerning TSBSL and TSL. Via order dated 29.10.2021, NCLT(Mumbai) sanctioned the scheme of amalgamation whereby TSBSL merged with TSL. 16. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecifically adverts to tax liabilities arising under applicable laws, concerning periods before the effective date, i.e., 15.05.2018. As per this clause, all such liabilities stand extinguished, and nothing is due and payable by TSL except to the extent provided in the approved RP. In this context, reference is made to Clause 8.6.10 of the approved RP. 19.3 The revenue did not lodge any claim concerning penalty. Thus, as per Clause 8.6.11, such claims stand irrevocably and unconditionally extinguished. 19.4 A conjoint reading of Clauses 8.2.6, 8.6.10 and 8.6.11 of the approved RP, along with the provisions of the 2016 Code, would demonstrate that nothing is due and payable by TSL, against the impugned demand. 19.5 TSL, i.e., the successful resolution applicant, cannot be made to bear the burden of undecided claims lodged by creditors [which includes the revenue], except as per the terms contained in the RP. [ See Committee of Creditors of Essar Steel India Limited v Satish Kumar Gupta, (2019) SCC Online SC 1478]. 19.6 The 2016 Code overrides the provisions of the 1961 Act to the extent that the latter is inconsistent with the provisions of the former. Section 238 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med part of the order dated 17.10.2018. It is in this context that via a letter dated 23.05.2018, BSL was called upon to give details about its organizational and management structure. Although the information was required to be furnished, the response that the revenue received was that since the new management was taking over BSL's affairs, a month was needed to furnish the information. It is, thus, clear that no order or information about the Corporate Insolvency and Resolution Process [CIRP] was provided to the revenue. Given this position, the revenue served upon BSL the impugned order dated 28.08.2018, followed by a communication dated 07.09.2018. 20.4 Since the demands raised via the impugned notice dated 23.08.2018 were in addition to the demand reported during the resolution process, the revenue commenced a process for recovery of the impugned demand. 20.5 The impugned demand was raised because the revenue was advised that there was no prohibition in the 2016 Code to undertake any proceedings, including reassessment proceedings, for the period before the approval of the RP. As a matter of fact, an application dated 25.10.2018 was filed under Section 220(3) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceedings, culminating in the order dated 23.04.2018. An appeal against the order of the CIT(A) dated 23.04.2018 was lodged with the Tribunal, which as per the record made available to the Court, appears to be pending adjudication. 23.1 Likewise, insofar as AY 2001-02 was concerned, the assessment order was passed on 28.02.2003. After going through various tiers, the tenability of the addition made by the AO by treating sales tax subsidy received by BSL at the relevant point in time as revenue receipt is currently pending adjudication before the Supreme Court. 24. Given this factual position, in our opinion, the stand taken by the revenue that the demands for the AYs in issue were not outstanding at the time of the RP being accepted, if agreed with, would amount to splitting hairs. As noted above, the assessment order was passed on 30.12.2016. The application to initiate insolvency proceedings under Section 7 of the 2016 Code was admitted only thereafter, i.e., 26.07.2017. As indicated above, the revenue for at least AYs 2009-10, 2010-11 and 2013-14 lodged its claims with the Resolution Professional (in the prescribed form) between September 2017 and October 2017. The issuance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Company at such time, and whether or not such Governmental authority was aware of such claim at such time), in relation to the period prior to the Effective Date, including, without limitation, in respect of the Applicable Laws, matters and proceedings set out in Annexure 12, is a claim and debt , each as defined under the IBC, and would consequently qualify as operational debt (as defined under the IBC) and therefore the foil amount of such claims shall be deemed to be owed and due as of the Insolvency Commencement date, the Liquidation Value of which is NIL and therefore no amount is payable in relation thereto. Further, the directors, key managerial personnel and officers of the Company nominated and/or appointed by the Resolution Applicant on the Closing date shall not incur any Liability (whether civil or criminal) for such breach, contravention or non-compliance of Applicable Law by the Company in relation to the period prior to the Effective Date. xxx xxx xxx 8.6.10 Effect on Operational Creditors and other Creditors . ..... Upon approval of the plan by the Adjudicating Authority:- i. Except to the Operational Creditors settlement amount propo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Company at such time, and whether or not such Governmental Authority was aware of such claim at such time), shall be deemed to be owed and due as of the Insolvency Commencement Date shall immediately, irrevocably and unconditionally stand abated, settled and/or extinguished. No Governmental authority shall have any further rights or claims against the Company, in respect of the period prior to the Effective date and or in respect of the amounts written off. 8.6.11 Failure to submit Claims or Rejected Claims i. The Resolution professional had issued a public notice dated July 26, 2017 in accordance with the IBC, inviting all creditors of the company to submit their proof of claims to the resolution professional on or prior to august 4 2017. The Information memorandum contains details of the claims made by all the creditors of the company including financial creditors and operational creditors which have been admitted by the resolution professional. Further under CIRP regulations all creditors are required to submit their proof of claim prior to the approval of the plan by the COC. Tata Steel assumes that all persons that have nay claims against the company (including op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t whose RP has been approved should not be put in a position where it is called upon to liquidate dues of creditors, including statutory creditors, which were not embedded in the RP. A successful applicant is, in law, provided with a clean slate ; therefore, dues for the period prior to the date when the RP was approved cannot be recovered. The courts have recognized this principle in more than one case. The observations 2 by it in Ghanshyam Mishra, being apposite, are extracted hereafter: 95. In the result, we answer the questions framed by us as under: (i) That once a resolution plan is duly approved by the adjudicating authority under sub-section (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 re-spect to a cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted the 2016 Code. The Finance Minister's speech made in Rajya Sabha on 29.07.2019, which finds reference in paragraph 72 of Ghanshyam Mishra, bolsters this point of view. 72. In the Rajya Sabha debates, on 29.7.2019, when the Bill for amending I B Code came up for discussion, there were certain issues raised by certain Members. While replying to the issues raised by certain Members, the Hon ble Finance Minister stated thus: IBC has actually an overriding effect. For instance, you asked whether IBC will override SEBI. Section 238 provides that IBC will prevail in case of inconsistency between two laws. Actually, Indian courts will have to decide, in specific cases, depending upon the material before them, but largely, yes, it is IBC. [ ] There is also this question about indemnity for successful resolution applicant. The amendment now is clearly making it binding on the Government. It is one of the ways in which we are providing that. The Government will not raise any further claim. The Government will not make any further claim after resolution plan is approved. So, that is going to be a major, major sense of assurance for the people who are using the resolutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the proceedings related to claims made by the VAT authorities before the approval of the plan, no purpose would be served in relegating the writ petitioner/appellant to an alternative remedy. The Court made a specific observation which, in our view, applies to the instant cases as well: A party cannot be made to run from one forum to another forum in respect of the proceedings and the claims, which are not permissible in law. Conclusion 32. Thus, for the foregoing reasons, the impugned notice and order dated 28.08.2018 and 17.10.2018, respectively, are unsustainable in law and, hence, cannot be enforced. 32.1 The only caveat that we wish to add is that as regards recoveries sought to be made by the revenue vis- -vis AY 2001-02, the parties will have to abide by the final decision that would be rendered in SLP No.849850/2018. 33. The writ petition is disposed of in the aforesaid terms. 34. Parties will bear their respective costs. 35. The petitioner is directed to file an amended memo of parties for good order and record. ------------------ Notes; 1. We find that the present appeals are squarely covered by the law laid down ..... 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