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The High Court's Ruling on NCLT's Powers under the IBC regarding GST demands

CA Aman Rajput , Last updated: 14 February 2024  
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The Insolvency and Bankruptcy Code of India, enacted in 2016, revolutionized the country's insolvency landscape by providing a consolidated framework for resolving corporate insolvency cases swiftly and efficiently. However, as with any new legal framework, interpretations and challenges arise regarding the powers and jurisdiction of the various entities involved. One such recent case sheds light on the powers of the National Company Law Tribunal (NCLT) and the Resolution Professional (RP) under the IBC concerning Goods and Services Tax or GST assessment orders.

Facts of the Case

In a recent judgement by the High Court, a corporate debtor undergoing Corporate Insolvency Resolution Process (CIRP) was found to have irregularities in its GST assessment for the financial year 2015-16.

Subsequently, the GST Department issued a notice under the Kerala Value Added Tax Act (KVAT) and passed an assessment order demanding a significant sum of Rs. 11.76 crores. In response, the RP challenged the assessment order by filing an application before the NCLT, seeking permission to file an appeal against it.

The High Court s Ruling on NCLT s Powers under the IBC regarding GST demands

Key Issues

The case raised two fundamental issues regarding the powers of the NCLT and the RP under the IBC in relation to GST assessment orders:

  • Can the NCLT declare a GST assessment order void ab initio?
  • Can the NCLT determine the quantum of tax during CIRP?

Judgement and Analysis

In its judgement, the High Court addressed these issues comprehensively, providing clarity on the powers and limitations of the NCLT and the RP under the IBC.

Firstly, the High Court ruled that the NCLT does not possess the authority to declare a GST assessment order void ab initio. The judgement emphasized that the NCLT is not akin to a Constitutional Court and should not overstep its jurisdiction.

This ruling underscores the importance of respecting the boundaries of judicial authority and adhering to established legal principles within the framework of the IBC.

Secondly, the High Court affirmed that the NCLT does have the power to determine the quantum of tax during CIRP through proper procedures.

However, it clarified that the NCLT cannot enforce the tax demand while the moratorium under CIRP is in effect. This distinction is crucial in ensuring a fair and equitable resolution process for all stakeholders involved in the insolvency proceedings.

 

Outcome and Implications

As a result of the High Court's ruling, the NCLT order declaring the assessment order void ab initio was set aside. The NCLT was directed to reconsider the RP's application seeking permission to file an appeal against the assessment order, adhering to the established legal principles and procedural requirements.

Additionally, the judgement highlighted the importance of adhering to jurisdictional boundaries and following proper procedures within the legal framework.

It clarified that while the NCLT cannot enforce tax demands during CIRP, it does have the authority to assess the quantum of tax for future recovery or inclusion in the resolution plan.

This clarification provides guidance for stakeholders involved in insolvency proceedings and ensures a transparent and efficient resolution process under the IBC.

 

Conclusion

The recent judgement by the High Court regarding the powers of the NCLT and the RP under the IBC in relation to GST assessment orders provides valuable insights into the interpretation and application of the legal framework governing corporate insolvency in India.

By emphasizing the importance of respecting jurisdictional boundaries and adhering to established legal principles, the judgement reinforces the integrity and efficacy of the insolvency resolution process under the IBC.

Moving forward, stakeholders must continue to navigate the complexities of insolvency proceedings with diligence and adherence to legal norms, ensuring a fair and equitable outcome for all parties involved.


Published by

CA Aman Rajput
(Chartered Accountant)
Category GST   Report

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