Statutory CENVAT Dues Outside Approved Resolution Plan Stand Extinguished: Bombay HC

Dalmia Cement (Bharat) Ltd. Vs Union of India (Bombay High Court)

Summary: Bombay High Court set aside four adjudication orders dated 31.07.2020 and 31.12.2020 that partly denied CENVAT Credit and directed recovery of the disallowed credit under Section 11A of the Central Excise Act, 1944 read with Rule 14 of the CENVAT Credit Rules, 2004. The petitioners contended that the underlying statutory claims had not formed part of the insolvency resolution proceedings and therefore stood extinguished after approval of the Resolution Plan. The Revenue argued that the impugned proceedings merely concerned reversal of wrongly availed input credit and were not recovery proceedings, besides contending that the petitioners should pursue the statutory appellate remedy.

The High Court rejected that distinction because the orders not only determined CENVAT Credit entitlement but expressly directed recovery under Section 11A with interest and imposed penalty under Section 11AC, making them composite recovery orders. Applying Ghanashyam Mishra And Sons Private Limited, the Court held that once a resolution plan is approved, statutory dues owed to Government authorities that are not part of the resolution plan stand extinguished and proceedings concerning such pre-approval dues cannot continue.

Since the claims underlying the impugned orders had not been lodged as part of the resolution process, the Court held that they could no longer be pursued. The availability of an alternative remedy did not bar writ jurisdiction because the challenge concerned the respondents’ jurisdiction to recover extinguished claims rather than the merits of the CENVAT adjudication. Following M/s Ruchi Soya Industries Ltd., the Court also directed that any pre-deposit made by the petitioners be refunded with interest at prevailing bank rates within eight weeks. :chatgpt-content-reference{index=”0″} :chatgpt-content-reference{index=”1″}

Cases Discussed

• Ghanashyam Mishra And Sons Private Limited Through The Authorized Signatory Versus Edelweiss Asset Reconstruction Company Limited, Through The Director & Others [(2021) 9 SCC 657] — Relied upon for holding that all claims, including statutory dues owed to Government authorities, which are not part of an approved Resolution Plan stand extinguished and cannot thereafter be pursued.
• Murli Industries Limited Versus Assistant Commissioner of Income Tax & Others [Writ Petition No.2948 of 2021 alongwith connected Writ Petition] — Relied upon by the petitioners in support of the consequences flowing from approval of a Resolution Plan.
• M/s Ruchi Soya Industries Ltd. Versus Union of India & Others [Civil Appeal Nos.447-448 of 2013] — Relied upon by the petitioners and followed by the Court for directing refund of the pre-deposit with interest after holding that the underlying claims could no longer be pursued.
• Assistant Commissioner (CT) LTU, Kakinada & Others Versus Glaxo Smith Kline Consumer Health Care Limited [AIR 2020 SC 2819] — Relied upon by the Revenue on availability and limitation of the statutory appellate remedy; distinguished by the Court because the present challenge was jurisdictional and the writ petition had been filed within the extended limitation period.
• TVS Motor Company Limited Versus State of Tamil Nadu & Others [(2019) 13 SCC 403] — Relied upon by the Revenue on the nature of input tax credit as a statutory benefit/concession; held inapplicable because the impugned orders also expressly directed recovery.
• ALD Automotive Private Limited Versus Commercial Tax Officer Now Upgraded as Assistant Commissioner (CT) & Others [(2019) 13 SCC 225] — Relied upon by the Revenue on the nature of input credit as a benefit/concession; held inapplicable to the present facts since the impugned orders contained recovery directions.
• Gopal Tukaram Bitode Versus Income Tax Officer, Ward-1, Akola & others [Writ Petition No.4141 of 2022 alongwith connected writ petitions] — Cited by the Revenue in support of its objection based on availability of an alternate statutory remedy.
• In Re: Cognizance for Extension of Limitation [2022(1) TMI 385-SC Order] — Applied while considering limitation for the statutory appeal; the Court noted the Supreme Court’s exclusion of the period between 15.03.2020 and 28.02.2022.

FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT

RULE. Rule made returnable forthwith and heard the learned counsel for the parties.

2. The challenge raised in the present writ petition is to the orders dated 31.07.2020 and 31.12.2020 passed by the Joint Commissioner, Central Goods and Services Tax and Central Excise, Nagpur-II, Commissionerate thereby partly allowing the Cenvat Credit availed by the petitioner no.1 and also directing recovery of part of the Cenvat Credit by reversing the same on the ground that the petitioner no.1 was not entitled to the same. The orders under challenge and the period for which the said orders pertain are indicated as under:-

3. The principal ground of challenge as raised by the petitioners is that the aforesaid adjudication has been undertaken without such claims being lodged in the insolvency proceedings under the Insolvency and Bankruptcy Code, 2016 (for short, ‘the I & B Code’) that were pending against the petitioner no.1.

The facts relevant in that regard are that the petitioner no.1 is a Company incorporated under the Companies Act, 1956 (for short, ‘the Act of 1956’) and is in the business of cement. The petitioner no.2 which is under the management of the petitioner no1 was subjected to proceedings under the I & B Code before the National Company Law Tribunal, Mumbai (for short, ‘the NCLT’). After following the procedure prescribed under the I & B Code, the NCLT directed modifications to the Resolution Plan that was submitted before it. The financial creditor was directed to undertake the proposed modifications to the acceptance report that was filed by the Resolution applicant. The order passed by the NCLT dated 03.07.2019 was subjected to challenge before the National Company Law Appellate Tribunal (for short, ‘the NCLAT’). By the order dated 24.01.2020 the Resolution Plan came to be accepted and was made binding on all the creditors including the Government Authorities like Goods and Services Tax Regime and Central Excise Authorities. The NCLAT refused to interfere with the order passed by the NCLT, Mumbai on 22.07.2019. According to the petitioner no.2 the orders that were passed on 12.07.2020 and 31.12.2020 by the Commissioner, Central Excise were not made the subject matter of claims before the Resolution Professional. As a result, the aforesaid claims stood extinguished and no recovery for the said amounts could be effected. During pendency of the proceedings the petitioner no.2 was proposed to be amalgamated into M/s Ascension Mercantile Private Limited under the Composite Scheme of Arrangement and Amalgamation dated 11.05.2022. By amending the writ petition, the said Company has been brought on record.

4. Shri S.Sriram, learned counsel appearing for the petitioners submitted that in absence of any claim being made by the respondent no.2-Joint Commissioner, CGST and Central Excise as well as the Commissioner of CGST and Central Excise with regard to dues adjudicated pursuant to the orders dated 31.07.2020 and 31.12.2020, the dues stated therein stood extinguished. Inviting attention to the list of claimants who had lodged their claims under the I & B Code including the list of statutory Authorities it was pointed out that certain claims were infact lodged by the respondent no.3. However since it was found that the same were not submitted in the prescribed format as per CIRP Regulations within a period of 270 days, the said claims were treated as not being part of the resolution process. The order passed by the NCLT disallowing these claims came to be upheld by the NCLAT in its order dated 24.01.2020. Referring to the decision of the Hon’ble Supreme Court in Ghanashyam Mishra And Sons Private Limited Through The Authorized Signatory Versus Edelweiss Asset Reconstruction Company Limited, Through The Director & Others [(2021) 9 SCC 657], it was submitted that the claims that were not part of the Resolution Plan were not liable to be accepted nor could the amounts not claimed be recovered. Since the Resolution Plan had attained finality, no recovery under the impugned orders could be directed. It was submitted that in the light of its legal bar the impugned orders were unsustainable and were liable to be set aside. Though the petitioners had by communication dated 17.03.2021 requested the respondent no.2 to recall such orders, no steps in that regard were taken. It was submitted that in the light of the clear legal and jurisdictional bar this Court could intervene under Article 226 of the Constitution of India and consider the challenge. On the aspect of non-availing of the alternate remedy under the Statute it was submitted that this issue had also been considered in Ghanashyam Mishra And Sons (supra) and it was observed that in such facts no useful purpose would be served by driving a party to avail the statutory remedy. Since the impugned orders proceeded to reverse the input credit and further directed recovery of the amount of credit that had been availed, it was clear that it was a case of recovery and not merely a case of determination of liability in the form of reversal of credit inputs. The impugned orders not only determined the liability of the petitioners but also sought to recover such adjudicated liability. The learned counsel also placed reliance on the decisions in Murli Industries Limited Versus Assistant Commissioner of Income Tax & Others [Writ Petition No.2948 of 2021 alongwith connected Writ Petition] and M/s Ruchi Soya Industries Ltd. Versus Union of India & Others [Civil Appeal Nos.447-448 of 2013] to urge that besides setting aside the impugned orders the amount of pre-deposit that was made by the petitioners ought to be directed to be refunded with interest. In addition, it was submitted that the impugned adjudication was undertaken without the petitioners being heard inasmuch as the said proceedings were held between 20.10.2020 and 08.12.2020. Hearing was granted only in the proceedings that were decided on 31.07.2020. Since there was lack of jurisdiction with the respondent nos.2 and 3 to proceed with regard to the aforesaid amounts, the petitioners were entitled for the reliefs as prayed for.

5. Shri S.N. Bhattad, learned counsel for the respondent nos.2 and 3 opposed the aforesaid submissions. At the outset it was submitted that the impugned orders as passed could be subjected to statutory appeal under the provisions of Central Excise Act, 1944 and there was no exceptional case made out to intervene in writ jurisdiction. The petitioners having participated in the enquiry by raising objections and those objections having been dealt with while passing the impugned orders, it was open for the petitioners to raise a contention before the Appellate Authority. The learned counsel further submitted that the present proceedings pertain to availing of input tax credit. The petitioners having availed the same, the impugned orders merely proceeded to decide the entitlement of the petitioners in that regard. As the question of reversal of input tax credit was considered it could not be said that the impugned orders were in the nature of recovery of any amounts. Since the issue was with regard to availing the benefit of input tax credit the same could not be made a part of the Resolution process under I & B Code. He referred to the impugned orders to indicate the aforesaid aspect and the finding as recorded in the order dated 31.07.2020 in that regard. It was therefore submitted that since the petitioners were not entitled to seek benefit of the law as laid down by the Hon’ble Supreme Court in Ghanashyam Mishra And Sons (supra) this was another reason for directing the petitioners to avail the statutory remedy by filing an appeal. In that context, the learned counsel referred to the decisions in Assistant Commissioner (CT) LTU, Kakinada & Others Versus Glaxo Smith Kline Consumer Health Care Limited [AIR 2020 SC 2819], TVS Motor Company Limited Versus State of Tamil Nadu & Others [(2019) 13 SCC 403], ALD Automotive Private Limited Versus Commercial Tax Officer Now Upgraded as Assistant Commissioner (CT) & Others [(2019) 13 SCC 225] and the judgment of the Division Bench in Gopal Tukaram Bitode Versus Income Tax Officer, Ward-1, Akola & others [Writ Petition No.4141 of 2022 alongwith connected writ petitions]. It was thus submitted that since in the present proceedings the reversal of input tax credit that was already availed and the same was not a case of recovery, the writ petition was liable to be dismissed.

6.We have heard the learned counsel for the parties at length and with their assistance we have also perused the documents on record. At the outset it would be necessary to consider the objection raised by the respondents that the petitioners ought to be directed to avail the alternate statutory remedy. In this regard it may be stated that the availability of an alternate statutory remedy by itself is not a bar for the Court to exercise jurisdiction under Article 226 of the Constitution of India. Subject to well settled parameters, including the matters touching the jurisdictional aspects, the Court could in a given case consider entertaining such proceedings notwithstanding the fact that a statutory remedy is available to the petitioners.

According to the respondents since the present proceedings arise out of the adjudication undertaken by the Joint Commissioner, CGST and Central Excise with regard to input tax credit being availed by the petitioners and it having been found that such input tax credit was wrongly availed by the petitioners, the proceedings could not be treated to be recovery proceedings. The petitioners having wrongly utilized the assets in the form of input tax credit it was merely a case of reversal of such credit and the same was beyond the purview of the I & B Code, 2016. In this regard, it would be necessary to peruse the impugned orders passed by the Joint Commissioner. Each proceeding pertains to Cenvat Credit being availed by the petitioners on capital goods under the Cenvat Credit Rules, 2004 (for short, ‘the Rules of 2004’). Out of the total Cenvat Credit availed, the Joint Commissioner has allowed part of such Cenvat Credit and has directed recovery of the balance amount of Cenvat Credit on the ground that it has been wrongly availed. Recovery has been directed under Section 11A of the Act of 1944 read with Rule 14 of the Rules of 2004. In addition, penalty has also been imposed under Section 11AC of the Act of 1944. It is seen from the impugned orders that the Joint Commissioner has proceeded to consider the entitlement of the petitioners to availing the aforesaid Cenvat Credit and on finding the petitioners not entitled to do so, recovery of the said amount with interest has been directed. The provisions of Section 11A of the Act of 1944 pertain to recovery of Central Excise and since such direction is contained in the impugned orders it cannot be said that the said orders merely determined the liability of the petitioners to claim Cenvat Credit. The order being composite in nature of firstly denying Cenvat Credit partly and thereafter directing recovery of such amount to which the petitioners have not been found entitled, it cannot be said that the orders merely determined the liability and hence could not be called proceedings for recovery. Considering the directions issued in the impugned orders which includes a direction to recover the requisite amounts under Section 11A of the Act of 1944, it is clear that the impugned orders infact would be orders of recovery. The ratio of the decisions in ALD Automotive (P) Ltd. and TVS Motor Company Limited (supra) is that input credit is in the nature of benefit/concession extended. The said ratio however cannot be applied in the present facts since the impugned orders also direct recovery to be made. The contention raised by the learned counsel for the respondents that the impugned orders merely determine liability and are not orders of recovery therefore cannot be accepted.

7. Once it is found that the impugned orders direct recovery of the amounts of Cenvat Credit that has been wrongly availed by the petitioners, it would be necessary to consider the challenge based on the decision of the Hon’ble Supreme Court in Ghanashyam Mishra And Sons (supra). The petitioners contend that in view of the law laid down therein the impugned orders are liable to be struck down as having adjudicated on aspects beyond the jurisdiction of the Joint Commissioner. The Hon’ble Supreme Court in the aforesaid decision considered three questions including Question No.III which reads as under:-

“(iii) As to whether after approval of resolution plan by the Adjudicating Authority a creditor including the Central Government, State Government or any local authority is entitled to initiate any proceedings for recovery of any of the dues from the Corporate Debtor, which are not a part of the Resolution Plan approved by the adjudicating authority ?”

After referring to the principal aspects of the I & B Code, 2016 which includes providing for revival of the Corporate Debtor and to make it a growing concern it has been held that the I & B Code, 2016 is a complete Code in itself. By amending the I & B Code, 2016 in the year 2019 the stakeholders such as Central Government, any State Government or any Local Authority was included therein. It was thus held that these Authorities would be bound by the Resolution Plan once it is approved by the Adjudicating Authority which was in the said case the NCLT. While answering the question as framed, it was held that on the date of approval of the Resolution Plan by the Adjudicating Authority, all such claims that were not a part of the Resolution Plan would stand extinguished and no person would be entitled to initiate or continue any proceedings in respect of a claim which is not part of the Resolution Plan. The amendment of 2019 was held to be clarificatory and declaratory in nature. It was thus effective from the date on which the I & B Code, 2016 had come into effect. While answering Question No.III it was held as under:-

“(iii)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 to the date on which the Adjudicating Authority grants its approval under Section 31 could be continued.”

Thus from the aforesaid it is clear that all the dues including the statutory dues owed to the Central Government if not part of the Resolution Plan would stand extinguished and no proceedings in respect of such dues for the period prior to the date of approval being granted by the NCLT could be continued.

8. In the present case from the list of claimants that were Statutory Authorities, it can be seen that the Central Excise, Customs and Service Tax Department Division, Kamptee, Telankhedi Road, Civil Lines, Nagpur is shown to be one of the claimants but the claim with regard to the present proceedings does not find mention therein. There is no reference to the aforesaid claims in the details as contained in the impugned orders. It may be mentioned that Company Appeal (Insolvency) No.892-892 was preferred by the Deputy Commissioner, CGST and Central Excise Division, Chandrapur as Operational Creditor with regard to dues of the Corporate Debtor under the Act of 1944. The claim was however not accepted as it was not in accordance with the CIRP Regulations. This fact was not seriously traversed by the respondents but it was urged that since the proceedings pertain to wrongful claim of Cenvat Tax Credit it was merely a case of reversal of the credit availed and not proceedings for recovery. As held above, the impugned orders direct recovery of the amounts due under Section 11A of the Act of 1944. Since the claim on the basis of which the impugned orders have been passed and the period to which they relate were not part of the claims lodged in proceedings under I & B Code, 2016, it is clear that by virtue of paragraph 95 of the decision in Ghanashyam Mishra and Sons (supra) all dues including statutory dues in which claim was not made would stand extinguished.

9. When this position becomes clear that the claims in question based on the orders impugned were not made part of the Resolution Plan, the aspect of the bar to entertain the writ petition on availability of alternate remedy loses its significance. The challenge as raised to the impugned orders on the aforesaid ground will therefore have to be entertained.

10. Coming to the decision of the Hon’ble Supreme Court in Glaxo Smith Cline Consumer Healthcare Limited (supra) it is seen that therein an order of assessment came to be passed on 21.06.2017. Against the order of assessment, the assesse filed an appeal but the same was dismissed as being barred by limitation. The assesse thereafter challenged the order of assessment dated 21.06.2017 by filing a writ petition in the High Court under Article 226 of the Constitution of India. The order passed by the Appellate Authority dismissing the statutory appeal was not challenged. In that context, it was held by the Hon’ble Supreme Court that having availed the remedy of statutory appeal and the same having been found to be beyond the period of limitation, it was not permissible for the High Court to have disregarded the expiry of the statutory period provided for challenging the initial order and thereafter entertain the writ petition as a matter of course. On expiry of such statutory period of appeal, the challenge on merits was not liable to be entertained by the High Court. In this regard, it may be noted that the orders dated 31.07.2020 and 31.12.2020 could be made the subject matter of the statutory appeal under the Act of 1944. At the same time it is to be noted that in In Re: Cognizance for Extension of Limitation [2022(1) TMI 385-SC Order], the Hon’ble Supreme Court has directed exclusion of the statutory period limitation between 15.03.2020 and 28.02.2022. If the aforesaid periods are excluded from consideration, it becomes clear that during the relevant period the limitation for preferring such appeal stood extended. The present writ petition has been filed on 03.05.2021. It is thus clear that by such time the statutory appeal could have been preferred by the petitioners. Taking benefit of the decision of the Hon’ble Supreme Court referred to hereinabove, the writ petition has been filed prior to expiry of the extended period of limitation.

11. Another relevant aspect that distinguishes the present case is that the challenge to the orders passed by the Joint Commissioner is not on merits but is based on jurisdictional aspects inasmuch as the amounts sought to be recovered under Section 11A of the Act of 1944 were not part of the Resolution proceedings undertaken by the NCLT and thereafter by the NCLAT. It is thus not necessary to examine the correctness of the impugned orders on merits and the only aspect to be considered is effect of the judgment of the Hon’ble Supreme Court in Ghanashyam Mishra And Sons (supra) on the ground that the respondents did not raise any claim before the Resolution professional whether the same can be permitted to be pursued. On these counts, we find that the ratio of the decision in Glaxo Smith Cline Consumer Health Care Ltd. (supra) would not be applicable to the facts of the present case.

12. Thus from the aforesaid discussion it becomes clear that the impugned orders seek to undertake recovery of the amounts with regard to which no claim was made by the respondents Operational Creditor in proceedings under the I & B Code, 2016. In view of the decision in Ghanashyam Mishra And Sons (supra) said claims would stand extinguished and are not liable to be pursued further. The challenge as raised is thus liable to be upheld. By relying upon the decision in M/s Ruchi Soya Industries Ltd. (supra) in such situation when the proceedings are held to be not maintainable on the ground that the claim was not part of the Resolution plan, the amount of pre-deposit made by the petitioners is liable to be directed to be refunded with accrued interest. Following the aforesaid decision it is held that the petitioners would be entitled to receive the amount of pre-deposit if made alongwith interest at the prevailing bank rates.

13.Accordingly, the following order is passed:-

(I) The orders bearing No. Order 372/CEX/2020/C/NGP-I, dated 31.07.2020; Order 20/CE/JC/NGP-II/2020, dated 31.12.2020; Order 19/CE/JC/NGP-II/2020, dated 31.12.2020; and Order 18/CE/JC/NGP-II/2020, dated 31.12.2020 passed by the Joint Commissioner, Central Goods and Services Tax and Central Excise, Nagpur-II, Commissionerate are set aside.

(II) It is held that for failure to make any claim of the amounts recoverable under Section 11A of the Act of 1944 the claims in that regard stand extinguished in view of the decision in Ghanashyam Mishra And Sons (supra).

(III) The amount of pre-deposit if any made by the petitioners shall be refunded with interest at the prevailing bank rates within a period of eight weeks of the date of the judgment.

14. Rule is made absolute in aforesaid terms. No costs.