CIRP-Period Tax Dues Not Automatically Extinguished by Clean Slate: Madras HC

Aqua Terra Coke and Energy Limited Vs ITO (Madras High Court).

Summary : The Madras High Court, in Aqua Terra Coke and Energy Limited Vs Income Tax Officer and connected petitions, examined whether the “clean slate” principle under the Insolvency and Bankruptcy Code, 2016 automatically extinguishes income-tax and GST liabilities arising during the Corporate Insolvency Resolution Process (CIRP). Justice Mohammed Shaffiq distinguished liabilities preceding the insolvency commencement date from taxes arising while the corporate debtor continues business under insolvency management. The Court rejected an automatic extension of clean-slate protection to CIRP-period dues, while requiring examination of the actual resolution plan and its treatment of tax liabilities. The batch involved approved resolution plans, a going-concern liquidation sale, a compromise under Section 230 of the Companies Act, reassessment, return-filing delays, rectification and penalty. The Court ultimately issued case-specific remand directions rather than finally extinguishing every demand or upholding every assessment.

In the principal matter, Aqua Terra Coke and Energy Limited, formerly Bhatia Coke and Energy Limited, entered CIRP on 22 May 2019. The NCLT approved the consortium’s resolution plan on 20 June 2022. The Resolution Professional had not filed income-tax returns during CIRP, leading to applications under Section 119(2)(b) for condonation of delay for AYs 2020–21 and 2021–22. A notice under Section 148A(b), dated 28 February 2024, alleged escapement of income of ₹516,34,65,083 for AY 2020–21; this was the alleged escaped income, not a quantified tax demand. The company challenged the order under Section 148A(d) and consequential reopening notice dated 30 March 2024, as well as the rejection of condonation on 10 May 2024. Cura Healthcare’s connected petition similarly concerned a missing return for AY 2020–21, a condonation application and an order under Section 148A(d) allegedly passed without considering its response.

Empee Distilleries’ GST petition concerned FY 2019–20. Its CIRP commenced on 1 November 2018, and SNJ Distilleries’ ₹475 crore resolution plan received NCLT approval on 20 January 2020, followed by appellate confirmation. Empee challenged the order dated 29 August 2024 reversing ITC and imposing consequential interest and penalty under Section 73 of the TNGST Act, alleging that its detailed objections had been ignored. Its income-tax petitions involved AYs 2007–08, 2010–11 to 2015–16 and 2017–18. The judgment records that the Department lodged claims of ₹70,17,05,490 for AYs 2007–08 to 2015–16, which were not admitted, while no claim was filed for AY 2017–18. These proceedings raised distinct questions about pre-CIRP assessments and reassessments, notices sent to the former management despite communication of new contact details, penalties and appellate orders allegedly passed without considering objections.

Kamachi Industries’ petition arose after CIRP commenced on 19 February 2020, liquidation was ordered on 9 December 2022, and the company was auctioned as a going concern for ₹487 crore. The NCLT approved the sale on 19 July 2024. The judgment records FY 2022–23 tax arrears of ₹50,94,30,042 in the order dated 31 July 2024 and ₹50,94,30,044 in the subsequent demand notice dated 23 October 2024. Frontier Lifeline, a cardiac specialty hospital, entered CIRP on 2 August 2018 and subsequently liquidation. A ₹75 crore proposal was approved as a Section 230 scheme read with Section 31 of the IBC, with the judgment recording its effective date as 8 April 2021. Frontier challenged a GST order for FY 2019–20 demanding ₹2,06,90,392, following a show cause notice proposing ₹2,01,66,317. These matters required separate consideration of a going-concern sale and a compromise during liquidation, rather than assuming that both had the same effect as a CIRP resolution plan.

Orchid Pharma’s connected proceedings involved AYs 2012–13 and 2013–14. Its CIRP commenced on 17 August 2017; Dhanuka Laboratories’ plan was approved on 27 June 2019 and ultimately upheld by the Supreme Court on 28 February 2020. One petition challenged the penalty of ₹5,13,71,186, recorded in the factual narrative as imposed on 31 May 2023 under Section 271(1)(c), after litigation concerning PF and ESI contributions. Another challenged the rectification order dated 30 March 2024 modifying the AY 2012–13 assessment under Section 154. The Court’s operative paragraph concerning the penalty contains different date and provision references from the factual narrative. These proceedings were therefore treated as requiring fresh examination of the resolution plan and the applicable legal principles, rather than as establishing an unconditional cancellation of the underlying tax or penalty liability.

The petitioners relied on Sections 31 and 238 of the IBC and the Supreme Court’s decisions in Ghanashyam Mishra and Sons Private Limited Vs Edelweiss Asset Reconstruction Company Limited and Committee of Creditors of Essar Steel India Limited Vs Satish Kumar Gupta. They argued that the approved plan binds Government authorities and that excluded statutory claims cannot later emerge as surprise liabilities defeating revival. They also invoked Section 32A and Manish Kumar Vs Union of India to explain the legislative protection afforded to a corporate debtor under new management. The Revenue argued that these principles concern earlier liabilities and do not excuse taxes generated while the business operates during CIRP. It relied on continuing compliance obligations, the statutory periods for tax adjudication, and the distinction between determination and recovery recognised in Sundaresh Bhatt, Liquidator of ABG Shipyard Vs Central Board of Indirect Taxes and Customs. The Amicus Curiae supported protection against pre-CIRP claims but emphasised that CIRP-period taxes and the precise language of each approved plan require separate attention.

Tracing the clean-slate jurisprudence, the Court discussed Ghanashyam Mishra, Essar Steel, Rainbow Papers, Paschimanchal Vidyut Vitran Nigam and later decisions including Ruchi Soya, Greater Noida Industrial Development Authority, Vaibhav Goel, Electrosteel Steel and JSW Steel. It concluded that the decisions relied upon did not constitute binding precedents deciding the specific question of automatic extinguishment of taxes arising during CIRP. Applying principles concerning ratio decidendi and decisions rendered sub silentio, the Court held that general language cannot be detached from the issues and facts actually decided. Its discussion of Kalyani Transco also emphasised the distinction between problems inherited from the erstwhile management and obligations arising under insolvency management. Accordingly, the Court considered itself entitled to examine the CIRP-period issue independently, while preserving the binding force of the Supreme Court’s decisions within their proper context.

The Court found internal indications in the IBC against automatic non-payment of current taxes. The Explanation to Section 14 protects licences and similar rights subject to payment of current dues, Section 14(2A) recognises payment obligations for critical supplies during moratorium, Section 17(2)(e) requires the Interim Resolution Professional to comply with applicable law, and Section 30(2)(e) requires a plan not to contravene existing law. Section 32A’s protection for prior offences was also considered in its temporal setting. The Court examined the claims-verification and information-memorandum framework under the CIRP Regulations, including the claim-submission timelines discussed in the judgment. It reasoned that future operating taxes cannot simply be treated as omitted historical claims that a Department should already have lodged. The resolution applicant must exercise due diligence using the information available under Section 29; liabilities arising from ongoing business cannot automatically be characterised as unexpected hydra-headed claims.

For GST, the Court additionally considered the consequences of allowing tax collected from customers to remain with the corporate debtor or the successful resolution applicant. Drawing on Amrit Banaspati, Kalyanpur Cement and Jindal Stainless, it expressed concern that such retention would produce unjust enrichment and conflict with public policy and constitutional principles. It also examined the fiscal powers of the Union and States, the distinct allocation introduced by Article 246A, and Union of India Vs Mohit Minerals. In its reasoning, Section 238 of the IBC must be construed consistently with the constitutional position of State GST legislation. It contrasted Section 82 of the TNGST Act, which expressly preserves the IBC’s operation concerning first charge, with other GST provisions governing levy, determination and recovery. The Court acknowledged that no provision of the IBC had been challenged before it; this constitutional discussion supported its interpretation and was not an order striking down the Code.

The Court rejected the proposition that Section 60(5) gives the NCLT or NCLAT a general power to review the correctness of income-tax or GST assessments. Relying on Embassy Property Developments and Gujarat Urja Vikas Nigam, it held that insolvency jurisdiction cannot displace the statutory forums entrusted with disputes in the public-law domain. Permitting parallel adjudication by insolvency and tax authorities would risk inconsistent orders and administrative confusion. It also distinguished the State-GST legislative-competence discussion from Central GST and income tax, because the latter enactments and the IBC originate from Parliament. The Court’s treatment of these issues thus preserved a distinction between determining liability under fiscal legislation and giving effect to a final insolvency plan, rather than treating insolvency approval as a general appellate decision on tax assessments.

Several issues remained for examination on remand. First, whether a reassessment initiated after CIRP for a pre-CIRP period is barred must be considered with reference to the IBC definitions of claim and debt, the taxable event and the time at which liability arises. Secondly, the authorities must inspect whether the actual plan specifically treats CIRP-period taxes as insolvency resolution process costs. The Court stated that where the plan’s language covers those liabilities as CIRP costs and its NCLT approval has attained finality, the Government would be bound and a differential tax liability could stand extinguished. This qualification prevents the judgment’s general rejection of automatic protection from being read as overriding every express, final plan provision. Thirdly, the possibility of setting off dues against available ITC, despite protection against recovery, was left open. Fourthly, the consequences of Section 230 compromises and going-concern liquidation sales, including whether they amount to a business transfer under Section 85 of the TNGST Act, required consideration on their own terms.

In the operative directions, the Court set aside Empee’s GST assessment in W.P.No.30364 of 2024 and directed fresh examination of its objections, the plan and the possible treatment of taxes as CIRP costs. Kamachi’s demand notice in W.P.No.33329 of 2024 was kept in abeyance pending examination, after hearing the company, of the consequences of a going-concern sale under Section 85. The eight Empee income-tax matters were remitted for consideration of clean-slate protection against reassessment relating to pre-CIRP periods. Frontier Lifeline’s assessment was set aside for examination of the Section 230 compromise, whether it could constitute a resolution plan for IBC purposes, and its treatment of tax liabilities. In Aqua Terra’s two petitions, the order under Section 148A(d) was set aside and the return-delay condonation rejection was remanded, including reconsideration of circumstances that prevented timely filing during insolvency.

Cura Healthcare’s impugned order was also set aside because its response had not been considered; fresh objections were permitted within four weeks, followed by examination of the plan and CIRP-cost issues. Orchid Pharma’s penalty proceedings and rectification order were sent for fresh orders, including consideration of the plan’s terms. The Court explained that, in most matters, the resolution plan or Section 230 scheme had not been placed before either the authorities or the Court. Its specified lines of inquiry were indicative, not exhaustive: the authorities could examine other relevant matters, and the petitioners could raise all contentions. Before relying on proposed grounds, precedents or documents, the authorities must give notice and sufficient time for submissions. The writ petitions were disposed of without costs and the connected miscellaneous petitions were closed. The result therefore combines rejection of an automatic CIRP-period tax waiver with fresh adjudication of the individual liabilities and plan-specific protections.

Cases Discussed

• JSW Steel Ltd. v. Pratishtha Thakur Haritwal, (2025) 9 SCC 673 (Supreme Court) — Discussed concerning submission and finality of claims under an approved plan.
• Kalyani Transco v. Bhushan Power & Steel Ltd., (2025) 260 Comp Cas 1 (Supreme Court) — Discussed for purposive interpretation and separation from the problems of former management.
• Electrosteel Steel Ltd. (now ESL Steel Ltd.) v. Ispat Carrier P. Ltd., (2025) 7 SCC 773 (Supreme Court) — Cited in the survey of clean-slate jurisprudence.
• Vaibhav Goel v. Deputy Commissioner of Income Tax, (2025) 8 SCC 511 (Supreme Court) — Cited in the survey of decisions concerning finality of resolution plans.
• Sushil Chokhaji Bambole v. State of Maharashtra, 2024 SCC OnLine Bom 618 (Bombay High Court) — Relied upon concerning the principle that law does not compel impossibilities.
• Greater Noida Industrial Development Authority v. Prabhjit Singh Soni, (2024) 6 SCC 767 (Supreme Court) — Discussed in the survey of insolvency jurisprudence.
• Lahere Traders v. Union of India, 2023 SCC OnLine MP 4109 (Madhya Pradesh High Court) — Cited concerning the factual context of a precedent.
• Paschimanchal Vidyut Vitran Nigam Ltd. v. Raman Ispat (P) Ltd., (2023) 10 SCC 60 (Supreme Court) — Discussed concerning the waterfall mechanism and its treatment of Rainbow Papers.
• Sanjay Kumar Agarwal v. State Tax Officer (1) & Anr., Review Petition (Civil) No.1620 of 2023 in Civil Appeal No.1661 of 2020 (Supreme Court) — The dismissal of review and the limits on disagreement by a coordinate Bench were discussed.
• State Tax Officer v. Rainbow Papers Ltd., (2023) 9 SCC 545 (Supreme Court) — Examined concerning statutory first charge and the State’s secured-creditor claim.
• Sundaresh Bhatt, Liquidator of ABG Shipyard v. Central Board of Indirect Taxes and Customs, (2023) 1 SCC 472; Civil Appeal No.7667 of 2021; 26.08.2022 (Supreme Court) — Invoked concerning IBC primacy and the distinction between tax determination and recovery.
• Union of India v. Mohit Minerals (P) Ltd., (2022) 10 SCC 700; Civil Appeal No.1390 of 2022; 19.05.2022 (Supreme Court) — Relied upon concerning Article 246A and the constitutional design of GST.
• Ruchi Soya Industries Ltd. v. Union of India, (2022) 6 SCC 343; Civil Appeal Nos.447–448 of 2013; 17.02.2022 (Supreme Court) — Cited in the discussion of claims outside an approved resolution plan.
• K.N. Rajakumar v. V. Nagarajan, (2022) 4 SCC 617 (Supreme Court) — Cited in the survey of clean-slate decisions.
• Union of India v. Rajendra N. Shah, (2022) 19 SCC 520 (Supreme Court) — Cited in a footnote concerning constitutional legislative powers.
• Ghanashyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited, (2021) 9 SCC 657; Civil Appeal No.8129 of 2019 and connected matters; 13.04.2021 (Supreme Court) — Central clean-slate authority; distinguished as not deciding automatic extinguishment of CIRP-period taxes.
• Arun Kumar Jagatramka v. Jindal Steel and Power Ltd., (2021) 7 SCC 474; Civil Appeal No.9664 of 2019 and other appeals; 15.03.2021 (Supreme Court) — Cited in footnotes concerning the IBC framework and objectives.
• Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta, (2021) 7 SCC 209; Civil Appeal No.9241 of 2019; 08.03.2021 (Supreme Court) — Relied upon for the limits of insolvency jurisdiction under Section 60(5).
• Manish Kumar v. Union of India and another, (2021) 5 SCC 1; 19.01.2021 (Supreme Court) — Invoked in the petitioners’ submissions concerning Section 32A and prior offences.
• Embassy Property Developments (P) Ltd. v. State of Karnataka, (2020) 13 SCC 308; Civil Appeal No.9171 of 2019; 03.12.2019 (Supreme Court) — Relied upon to distinguish public-law tax adjudication from insolvency jurisdiction.
• Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and others, (2020) 8 SCC 531; 15.11.2019 (Supreme Court) — Discussed as a foundational clean-slate decision, with its factual context preserved.
• Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17 (Supreme Court) — Cited in a footnote concerning the IBC’s objects.
• ALD Automotive Private Limited v. Commercial Tax Officer, (2018) 364 ELT 3 (SC); Civil Appeal Nos.10412–10413 of 2018; 12.10.2018 (Supreme Court) — Referred to concerning the statutory and conditional character of input tax credit.
• Om Prakash Agarwal v. Vishan Dayal Rajpoot, (2019) 14 SCC 526 (Supreme Court) — Cited concerning the use of a Statement of Objects and Reasons in interpretation.
• Jindal Stainless Ltd. v. State of Haryana, (2017) 12 SCC 1; 11.11.2016 (Supreme Court) — Relied upon in the analysis of taxation, sovereignty and allocation of legislative powers.
• Jayam & Co. v. Assistant Commissioner and another, (2016) 15 SCC 125 (Supreme Court) — Cited concerning the concessional and conditional character of input tax credit.
• Commissioner of Commercial Taxes v. Hindustan Lever Ltd., (2016) 13 SCC 28 (Supreme Court) — Cited in a footnote as following Amrit Banaspati.
• Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552 (Supreme Court) — Cited concerning the risk of conflicting decisions by parallel forums.
• Rajiv Sarin v. State of Uttarakhand, (2011) 8 SCC 708 (Supreme Court) — Cited in a footnote concerning constitutional legislative competence.
• Zameer Ahmed Latifur Rehman Sheikh v. State of Maharashtra, (2010) 5 SCC 246 (Supreme Court) — Cited in a footnote concerning legislative powers and non-obstante clauses.
• State of Bihar v. Kalyanpur Cement Ltd., (2010) 3 SCC 274 (Supreme Court) — Discussed concerning public interest and limits on promissory estoppel.
• Binani Zinc Ltd. v. Kerala State Electricity Board, (2009) 11 SCC 244 (Supreme Court) — Relied upon concerning the maxim that law does not require impossibilities.
• Central Bank of India v. State of Kerala and others, (2009) 4 SCC 94 (Supreme Court) — Discussed concerning the constitutional distribution of legislative powers.
• Khaja Industries v. State of Maharashtra, 2007 SCC OnLine Bom 579 (Bombay High Court) — Cited concerning the distinction between what a judgment decides and a suggested logical extension.
• Jay Engineering Works Ltd. v. Industry Facilitation Council, (2006) 8 SCC 677 (Supreme Court) — Cited concerning the scope of an overriding statutory provision.
• ICICI Bank Ltd. v. SIDCO Leathers Ltd., (2006) 10 SCC 452 (Supreme Court) — Appears in the reproduced discussion concerning non-obstante clauses.
• Government of Andhra Pradesh v. J.B. Educational Society, (2005) 3 SCC 212 (Supreme Court) — Relied upon concerning Articles 246 and 254 and legislative predominance.
• NGEF Ltd. v. Chandra Developers (P) Ltd., (2005) 8 SCC 219 (Supreme Court) — Cited to explain why competing statutory jurisdictions should not produce conflicting orders.
• Mehboob Dawood Shaikh v. State of Maharashtra, (2004) 2 SCC 362 (Supreme Court) — Cited concerning reading a decision in the context of the question actually decided.
• Voltas Ltd. v. State of Andhra Pradesh, (2004) 11 SCC 569 (Supreme Court) — Cited in a footnote in the public-policy discussion.
• State of Punjab v. Nestle India Ltd., (2004) 6 SCC 465 (Supreme Court) — Cited in a footnote as following Amrit Banaspati.
• Bhavnagar University v. Palitana Sugar Mill (P) Ltd., (2003) 2 SCC 111 (Supreme Court) — Cited concerning how a difference in facts affects precedential value.
• Subhash Ramkumar Bind v. State of Maharashtra, (2003) 1 SCC 506 (Supreme Court) — Appears in a reproduced passage concerning the use of legislative background.
• Bhaiji v. Sub-Divisional Officer, (2003) 1 SCC 692 (Supreme Court) — Cited concerning the interpretative role of a Statement of Objects and Reasons.
• Central Bank of India v. Ravindra, AIR 2001 SC 3095 (Supreme Court) — Cited in a footnote concerning consistent meaning of repeated statutory expressions.
• Union of India v. Elphinstone Spinning and Weaving Co. Ltd., (2001) 4 SCC 139 (Supreme Court) — Cited in a footnote concerning interpretation supporting legislative validity.
• Molar Mal v. Kay Iron Works (P) Ltd., (2000) 4 SCC 285 (Supreme Court) — Cited in a footnote concerning interpretation of statutory language.
• B.R. Enterprises v. State of Uttar Pradesh, (1999) 9 SCC 700 (Supreme Court) — Cited in a footnote concerning construction preserving legislative validity.
• T.R. Thandur v. Union of India, (1996) 3 SCC 690; AIR 1996 SC 1643 (Supreme Court) — Cited in a footnote concerning the purpose of a non-obstante clause.
• Kasinka Trading v. Union of India, (1995) 1 SCC 274 (Supreme Court) — Appears within the reproduced discussion of promissory estoppel and public interest.
• Amrit Banaspati Co. Ltd. v. State of Punjab, (1992) 2 SCC 411 (Supreme Court) — Relied upon concerning indirect taxes, public policy and unjust enrichment.
• Orient Paper and Industries Ltd. v. State of Orissa, 1991 Supp (1) SCC 81 (Supreme Court) — Cited in a footnote concerning the effect of non-obstante clauses.
• Keshavji Ravji & Co. v. Commissioner of Income Tax, (1990) 2 SCC 231 (Supreme Court) — Relied upon concerning reuse of expressions with an established judicial meaning.
• Synthetics and Chemicals Ltd. v. State of Uttar Pradesh, (1990) 1 SCC 109 (Supreme Court) — Appears in the reproduced discussion of taxation as an attribute of sovereignty.
• Municipal Corporation of Delhi v. Gurnam Kaur, (1989) 1 SCC 101 (Supreme Court) — Relied upon concerning ratio decidendi and decisions passing sub silentio.
• Commissioner of Wealth Tax v. Hashmatunnisa Begum and others, 1989 Supp (2) SCC 43 (Supreme Court) — Cited in a footnote concerning interpretation where validity is not challenged.
• Ujagar Prints (II) v. Union of India, (1989) 3 SCC 488 (Supreme Court) — Relied upon concerning support for legislation under different constitutional entries.
• Regional Manager v. Pawan Kumar Dubey, (1976) 3 SCC 334 (Supreme Court) — Cited concerning ratio decidendi and differing facts.
• Workmen v. National & Grindlays Bank Ltd., (1976) 1 SCC 925 (Supreme Court) — Cited in a footnote concerning established judicial construction of statutory words.
• Katikara Chintamani Dora v. Guntreddi Annamanaidu, (1974) 1 SCC 567 (Supreme Court) — Cited concerning understanding precedents in their factual and conceptual setting.
• State of Orissa v. Sudhansu Sekhar Misra, 1967 SCC OnLine SC 17 (Supreme Court) — Relied upon for the principle that a judgment is authority for what it actually decides.
• Hari Krishna Bhargav v. Union of India, (1966) 2 SCR 22; AIR 1966 SC 619; (1966) 59 ITR 243 (Supreme Court) — Appears within the reproduced discussion of legislation drawing on several entries.
• Firm Bansidhar Premsukhdas v. State of Rajasthan, AIR 1967 SC 40; 1966 Supp SCR 81 (Supreme Court) — Appears in the reproduced discussion of express constitutional limits on taxing power.
• Diamond Sugar Mills Ltd. v. State of Uttar Pradesh, 1960 SCC OnLine SC 57 (Supreme Court) — Cited in a footnote concerning settled meanings in statutory interpretation.
• Umeg Singh v. State of Bombay, AIR 1955 SC 540; (1955) 2 SCR 164 (Supreme Court) — Appears in the reproduced passage discussing sovereign legislative powers.
• Gerard v. Worth of Paris Ltd., (1936) 2 All ER 905 (Court of Appeal, England) — Appears in the quotation explaining decisions rendered sub silentio.
• Quinn v. Leathem, [1901] AC 495 (House of Lords) — Appears in a reproduced passage concerning the factual context of judgments.
• Allen v. Flood, [1898] AC 1 (House of Lords) — Mentioned within the reproduced passage from Quinn v. Leathem.
• H.H. Ruckmaboye v. Lulloobhoy Mottichund, 5 Moo IA 234, 250; 8 Moo PC 4 (Judicial Committee of the Privy Council) — Appears in the quotation concerning established judicial meaning of statutory words.
• Paradine v. Jane, Al. 27 (King’s Bench, England) — Cited in footnote 11 in the discussion of legal impossibility.