Are judgments applying the clean slate theory under the Insolvency and Bankruptcy Code to dues before CIRP a precedent on tax dues arising during CIRP?
Insolvency and Bankruptcy Code, 2016 — s.31 — s.14 — s.30 — s.32A — s.60(5) — s.238 — Constitution of India — Art.141 — Art.246A — Clean slate theory — Tax dues arising during CIRP — Precedent — Sub silentio — GST — Income Tax — Jurisdiction of NCLT —
Constitution of India — Art.141 — Clean slate decisions — Precedent on CIRP-period dues —
Held: The Supreme Court decisions applying the clean slate theory dealt only with dues before CIRP; they are not a precedent on tax dues arising during CIRP and pass sub silentio on that point. (¶12)
Insolvency and Bankruptcy Code, 2016 — s.31 — Clean slate — Tax dues during CIRP —
Held further: Clean slate does not extend to tax dues arising during CIRP; ss.14, 30 and 32A show that taxes must be discharged during CIRP, and a resolution applicant must address them through due diligence. (¶13, 14)
Insolvency and Bankruptcy Code, 2016 — s.238 — State GST — Art.246A —
Held further: No express provision restricts the State's power to collect taxes arising during CIRP, and such a restriction cannot be introduced through interpretation. (¶15)
Insolvency and Bankruptcy Code, 2016 — s.60(5) — NCLT — Tax assessments —
Held further: NCLT cannot examine the correctness of an assessment under the IT Act or the GST Act. Impugned orders set aside and remitted. (¶16, 19)
Are judgments applying the clean slate theory under the Insolvency and Bankruptcy Code to dues before CIRP a precedent on tax dues arising during CIRP?
No. Judgments applying the clean slate theory to dues before CIRP are not a precedent on tax dues arising during CIRP. A decision is an authority only for what it actually decides, not for what logically follows from it; none of the Supreme Court decisions, including Ghanashyam Mishra, Essar Steel and Arun Kumar Jagatramka, dealt with dues arising during CIRP, and that point was never perceived by the Court, so the decisions pass sub silentio on it and the High Court was free to examine the question. [¶12]
Does the clean slate theory under the Insolvency and Bankruptcy Code apply to tax dues arising during the CIRP period?
No. The clean slate theory under the Insolvency and Bankruptcy Code does not apply to tax dues arising during the CIRP period. The Explanation to s.14 keeps registrations alive during the moratorium, s.14(2A) requires dues for supplies during the moratorium to be paid, s.32A confines immunity from criminal liability to the commencement of CIRP, and s.30(2)(e) bars a plan that contravenes the law in force. Claims can be lodged only within the regulatory window, and a resolution applicant, given access to information under s.29(2), must conduct its own due diligence; tax it was wilfully blind to cannot later be called a surprise claim. [¶13, ¶14]
Can a restriction on the State's power to collect taxes arising during CIRP be introduced through interpretation of the Insolvency and Bankruptcy Code?
No. A restriction on the State's power to collect taxes arising during CIRP cannot be introduced through interpretation of the Insolvency and Bankruptcy Code. The power to tax is an attribute of sovereignty, and Article 246A confers on the States a simultaneous power to levy GST; neither the Constitution, the GST Acts nor the IBC contains an express fetter on recovering taxes that arise during CIRP, and the non obstante clause in s.238 does not supply one. Reading such an embargo into the Code would be judicial legislation. [¶15]
Can the NCLT under Section 60(5) of the Insolvency and Bankruptcy Code decide the correctness of an assessment under the Income Tax or GST Act?
No. The NCLT under Section 60(5) of the Insolvency and Bankruptcy Code cannot decide the correctness of an assessment under the Income Tax or GST Act. The IBC authorities are creatures of statute and not superior courts with judicial review over statutory action in public law; following Embassy Property and Gujarat Urja Vikas Nigam, a tax assessment does not arise out of or in relation to the insolvency resolution process, and two fora examining the same assessment would produce conflicting orders. [¶16]
What did the High Court decide on the batch of writ petitions challenging tax demands for the CIRP period?
The writ petitions were disposed of and the impugned orders were set aside and remitted for fresh consideration on each resolution plan. The authorities were to examine whether the tax element is a CIRP cost and whether the plan provides for it, whether clean slate bars reassessment for pre-CIRP periods, and, in the liquidation cases, the effect of a compromise under s.230 of the Companies Act and of s.85 of the TNGST Act, after hearing the petitioners. [¶19, ¶20, ¶21]
Prepared by the LexStreak Editorial Desk — verify against the judgment.
“11. Present controversy over Clean Slate: i) The present controversy in this batch of writ petitions revolves around whether “Clean Slate Theory”, would cover dues that arise during currency of the CIRP (after the insolvency commencement date and until the approval of the resolution plan by the adjudicating authority) but not part of the Resolution Plan. ii) The sheet anchor of petitioners argument has been “Clean Slate Theory”, as enunciated in Ghanashyam Mishra supra, and other decisions applying “Clean Slate”, in support of their contention that all dues prior to the date of approval of the Resolution Plan by NCLT are extinguished and that SRA cannot be made to face the hydra heads of surprise debts due with regard to periods prior to the date of approval of Resolution Plan. iii) Revenue submitted that the aforesaid decisions dealt only with the debts that became due only until the commencement of the CIRP and not debts that arose during the CIRP process which are by legislative design not considered claims nor debts in terms of Section 3(6) and 3(11) of IBC. The above dues inasmuch as do not constitute claim of debt for the purposes of IBC, Resolution Plan can neither cover nor extinguish such claims or debts. 11.1. The Amicus, true to his position, has put forth a measured position that under Section 31(1) of IBC, it is only the “Resolution Plan” which shall be binding and, therefore, the language, purport and extent of each Resolution Plan must be examined to determine whether it covers the liability under the tax enactments during the currency of CIRP period and that there cannot be a generalized assumption that all Resolution Plans will have equal scope and effect in law, while submitting that in the absence of an express provision in the Resolution Plan, clean slate theory cannot be understood to also cover dues that arise during CIRP.”
“14. Applying “Clean Slate Theory” – Would render IBC vulnerable to challenge as Unconstitutional – A construction to be avoided - Indirect Taxes : 14.1. In addition to the above reasons which would suggest that clean slate theory would not cover tax dues arising during CIRP, which would apply with equal force to direct and indirect taxes, yet another aspect which requires consideration in the context of GST is whether extending clean slate theory during CIRP period would result in unjust enrichment of CD/SRA, thus contrary to “Public Policy”, in terms of the judgment of the Supreme Court in Amrit Banaspati Co. Ltd. v. State of Punjab, reported in (1992) 2 SCC 411, wherein, it was held that if indirect taxes which after collection instead of being remitted to the State Treasury is being handed over to the benefit of an individual, it would be a fraud on the Constitution. In this regard it may be relevant to refer to the decision of the Supreme Court in Amrit Banaspati supra wherein while dealing with a promise of benefit/concession by way of refund of sales tax collected from customers with a view to encourage new industries it was held that agreement to refund tax realised by the State which is due under the Act and realised in accordance with law would be a fraud on the Constitution and breach of faith of the people, the relevant portion is extracted hereunder: “10. But promissory estoppel being an extension of principle of equity, the basic purpose of which is to promote justice founded on fairness and relieve a promisee of any injustice perpetrated due to promisor's going back on its promise, is incapable of being enforced in a court of law if the promise which furnishes the cause of action or the agreement, express or implied, giving rise to binding contract is statutorily prohibited or is against public policy. What then was the nature of refund which was promised by the government? Was such promise contrary to law and against public policy? Could it be enforced in a court of law? Taxation is a sovereign power exercised by the State to realise revenue to enable it to discharge its obligations. Power to do so is derived from entries in Lists I, II and III of the Seventh Schedule of the Constitution. Sales tax or purchase tax is levied in exercise of power derived from an Act passed by a State under Entry 54 of List II of VIIth Schedule. It is an indirect tax as even though it is collected by a dealer the law normally permits it to be passed on and the ultimate burden is borne by the consumer. But ‘the fact that the burden of a tax may have been passed on to the consumer does not alter the legal nature of the tax’ (Halsbury's Laws of England, Vol. 52, paragraph 20.04). Therefore even a legislature, much less a government, cannot enact a law or issue an order or agree to refund the tax realised by it from people in exercise of its sovereign powers, except when the levy or realisation is contrary to a law validily enacted . A promise or agreement to refund tax which is due under the Act and realised in accordance with law would be a fraud on the Constitution and breach of faith of the people . Taxes like sales tax are paid even by a poor man irrespective of his savings with a sense of participation in growth of national economy and development of the State. Its utilization by way of refund not to the payer but to a private person, a manufacturer, as an inducement to set up its unit in the State would be breach of trust of the people amounting to deception under law. 11. Exemption from tax to encourage industrialisation should not be confused with refund of tax. They are two different legal and distinct concepts. An exemption is a concession allowed to a class or individual from general burden for valid and justifiable reason. For instance tax holiday or concession to new or expanding industries is well known to be one of the methods to grant incentive to encourage industrialisation. Avowed objective is to enable the industry to stand up and compete in the market. Sales tax is an indirect tax which is ultimately passed on to the consumer. If an industry is exempt from tax the ultimate beneficiary is the consumer. The industry is allowed to overcome its teething period by selling its products at comparatively cheaper rate as compared to others. Therefore, both the manufacturer and consumer gain, one by concession of non-levy and other by non-payment. Such provisions in an Act or Notification or orders issued by Government are neither illegal nor against public policy. 12. But refund of tax is made in consequence of excess payment of it or its realisation illegally or contrary to the provisions of law. A provision or agreement to refund tax due or realised in accordance with law cannot be comprehended. No law can be made to refund tax to a manufacturer realised under a statute. It would be invalid and ultra vires. The Punjab Sales Tax Act provided for refund of sales tax and grant of exemption in circumstances specified in Sections 12 and 30 respectively. Neither empowered the Government to refund sales tax realised by a manufacturer on sales of its finished product. Refund could be allowed if tax paid was in excess of amount due. An agreement or even a notification or order permitting refund of sales tax which was due shall be contrary to the statute. To illustrate it the appellant claimed refund of sales tax paid by it to the State Government on sale made by it of its finished products. But the tax paid is not an amount spent by the appellant but realised on sale by it. What is deposited under this head is tax which is otherwise due under the provisions of the Act. Return or refund of it or its equivalent, irrespective of form is repayment or refund of sales tax. This would be contrary to Constitution. Any agreement for such refund being contrary to public policy was void under Section 23 of the Contract Act. The constitutional requirements of levy of tax being for the welfare of the society and not for a specific individual the agreement or promise made by the government was in contravention of public purpose thus violative of public policy. No legal relationship could have arisen by operation of promissory estoppel as it was contrary both to the Constitution and the law. Realisation of tax through State mechanism for the sake of paying it to a private person directly or indirectly is impermissible under constitutional scheme. The law does not permit it nor equity can countenance it. The scheme of refund of sales tax was thus incapable of being enforced in a court of law. 13. Fallacy of such constitutionally inhibited policy, sacrificing public interest resulting in illegal private enrichment is exposed by claim of refund for nearly Rs 2 crores, for a period of three years, only, when total investment in establishing the unit was Rs 1.5 crores. Levy of tax to raise revenue for promoting economic growth of the State reduced itself in (sic to) enhancing the profit margin of the manufacturer and the sales tax stood converted into income of the appellant. Such contrivance of law even though bona fide is legally unenforceable.'' (emphasis supplied) ii) State of Bihar v. Kalyanpur Cement Ltd., reported (2010) 3 SCC 274 : “34. The doctrine of promissory estoppel as developed in the administrative law of this country has been eloquently explained in Kasinka Trading v. Union of India [(1995) 1 SCC 274] by Dr. A.S. Anand, J., in the following words: (SCC pp. 283-84, paras 11-12) “11. The doctrine of promissory estoppel or equitable estoppel is well established in the administrative law of the country. To put it simply, the doctrine represents a principle evolved by equity to avoid injustice. The basis of the doctrine is that where any party has by his word or conduct made to the other party an unequivocal promise or representation by word or conduct, which is intended to create legal relations or effect a legal relationship to arise in the future, knowing as well as intending that the representation, assurance or the promise would be acted upon by the other party to whom it has been made and has in fact been so acted upon by the other party, the promise, assurance or representation should be binding on the party making it and that party should not be permitted to go back upon it, if it would be inequitable to allow him to do so, having regard to the dealings, which have taken place or are intended to take place between the parties. 12. It has been settled by this Court that the doctrine of promissory estoppel is applicable against the Government also particularly where it is necessary to prevent fraud or manifest injustice. The doctrine, however, cannot be pressed into aid to compel the Government or the public authority ‘to carry out a representation or promise which is contrary to law or which was outside the authority or power of the officer of the Government or of the public authority to make’. There is preponderance of judicial opinion that to invoke the doctrine of promissory estoppel clear, sound and positive foundation must be laid in the petition itself by the party invoking the doctrine and that bald expressions, without any supporting material, to the effect that the doctrine is attracted because the party invoking the doctrine has altered its position relying on the assurance of the Government would not be sufficient to press into aid the doctrine. In our opinion, the doctrine of promissory estoppel cannot be invoked in the abstract and the courts are bound to consider all aspects including the results sought to be achieved and the public good at large, because while considering the applicability of the doctrine, the courts have to do equity and the fundamental principles of equity must forever be present to the mind of the court, while considering the applicability of the doctrine. The doctrine must yield when the equity so demands if it can be shown having regard to the facts and circumstances of the case that it would be inequitable to hold the Government or the public authority to its promise, assurance or representation.” (emphasis supplied) 14.2. It may be relevant to note that Amrit Banaspati supra has since been followed in a series of judgments[^12] and has been approved by the Constitution Bench judgment in the case of Jindal Stainless Ltd. vs. State of Haryana reported in (2017) 12 SCC 1. 14.3. Now in the instant case, particularly in the context of GST which is an indirect tax, it appears if “Clean Slate Theory”, is to be applied rather extended to tax dues arising during CIRP period, there may be cases were taxes have been collected, from the recipient or otherwise, but not remitted to the government instead retained by the supplier i.e., CD a private entity for its own benefit is impermissible and may well render the legislative scheme vulnerable to challenge on the ground of falling foul of public policy as explained by the Supreme Court in Amrit Banaspati supra thus arbitrary thereby offending Article 14 of the Constitution. 14.4. Secondly, with regard to input tax credit construction placed by petitioners may offend Article 14 of the Constitution on the ground of being arbitrary for the following reasons: a) It may result in extending credit to CD without any enquiry as to CD’s entitlement under GST Act, which may well result in CD’s being extended credit which they are not statutorily entitled in view of limitation/restriction under Section 16, 17 or 18 of GST Act. b) There may be cases were ITC is claimed on the basis of bogus suppliers or fictitious transactions even such ITC credit may have to be extended without being examined. c) The “CD” may pay taxes on receipt of supplies and claim ITC of taxes so paid while not discharging its output tax liability this could produce unintended results. 14.5. Thirdly, it is possible that such construction may also render the provision vulnerable to challenge as being violative of Article 14 of Constitution in view of the fact that while Company 'A' which complies with the mandate contained in Section 14, 17 and 31 of IBC and other fiscal laws would be treated on par with an entity/CD, which does not comply with the law while committing a breach or default. This parity in treatment of two unequals would possibly attract the wrath of Article 14 of the Constitution of India. 14.6. Having considered the submissions made on either side and Amicus Curiae, this court is of the view that it is not desirable rather cannot extend Clean Slate Doctrine in respect of dues arising during the period of CIRP, else it may attract the wrath of Article 14 of Constitution.”
“16. Jurisdiction of IBC Authorities and Tribunal: 16.1. While the NCLT may determine if the resolution plan has made sufficient provisions for tax dues arising during CIRP, whether the resolution plan is in consonance with the tax laws and the underlying public policy, during the course of hearing yet another aspect which was raised related to the remedy that may be available to the CD to decide disputes on merits arising under tax laws such as GST, Income Tax etc during the course of proceedings under IBC. The counsel for petitioners would submit that the petitioners are not remediless instead they would have to approach under Section 60(5) of IBC. 16.2. Question would then arise as to whether the power and jurisdiction of the authorities/ Tribunal under IBC is expansive enough so as to decide issues arising under legislations founded in public law domain. For instance, in the present case question arises as to whether the jurisdiction of the tribunal under Section 60(5) of IBC would take within its fold the power to decide/resolve disputes relating to Income tax or GST. The answer to the above question has to be in the negative. This I say so, for authorities under IBC, including the tribunal as well as the appellate tribunal, are creatures of a statute to discharge certain specific functions, the powers flow under the Act. They cannot be elevated to the status of a superior court having the power of judicial review over administrative action, A fortiori, statutory action. A decision or an order of a statutory authority in relation to a matter which is in the realm of public law cannot be brought within the fold of the phrase "arising out of or in relation to insolvency resolution process", contained in Section 60(5) of IBC. Permitting or understanding the NCLT as being vested with the jurisdiction to examine the correctness of an order of assessment or adjudication under the IT Act or the GST Act by invoking Section 60(5) of IBC would amount to elevating the authorities/tribunal under IBC to a status of a forum having powers of judicial review even over sovereign action— a course which has been disapproved by the Supreme Court, in Embassy Property supra followed in Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta, (2021) 7 SCC 209. In this regard it may be relevant to refer to the following judgments: a. Embassy Property Developments (P) Ltd. v. State of Karnataka, reported in (2020) 13 SCC 308 : “37. From a combined reading of sub-section (4) and sub-section (2) of Section 60 with Section 179, it is clear that none of them hold the key to the question as to whether NCLT would have jurisdiction over a decision taken by the Government under the provisions of the MMDR Act, 1957 and the Rules issued thereunder. The only provision which can probably throw light on this question would be sub-section (5) of Section 60, as it speaks about the jurisdiction of the NCLT. Clause (c) of sub- section (5) of Section 60 is very broad in its sweep, in that it speaks about any question of law or fact, arising out of or in relation to insolvency resolution. But a decision taken by the Government or a statutory authority in relation to a matter which is in the realm of public law, cannot, by any stretch of imagination, be brought within the fold of the phrase “ arising out of or in relation to the insolvency resolution ” appearing in clause ( c ) of sub-section (5). Let us take for instance a case where a corporate debtor had suffered an order at the hands of the Income Tax Appellate Tribunal , at the time of initiation of CIRP. If Section 60(5)( c ) of the IBC is interpreted to include all questions of law or facts under the sky, an Interim Resolution Professional/Resolution Professional will then claim a right to challenge the order of the Income Tax Appellate Tribunal before the NCLT, instead of moving a statutory appeal under Section 260-A of the Income Tax Act, 1961. Therefore the jurisdiction of the NCLT delineated in Section 60(5) cannot be stretched so far as to bring absurd results . [It will be a different matter, if proceedings under statutes like Income Tax Act had attained finality, fastening a liability upon the corporate debtor, since, in such cases, the dues payable to the Government would come within the meaning of the expression “operational debt” under Section 5(21), making the Government an “operational creditor” in terms of Section 5(20). The moment the dues to the Government are crystallised and what remains is only payment, the claim of the Government will have to be adjudicated and paid only in a manner prescribed in the resolution plan as approved by the adjudicating authority, namely, the NCLT.]” (emphasis supplied) b. Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta, (2021) 7 SCC 209 “46. NCLT owes its existence to statute. The powers and functions which it exercises are those which are conferred upon it by law, in this case, IBC. ….. 69. .....Therefore, considering the text of Section 60(5)(c) and the interpretation of similar provisions in other insolvency related statutes, NCLT has jurisdiction to adjudicate disputes, which arise solely from or which relate to the insolvency of the corporate debtor. However, in doing so, we issue a note of caution to NCLT and NCLAT to ensure that they do not usurp the legitimate jurisdiction of other courts, tribunals and fora when the dispute is one which does not arise solely from or relate to the insolvency of the corporate debtor. The nexus with the insolvency of the corporate debtor must exist. ….. 84. The respondents have relied upon the decision of this Court in Essar Steel (India) Ltd. (CoC) v. Satish Kumar Gupta [Essar Steel (India) Ltd. (CoC) v. Satish Kumar Gupta, (2020) 8 SCC 531 : (2021) 2 SCC (Civ) 443] , where this Court held that Section 60(5)(c) of IBC “is in the nature of residuary jurisdiction vested in NCLT so that NCLT may decide all questions of law or fact arising out of or in relation to insolvency or liquidation under the Code” [Id p. 589, para 69.] . ….. 91. .........However, it is pertinent to mention that NCLT cannot exercise its jurisdiction over matters dehors the insolvency proceedings since such matters would fall outside the realm of IBC. Any other interpretation of Section 60(5)(c) would be in contradiction of the holding of this Court in Satish Kumar Gupta [Essar Steel (India) Ltd. (CoC) v. Satish Kumar Gupta, (2020) 8 SCC 531 : (2021) 2 SCC (Civ) 443] . ….. 173. Although various provisions of IBC indicate that the objective of the statute is to ensure that the corporate debtor remains a “going concern”, there must be a specific textual hook for NCLT to exercise its jurisdiction. NCLT cannot derive its powers from the “spirit” or “object” of IBC . Section 60(5)(c) of IBC vests NCLT with wide powers since it can entertain and dispose of any question of fact or law arising out or in relation to the insolvency resolution process. We hasten to add, however, that NCLT's residuary jurisdiction, though wide, is nonetheless defined by the text of IBC. Specifically, NCLT cannot do what IBC consciously did not provide it the power to do.” (emphasis supplied) 16.3. There is yet another reason why I would think that it may not be permissible for the authorities or the tribunal under IBC to examine the correctness or otherwise of a claim or an assessment made under the GST Act. This is also in view of the fact that the GST Act especially the State GST Act is administered by the authorities under the State Act. It may well constitute a transgression by the authorities under IBC into the powers which are vested under the statute of a State legislation made under Article 246 A of the Constitution, which may not be permissible. There may well be two sets of orders, if we permit the NCLT/ Tribunals to also examine the correctness or otherwise of an order of assessment under the GST Act or the IT Act: one by the tribunals under IBC and the other by the tribunals or the adjudicating authority under the IT Act or the GST Act. This would only result in administrative chaos and produce results which are arbitrary and may not be permissible. In this regard, it may be relevant to refer to the following judgments wherein it has been held by the Supreme Court that any order can be the subject only before one forum. i) Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., reported in (2012) 9 SCC 552 : “143. ………..The submissions made by Mr K.K. Venugopal, as noticed in para 42, epitomise the kind of chaos which would be created by two court systems, in two different countries, exercising concurrent jurisdiction over the same dispute. There would be a clear risk of conflicting decisions. This would add to the problems relating to the enforcement of such decisions. (emphasis supplied) ii) NGEF Ltd. v. Chandra Developers (P) Ltd., reported in (2005) 8 SCC 219 : “41 . It is difficult to accept the submission of the learned counsel appearing on behalf of the respondents that both the Company Court and BIFR exercise concurrent jurisdiction. If such a construction is upheld, there shall be chaos and confusion. ........... While interpreting the provisions of the two statutes, the court cannot remain oblivious of the fact that in a given case, possibility of a conflict in the orders passed by the two courts may arise, which must be avoided.” (emphasis supplied)”
“17. The above discussion is with regard to SGST made by the State in exercise of its power under Article 246A of the Constitution. Now when it comes to Central GST or Income Tax, the above discussion on the need to balance legislative competence of the State under Article 246A vis a vis Parliament’s power to legislate IBC, may not arise inasmuch both IBC, Central GST and Income Tax being legislation by the same legislative body i.e., Parliament, question of challenging different legislations by same legislative body on the ground of being in conflict with each other may not be available since validity of legislation can seek to support it on the basis of more than one Entry or one provision under the Constitution. In this regard it may be relevant to refer to the decision of the Supreme Court in the case of Ujagar Prints (II) v. Union of India, reported in (1989) 3 SCC 488, wherein it was held as under: “53. If a legislation purporting to be under a particular legislative entry is assailed for lack of legislative competence, the State can seek to support it on the basis of any other entry within the legislative competence of the legislature. It is not necessary for the State to show that the legislature, in enacting the law, consciously applied its mind to the source of its own competence. Competence to legislate flows from Articles 245, 246, and the other articles following, in Part XI of the Constitution. In defending the validity of a law questioned on ground of legislative incompetence, the State can always show that the law was supportable under any other entry within the competence of the legislature. Indeed in supporting a legislation sustenance could be drawn and had from a number of entries. The legislation could be a composite legislation drawing upon several entries. Such a “ragbag” legislation is particularly familiar in taxation. 54. Bennion in his Statutory Interpretation (at p. 644) refers to such a composite legislation, though the observations must be understood in the context of the supremacy of the British Parliament and one of unlimited powers and which is under no inhibitions, unlike a federal polity, of distribution of legislative powers. Learned author refers to: “Ragbag” Acts : Some Acts are “ragbag” Acts, covering many areas. The annual Finance Act is an extreme example. It is divided into Parts, dealing respectively with customs and excise duty, value added tax, income tax, capital gains tax, stamp duty, capital transfer tax and so on. Even within a Part of a Finance Act the various provisions have quite different aims.... In Hari Krishna Bhargav v. Union of India [(1966) 2 SCR 22 : AIR 1966 SC 619 : (1966) 59 ITR 243] , this Court said : (SCR p. 27) There is no prohibition against the Parliament enacting in a single statute, matters which call for the exercise of power under two or more entries in List I of the Seventh Schedule. Illustrations of such legislation are not wanting in our statute book, and the fact that one of such entries is the residuary entry does not also attract any disability. 55. So far as the exclusive competence of the Union Parliament to legislate is concerned all that is necessary is to find out whether the particular topic of legislation is in List II or List III. If it is not, it is not necessary to go any further or search for the field in List I. Union Parliament has exclusive power to legislate upon that topic or field. Of course, it has concurrent power also in respect of the subjects in List III.””
“19. Conclusion: 19.1. W.P.No.30364 of 2024: 19.1.1. The impugned order of assessment is set aside inasmuch as one of the grounds raised by the petitioner is that the objections and reply filed has not been considered while passing the impugned order. The respondent authority is directed to redo the assessment keeping in view the law laid down by this Court in the present batch of writ petitions. While passing fresh orders the adjudicating authority shall inter alia examine the following: a. Terms of Resolution Plan. b. Whether the tax element would constitute “Corporate Insolvency Resolution Process Cost”, if the answer is in the affirmative, whether the Resolution Plan provides for the same in terms of Section 31 of IBC, if not, whether Resolution Plan is objected to by the State, or in its absence whether Resolution Plan would attain finality. 19.2. W.P.No.33329 of 2024 : 19.2.1. Impugned demand notice to be kept in abeyance. Keeping in view the law laid down by this Court in the present batch of writ petitions. While passing fresh orders the adjudicating authority shall inter alia examine the following: i) Whether liquidation by sale of CD as a going concern would constitute transfer of business in terms of Section 85 of TNGST Act, if so, consequences thereof would ensue the petitioner. The above exercise would be made after affording the petitioner an opportunity of hearing. 19.3. W.P.No.1540 of 2023, W.P.No.1556 of 2023, W.P.No.1552 of 2023, W.P.No.1554 of 2023, W.P.No.30332 of 2022, W.P.No.1547 of 2023, W.P.No. 23856 of 2022, W.P.No.11431 of 2022: 19.3.1. Impugned orders are set aside and remitted back for fresh consideration. Keeping in view the law laid down by this Court in the present batch of writ petitions, while passing fresh orders the adjudicating authority shall inter alia examine the following: a. Whether Clean Slate by virtue of Resolution Plan being approved grants immunity against reassessment which is otherwise permissible under IT Act in respect of pre CIRP period. b. Whether clean slate would constitute an embargo against reassessment for pre CIRP period. 19.4. W.P.No. 32637 of 2024: 19.4.1. The impugned order of assessment is set aside with a direction to redo the assessment keeping in view the law laid down by this Court in the present batch of writ petitions. While passing fresh orders the adjudicating authority shall inter alia examine the following: a. Terms of compromise under Section 230 of Companies Act treated as Resolution Plan for purposes of IBC. b. Whether the compromise made during liquidation process after CIRP has failed can be deemed to be a Resolution Plan for the purposes of IBC. c) If the compromise under Section 230 of Companies Act would constitute a Resolution Plan for the purpose of IBC if so whether the tax element would constitute “Corporate Insolvency Resolution Process Cost”, if the answer is in the affirmative, whether the Resolution Plan/compromise provides for the same in terms of Section 31 of IBC, if not, whether Resolution Plan is objected to by the State, or in its absence whether Resolution Plan would attain finality. 19.5. W.P.Nos.22500 and 22505 of 2024 : 19.5.1. The impugned order of assessment passed under Section 148 (A) (d) of IT Act, dated 30.03.2024 is set aside with a direction to redo the assessment keeping in view the law laid down by this Court in the present batch of writ petitions. While passing fresh orders the adjudicating authority shall inter alia examine the following: a. Terms of Resolution Plan. b. Whether the Income Tax element would constitute “Corporate Insolvency Resolution Process Cost”, if the answer is in the affirmative, whether the Resolution Plan provides for the same in terms of Section 31 of IBC, if not, whether Resolution Plan is objected to by the State, or in its absence whether Resolution Plan would attain finality. c. Impugned order dated 10.05 2024 under Section 119(2) of IT Act is set aside and remanded back for fresh consideration in the light of the law laid down by this Court, though the same may not be directly on exercise of power under Section 119 of IT Act, however to re-examine if there are circumstances that precluded the petitioner from filing the return within the statutory period keeping in view the proceedings under IBC and importantly the law laid down by this Court. 19.6. W.P.No.15459 of 2024 : 19.6.1. The impugned order of assessment is set aside with a direction to redo the assessment inasmuch as the impugned order was passed without considering the petitioner’s response. The petitioners are permitted to file their fresh objection within a period of 4 weeks. If any such objection is made the respondent authority keeping in view the law laid down by this Court in the present batch of writ petitions while passing fresh orders shall inter alia examine the following: a. Terms of Resolution Plan. b. Whether the Income Tax element would constitute “Corporate Insolvency Resolution Process Cost”, if the answer is in the affirmative, whether the Resolution Plan provides for the same in terms of Section 31 of IBC, if not, whether Resolution Plan is objected to by the State, or in its absence whether Resolution Plan would attain finality. 19.7. W.P.No.18804 of 2023 : 19.7.1. The impugned order of assessment dated 31.03.2025 levying penalty under Section 274 read with 271(2)(c) of IT Act is set aside and respondent authority is directed to pass fresh orders keeping in view the law laid down by this Court in the present batch of writ petitions and inter alia examining the terms of the Resolution Plan. 19.8. W.P.No.15238 of 2024: 19.8.1.The impugned order of rectification dated 30.03.2024 is set aside with a direction to pass orders afresh keeping in view the law laid down by this Court in the present batch of writ petitions and inter alia examining the terms of the Resolution Plan. 19.9. These writ petitions are therefore disposed off with the above directions. No costs. Consequently, connected miscellaneous petitions are closed.”
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The present batch of writ petitions raise an important question viz., whether “Clean Slate Theory”, propounded by the Supreme Court in the case of Ghanashyam Mishra and Sons Private Limited Vs. Edelweiss Asset Reconstruction Company Limited1 , would apply to dues that arise during the period of Corporate Insolvency Resolution Process (hereinafter referred to as “CIRP”) i.e., after the admission of the “Corporate Debtor” (hereinafter referred to as “CD”), into insolvency and covers the period in which the CD continues to be in insolvency under Goods and Service Tax and Income Tax dues.
Though facts obtaining in these writ petitions are different, however they were heard together and common orders are passed inasmuch as it was submitted by Counsel for petitioners and respondents that there is a common question/issue underlying rather overlapping in all these petitions viz., inter play between fiscal laws viz., Income Tax Act (hereinafter referred to as “IT Act” ), Goods and Services Tax Act (hereinafter referred to as “GST Act”) and Insolvency and Bankruptcy Code (hereinafter referred to as “IBC”).
Brief Facts: 3.1. I shall briefly refer to Writ Petitions wherein the subject matter in controversy relates to demands arising under GST Act: a. Empee Distilleries Limited v. Assistant Commissioner(ST) and 7 others - WP.No.30364 of 2024: i) M/s. Empee Distilleries Ltd. / petitioner is a company engaged in the business of manufacturing of liquor and a registered dealer bearing GSTIN 33AAACE1687N1ZF. ii) CIRP was initiated by Union Bank of India under Section 7 of IBC, before the National Company Law Tribunal (hereinafter referred to as “NCLT”), Chennai and the same was admitted on 01.11.2018. An order of moratorium was declared in terms of Section 14 of IBC. iii) Claims were invited through paper publication on 04.11.2018 by fixing the last date for filing of the claim on 17.11.2018. No claims were made by the Respondent Department. iv) A Resolution Plan submitted by M/s. SNJ Distilleries for Rs.475 Crores was approved by the Committee of Creditors (hereinafter referred to as “CoC”) on 22.07.2019, and approved by NCLT under Section 31(1) of IBC on 20.01.2020. v) The above order of NCLT stood confirmed by National Company Law Appellate Tribunal (hereinafter referred to as “NCLAT”) vide Order dated 27.08.2020, and thereafter by the Hon'ble Supreme Court on 26.11.2020, in Civil Appeal No.3283 of 2020. vi) Petitioner submits that a show cause notice dated 31.05.2024 came to be issued under Tamil Nadu Goods and Service Tax Act (hereinafter referred to “TNGST”), on the premise that certain discrepancies were found in the case of petitioner company for the Financial Year 2019-20 and proposed to reverse ITC, levy penalty and interest. vii) On 27.06.2024 petitioner submitted an objection to the aforesaid notice inter alia submitting that the proposal to reverse ITC and to levy penalty under Section 73 of TNGST is unsustainable inasmuch as the proposal pertains to tax period 2019-20, which is prior to the Resolution Plan dated 22.07.2019 and approved on 20.01.2020. Resolution Plan having been approved is binding on the department/State. viii) However, petitioner received another reminder notice dated 10.07.2024 and submitted a reply also on 16.07.2024. ix) Impugned order came to passed under Section 73 of TNGST on 29.08.2024, whereby the proposal of reversal and recovery of ITC and levy of penalty and interest is confirmed according to petitioner without considering the detailed objection and reply to the show cause notices issued by the respondent. Challenging the same writ petition is filed. b) Kamachi Industries Limited v. Assistant Commissioner (ST) and 2 others – W.P.No. 33329/2024 : i) On 19.02.2020, CIRP was initiated against Kamachi Industries Limited. ii) On 09.12.2022, NCLT ordered commencement of liquidation process since there was no Resolution Plan. iii) On 20.09.2023 a new liquidator viz., the 3rd respondent herein was appointed to replace the original liquidator and a notice was issued for an e- auction sale of the company as a "going concern” on 27.12.2023. iv) Pursuant thereto, an e-auction was conducted on 31.01.2024 and Mr.Virendra Jain and Mr. Ankit Jain were declared successful bidders with a bid of Rs. 487 crores. v) NCLT approved sale of the company as a "going concern" on 19.07.2024 and the Sale Certificate was issued to the petitioner on 26.07.2024, a new Board of Directors was reconstituted, and the company continued its operations under the new management. vi) On 31.07.2024, an order was passed by respondent authorities claiming Rs.50,94,30,042/- as tax arrears for the FY 2022-23. vii) Petitioner submits that on 24.09.2024, the liquidator uploaded payment challans for tax liabilities incurred prior to the acquisition onto the GST portal using petitioner Company’s registered ID. viii) On 23.10.2024, impugned Notice was issued to petitioner demanding payment of Rs.50,94,30,044/- for the FY 2022-23 arrears and required to make payment within 90 days from the date of the order i.e, 31.07.2024. Challenging the same, the present writ petition has been filed. c) M/s. Frontier Lifeline Private Ltd., vs. AssistantCommissioner(ST) - W.P.No. 32637 of 2024: i) M/s. Frontier Lifeline Private Ltd. ("FLPL") was incorporated on 26.06.2003, as a Cardiac Specialty Hospital in Chennai. ii) An application under Section 7 of IBC was filed by State Bank of India and Bank of Baroda, before NCLT Chennai to initiate CIRP against petitioner and the same was admitted on 02.08.2018. Moratorium was declared on the same date. iii) On 29.04.2019, CoC passed a resolution with 100% voting for liquidation of FLPL, since no Resolution Plan got approved within CIRP period i.e., 270 days. iv) Subsequently, NCLT vide its order dated 04.09.2019 approved the decision of CoC and ordered liquidation of FLPL and the Resolution Professional (hereinafter referred to as “RP”) was appointed as the Liquidator. Thereafter, a public announcement was made by the Liquidators and called for the claims in respect of FLPL. v) FLPL submitted its Resolution Plan on 22.04.2019 and the NCLAT, Delhi Bench vide its order dated 17.07.2019 held that the said Resolution Plan can be considered as Scheme under Section 230 of the Companies Act. After obtaining approvals from secured and unsecured creditors, Liquidator moved an application before NCLT seeking approval of the said Resolution Plan as a Scheme under Section 230 of the Companies Act read with Section 31 of IBC and the same was approved by NCLT vide its order dated 08.01.2020 which was also confirmed by the NCLAT, Delhi Bench on 08.04.2021. vi) Following directions from the NCLAT and NCLT, the Liquidator convened meetings on 25.11.2019 and 26.11.2019, wherein the secured and unsecured creditors approved an Amended Resolution Plan proposed by M/s. FirstStep Ventures Limited under Section 230 of the Companies Act. vii) NCLT approved the amended Resolution Plan for a total sum of Rs.75 Crores on 08.01.2020. The Resolution Applicant infused the entire Rs.75 Crores into the Monitoring Committee of FLPL and the same was certified by a Certificate of Foreign Inward Remittance on 18.08.2020 issued by Bank of Baroda. viii) The Resolution Plan came into effect on 08.04.2021. ix) On 20.05.2024, the Respondent issued a Show Cause Notice demanding a sum of Rs.2,01,66,317/- for alleged defects in tax returns under Sections 73 and 50 of TNGST Act, 2017 filed for the Financial Year 2019-2020. x) Petitioner Company submitted a detailed reply to the respondent on 14.06.2024, wherein it was stated that during the financial year, company was undergoing insolvency proceedings. xi) However, on 30.08.2024, the respondent without considering the reply of the petitioner has passed the Impugned Order under Section 73 of TNGST Act, directing Petitioner to pay Rs.2,06,90,392/- for the Financial Year 2019- 2020. Challenging the same the writ petition. 3.2. I shall briefly refer to Writ Petitions wherein the subject matter in controversy relates to demands arising under IT Act: a) Empee Distilleries Ltd vs. Income Tax Department (W.P.No. 1540/2023, W.P.No.1556/2023, W.P.No.1552/2023, W.P.No.1554/2023,W.P.No.30332/2022, W.P.No. 1547/2023, W.P.No. 23856/2022, W.P.No. 11431/2022) : i) M/s. Empee Distilleries Ltd. / petitioner is a company engaged in the business of manufacturing of liquor and an Income Tax Assessee. ii) CIRP was initiated by Union Bank of India under Section 7 of IBC, before NCLT, Chennai and the same was admitted on 01.11.2018. iii) Claims were invited through paper publication on 04.11.2018 by fixing the last date for filing of claims on 17.11.2018. The Tax Recovery Officer on behalf of Income Tax Department filed claims to the tune of Rs.70,17,05,490/- on 19.03.2019 with the RP for the assessment years from 2007 – 2008 to 2015 – 2016, insofar as the assessment years 2017 – 2018, no claims were made. iv) No claim or demand of Income Tax Department, in respect of any assessment year is part of admitted claims by the RP. A Resolution Plan submitted by M/s. SNJ Distilleries for Rs.475 Crores was approved by the CoC on 22.07.2019, subsequently approved by NCLT on 20.01.2020 and confirmed by the NCLAT on 27.08.2020. Thereafter, by the Hon'ble Supreme Court on 26.11.2020, in Civil Appeal No.3283 of 2020. v) Petitioner submits that the return of income for the respective assessment years in the present writ petitions was filed by the petitioner. After scrutiny, the Respondent Department passed an order of Assessment under Section 143(3) read with Section 147 and 144 of IT Act, came to be passed, followed by a notice of demand under Section 156 of IT Act. vi) Respondent Department initiated penalty proceedings, re-assessment proceedings pending CIRP proceedings and issued Show Cause Notices to the petitioner. vii) Petitioner submits that notices under Section 274 read with Section 271 B of IT Act and under Section 148A(b) of IT Act, were sent to the erstwhile management and auditors despite the current management informing authorities of their new registered address and email. Thereafter, an order of reassessment and penalty was passed by Respondent without considering the objections submitted by the petitioners. viii) A Statutory appeal was preferred by the petitioners before the Commissioner of Income-Tax (Appeals) challenging the aforesaid orders of Assessment. ix) In such circumstances, respondent has passed the impugned orders under Section 250 of IT Act dismissing the appeals mechanically and confirming the order of the Assessing Officer, on the premise that there was no reply by petitioners though the petitioners submitted a detailed objections to the show cause notices issued by the respondent. 3.2.1. The present writ petitions are filed challenging the said orders under Section 250 of IT Act and the order of reassessment under Section 148A(d) of IT Act. For the sake of clarity, it is tabulated hereunder:- SL. Writ Petition Assessment Claim/Status Impugned Order Demand No. No. Year Order passed u/s. 250 on 26.09.2022 by which the Filed/Not 1540/2023 2007-08 order passed u/s.143(3) r.w.s Rs.96,34,330 admitted 1. 147 & 144 on 06.02.2015 was confirmed Order passed u/s. 250 on 26.09.2022 by which the Filed/Not 1556/2023 2010-11 order passed u/s. 143(3) Rs.5,91,79,263 2. admitted r.w.s 147 & 144 on 13.12.2017 was confirmed Order passed u/s. 250 on 26.09.2022 by which the Filed/Not order passed u/s 143(3) r.w.s 1552/2023 2011-12 Rs.7,18,94,720 3. admitted 147 & 144 on 13.12.2017 was confirmed Order passed u/s. 250 on 26.09.2022 by which the Filed/Not order passed u/s 143(3) r.w.s Rs.19,55,20,07 1554/2023 2012-13 4. admitted 147 & 144 on 13.12.2017 0 was confirmed Order passed u/s. 250 on 26.09.2022 by which the Filed/Not order passed u/s 143(3) r.w.s 30332/2022 2013-14 Rs.4,19,25,450 5. admitted 147 & 144 on 13.12.2017 was confirmed Order passed u/s. 250 on 26.09.2022 by which the Filed/Not order passed u/s 143(3) r.w.s 1547/2023 2014-15 Rs.5,94,65,832 6. admitted 147 & 144 on 30.12.2016 was confirmed Notice issued u/s.148 on 17.06.2021 and the order 7. Filed/Not passed on 29.07.2022 u/s. 23856/2022 2015-16 Rs.5,12,07,640 admitted 148A(d) rejecting the objections to the 148 notice Order passed u/s. 270A on 24.01.2022 levying penalty, order passed on 19.03.2022 rejecting the objections of to 8. the 148 notice, assessment 11431/2022 2017-18 Not filed Rs.4,37,33,398 order passed u/s.147 on 29.03.2022 and notice issued on 29.03.2022 u/s.274 r.w.s. 270 A b) Aqua Terra Coke and Energy Ltd., v. Income Tax Officer - WP.No.22505/2024 and 22500/2024: i) Petitioner/Aqua Tera Coke and Energy Ltd., formally known as M/s. Bhatia Coke and Energy Limited, the CD was admitted into CIRP under Section 7 of IBC by NCLT on 22.05.2019. ii) Resolution Plan submitted by the consortium of M/s.Earth Element Development Company Pvt. Ltd and M/s.Mahavir Coal Washeries Pvt. Ltd. was approved by NCLT on 20.06.2022. The Successful Resolution Applicant (hereinafter referred to as “SRA”) and its Strategic Investor viz., Aqua Terra Coke and Energy Ltd., petitioner herein remitted RP amount. iii) The Resolution Professional (RP) did not file the income tax returns during the CIRP period. Hence, petitioner filed an application under Section 119(2)(b) of IT Act before the 2nd respondent to condone the delay in filing return for the Assessment Year 2020-21 and 2021-22. iv) 1st respondent issued a Show Cause Notice on 28.02.2024 under Section 148A (b) of IT Act,1961 stating that Rs.516,34,65,083/- has escaped assessment for the Assessment Year 2020-21. In response petitioner submitted a reply on 01.03.2024 seeking time to file the income tax return for the Assessment Year 2020-21 and 2021-22. Pursuant thereto, a detailed reply was also submitted to the respondent on 18.03.2024. v) However, on 30.03.2024 the 1st respondent, without considering the reply submitted by the petitioner, has passed the impugned order under Section 148A(d) of IT Act, issued a notice under Section 148 of IT Act, reopening of assessment for Assessment Year 2020-21. Challenging the same, the present writ petition has been filed. vi) Thereafter, on 10.05.2024, 1st respondent passed the impugned order under Section 119(2) of IT Act, whereby the application to condone the delay in filing the return was rejected on the premise that there were no circumstances that precluded the petitioner from filing the return within the statutory period thus exercise of power under Section 119(2) of IT Act, was not warranted. Challenging the same, present writ petition in W.P. 22500 of 2024 is filed. c. M/s. Cura Healthcare Private Limited v. Deputy Commissioner of Income Tax – W.P.No.15459/2024: i) Petitioner is a Private Limited Company engaged in the business of trading of medical imaging equipment and manufacturing of digital radiography equipment ii) An Operational Creditor filed an application under Section 9 of IBC for initiating CIRP against the petitioner herein, same was admitted by NCLT on 09.12.2019. iii) Consequently, moratorium was declared and Public announcement was made on 08.07.2019 inviting claims on or before 23.07.2020. iv) A Resolution Plan submitted by M/s. Sherisha Technologies Private Limited was approved by CoC on 02.09.2021, subsequently by NCLT on 13.01.2022. v) Resolution Professional (RP) failed to file the income tax return for the Assessment Year 2020-21. Therefore, Petitioner made an application under Section 119(2)(b) of IT Act to condone the delay in filing income tax return before CBDT on 12.10.2022. vi) Respondent issued a Show Cause Notice under Section 148A(b) of IT Act on 24.02.2024 to reopen the assessment for the Assessment Year 2020-21. In response, petitioner submitted a reply to the respondent on 12.03.2024. vii) However, without considering the response of petitioner, the impugned order dated 31.3.24 was passed by the respondent under Section 148A(d) of IT Act and issued a notice under Section 148 of IT Act. Challenging the same, present writ petition has been filed. d. M/s. Orchid Pharma Limited v. Assistant Commissioner of Income Tax and another -W.P.No.18804 of 2023: i) Petitioner is a Public Limited company incorporated on 01.07.1992 and engaged in manufacturing pharmaceutical products. ii) Petitioner company filed its Return of Income for the Assessment Year 2013-14 on 30.11.2013 and the same was revised on 12.03.2014. Assessment was completed and an order was passed under Section 143(3) of IT Act on 29.03.2016. iii) Aggrieved by the said order wherein disallowance of Employer and Employees contributions to PF and ESI was made under Section 36(1)(va) of IT Act, an appeal was preferred before the CIT(A). iv) Whileso, CIRP was initiated by M/s.Lakshmi Vilas Bank Limited under Section 7 of IBC and the same was admitted by NCLT on 17.08.2017. v) During the pendency of CIRP proceedings, the appeal before CIT(A) was allowed vide its common order dated 31.11.2017 in ITA No.36 & 235/16- 17/A-3. vi) Pursuant thereto, Respondent Department preferred an appeal, however the same was dismissed by ITAT vide its order dated 13.12.2018 thereby confirmed the order of CIT(A). vii) Resolution Plan submitted by M/s. Dhanuka Laboratories Ltd. was approved by the CoC and subsequently by NCLT on 27.06.2019. viii) Aggrieved by the order of ITAT, a Tax Case Appeal was preferred in TCA.Nos.430 &431 of 2019 by Respondent Department before this Court and the same was allowed vide its order dated 08.07.2019 and remitted the matter back to CIT(A) for fresh consideration. ix) M/s.Accord Life Spec Private Limited challenged the order of NCLT before NCLAT and vide its order dated 13.11.2019, NCLAT allowed the appeal and set aside approval of Resolution Plan and remitted the matter back to NCLT. Aggrieved, M/s. State Bank of India, one of the creditor of petitioner preferred an appeal before the Apex Court. The Resolution Plan of Dhanuka Laboratories Ltd was upheld by the Apex Court vide its order dated 28.02.2020. x) The CIT(A) vide its order dated 18.03.2022 upon fresh consideration dismissed the appeal and upheld the order of Assessing Officer and the same was challenged by the petitioner before ITAT, Order of CIT(A) was upheld by ITAT by its order dated 23.11.2022. xi) Petitioner received a Show Cause Notice under Section 274 read with Section 271(1)(c) of IT Act. In response to the same, a reply was submitted by petitioner on 30.03.2023. xii) Thereafter, respondent passed the impugned order dated 31.05.2023 levying a penalty of Rs.5,13,71,186/-. Challenging the same, present writ petition has been filed. e. M/s. Orchid Pharma Limited v. Assistant Commissioner of Income Tax and another -W.P.No.15238 of 2024: i) Petitioner is a Public Limited company incorporated on 01.07.1992 and engaged in manufacturing pharmaceutical products. ii) Petitioner company has filed its Return of Income for the Assessment Year 2012-13 on 30.11.2012. After scrutiny, respondent passed a Draft Assessment Order on 29.03.2016 and an objection was filed to the same. iii) Thereafter, an assessment order was passed on 08.12.2016. iv) CIRP was initiated by M/s.Lakshmi Vilas Bank Limited, an Operational Creditor under Section 7 of IBC and the same was admitted by the NCLT on 17.08.2017. v) The Resolution Plan submitted by M/s. Dhanuka Laboratories Ltd. was approved by the CoC and subsequently by the NCLT on 27.06.2019. vi) M/s.Accord Life Spec Private Limited challenged the order of NCLT before NCLAT and vide its order dated 13.11.2019, NCLAT allowed the appeal and set aside approval of Resolution Plan and remitted the matter back to NCLT. Aggrieved, M/s. State Bank of India, one of the creditor of petitioner preferred an appeal before the Apex Court. The Resolution Plan of Dhanuka Laboratories Ltd was upheld by the Apex Court vide its order dated 28.02.2020. vii) Respondent issued a notice under Section 154 of IT Act to rectify the mistake and proposed to modify the assessment order dated 08.12.2016. viii) Challenging the said notice a writ petition in W.P.No.3561/2022 was filed and an interim stay was granted by this Court vide order dated 21.02.2022 for a period of 6 weeks, thereafter, extended by this Court on 16.08.2024, 05.09.2024 and 17.10.2024. ix) Since no stay was in subsistence, respondent has passed the impugned order dated 30.03.2024 rectifying the assessment order dated 08.12.2016. Challenging the same, present writ petition has been filed.
Case of the Petitioners: 4.1. Submissions of learned counsel for petitioners, Mr.Rahul Balaji, Ms.R.Vidhya Shankar, Mr.Anirudh Krishnan, Mr.R.Sivaraman and Mr.A.R.Karthik Lakshmanan is by and large common, to avoid repetition, consolidated and set out hereunder: A) Need for balance between the principle – Power to Tax is an attribute of sovereignty - Object of IBC viz., value maximization of assets of Corporate Debtor/CD: i) That in the intricate ecosystem of law and economics, tax laws and insolvency laws represent two pillars that uphold the financial stability of a nation. Tax laws serve a fundamental purpose, viz., to secure budgetary needs of the Government, ensuring that the State has resources to discharge its governmental functions. This imperative makes tax laws inherently recovery- focused, driven by the need to extract dues from business entities. ii) That Insolvency and Bankruptcy Code was conceived as a transformative statute aimed at overhauling India's corporate distress resolution framework. Its primary objective is to provide a swift and effective mechanism to rescue and rehabilitate entities in financial distress, thereby maximise the value of their assets for all stakeholders. Under the Scheme of IBC, the legislative intent is to breathe new life into struggling businesses, ensuring they contribute to the economy's long term health rather than being consigned to liquidation. iii) That there is fundamental divergence between the object of tax law and Insolvency and Bankruptcy Code. Any conflict or inconsistency is sought to be resolved with the introduction of Section 238 of IBC, a provision which provides for primacy of IBC, over other laws to the extent of any inconsistencies. In support thereof, reliance was placed on the judgment of the Supreme Court in Sundaresh Bhatt, Liquidator of ABG Shipyard vs Central Board of Indirect Taxes and Customs2 , wherein the Supreme Court held that IBC prevails over the Customs Act in case of conflict. iv) Reliance was sought to be placed on Section 31 of IBC to indicate that the legislative intent, was to make a plan approved by the Adjudication Authority, binding on statutory authorities including, Central Government, State Government and local authorities in respect of statutory dues. The binding nature is crucial to ensure that once a plan is approved all creditors, including statutory creditors, must adhere to its terms, effectively extinguishing pre- existing claims not included in the plan. v) That when it comes to liquidation, Section 53 of IBC prescribes a waterfall mechanism that dictates, order of priority for disbursing the proceeds from the liquidation estate. Notably, statutory dues, occupy a relatively lower position in this hierarchy. While they are prioritized above the claims of equity . shareholders, they fall below the payment of unsecured financial debts. This positioning reflects IBC’s broader goal of maximizing asset value for the most critical stakeholder i.e, secured creditors while recognizing that statutory dues, though important, should not impede recovery and CIRP. vi) That primary object of IBC being maximization of value of assets of CD, an aspect that has often weighed the Courts while interpreting IBC and resolve conflicts that arise in respect of claims under other enactments and IBC, ought to be borne in mind. B) Clean slate theory - Essential for value maximization. i) Section 31 of IBC mandates that the Resolution Plan once approved becomes binding upon the CD, its employees, creditors and Government authorities to whom dues including statutory dues are owed and payable. ii) That principle of clean slate theory emanates from Section 30 of IBC has been recognized in Committee of Creditors of Essar Steel India Limited vs Satish Kumar Gupta and others3 . Clean slate principle ensures that once NCLT approves a plan, it is binding on all stakeholders including government and extinguishes all prior claims, which do not form part of the approved plan. Supreme Court in Ghanashyam Mishra supra reaffirmed this principle holding that statutory dues including tax claims are operational debts that stand extinguished, if not, included in the Resolution Plan. iii) Supreme Court in a series of judgments4 applied clean slate theory with a view to guarantee that the new management can take over the company without being hindered by previous obligations. The above decisions applying the “Clean Slate Theory”, supports the principle that once a Resolution Plan is approved, it should bring about finality and certainty, allowing the Resolution Applicant to start afresh without the burden of having to face fresh claims relating to the period when the SRA was not involved with the CD. iv) The rationale behind Section 31 of IBC is that SRA cannot be faced with a surprise claim, as it would frustrate the whole Resolution Plan and resultantly impede the possibility of revival of CD. Keeping in view the above object, it is important that all claims of CD are submitted and incorporated in the Resolution Plan, all claims not made must be understood as having been extinguished. v) The doctrine of a clean slate is statutorily recognized and stands reflected in Section 31 of IBC, which states that an approved plan is binding on all stakeholder including binding Central/State Government and any other statutory dues by virtue of Insolvency and Bankruptcy Code (Amendment) Act, 2019. With the above amendment any doubt as to the binding nature of Resolution Plan on the State and Central government or any statutory authority was put to rest legislatively. vi) That Parliament codified the clean slate theory into law by introducing Section 32A to IBC, which was introduced vide Insolvency and Bankruptcy Code (Amendment) Act, 2020. The above amendment provides that once the plan is approved by the Adjudicating Authority, Section 32A of IBC provides for security and immunity to the CD, its new management, officials and properties from any offences committed by the CD prior to the commencement of CIRP. vii) Section 32A of IBC stipulates that upon approval of a plan resulting in a change of control of CD to an entity not previously involved as a promoter, controller or manager during the insolvency period nor implicated in any wrongdoing, CD would be absolved from prosecution for prior offences, subject to conditions contained in Section 32A of IBC. Additionally, the provision safeguards the CD's property from legal action such as attachment, seizure or confiscation. viii) The constitutional validity of Section 32A of IBC was challenged in the case of Manish Kumar vs Union of India and another5 , wherein the Supreme Court held: "326. ….. the extinguishment of the criminal liability of the corporate debtor is apparently important to the new management to make a clean break with the past and start on a clean slate..." Supreme Court affirmed that without such protective measures, potential resolution applicants would be deterred from bidding on the CD thereby obstructing CIRP. The Court clarified that immunity provided under Section 32A of IBC extended solely to the CD and not to other individuals culpable of any misconduct. The Hon'ble Supreme Court went on to uphold the constitutionality of Section 32A of IBC. The above judicial endorsement ensures the implementation of the clean slate theory reinforcing the legislative intent and preserving the integrity of the insolvency resolution framework in India.
Case of the Respondents: 5.1. Mr.R.Sankaranarayanan, Senior Advocate, Mr.Rajnish Pathiyil, Senior Panel Counsel, Mr.Harsha Raj, Special Government Pleader, Mr.A.P.Srinivas, Standing Counsel, Mr.D.Prabhu Mukunth, Standing Counsel and Mr.ANR.Jayaprathap, Junior Standing Counsel appeared on behalf of respondents and would submit the following: 5.1.1. It is the case of the Respondents that the principle of clean slate would not apply to tax dues that arise during the CIRP period. In support of the above contention, following grounds were urged: 5.1.2. Power to tax is an attribute of sovereignty, limited only by express provisions under the Constitution of India. In the absence of any express Constitutional provision the same cannot be curtailed through a process of interpretation. While IBC intends value maximization of assets of CD, the objective remains to balance the interest of all stakeholders including government. In other words, the interest of creditors including government should also be taken into consideration in the process of value maximization. 5.1.3. That the date on which the application under Section 7 or Section 9 of IBC is admitted by NCLT and moratorium is declared, is the date on which CIRP is deemed to have commenced. This date becomes relevant for the purpose of appreciating the present controversy for a demarcation is required to be made with respect to the affairs of the company prior to commencement of CIRP vis a vis during CIRP. The present batch of cases deals with the tax dues that arose after CIRP had commenced i.e., during the period of CIRP, either by virtue of period of assessment being post CIRP or re-assessment having been made post CIRP though assessment relates to a prior period. 5.1.4. That once CIRP commences, Interim Resolution Professional (hereinafter referred to as “IRP)/RP takes over management of the CD. IRP/RP is conferred and cast with certain rights and obligations inter alia including preparing Information Memorandum which contains details necessary for CoC and any intending Resolution Applicant to analyse the viability of revival of CD. Secondly, it is the duty of RP to continue to manage the company during CIRP as a “going concern”. 5.1.5. The insolvency resolution process relates to resolution of debts and claims against CD during the period in which CD was under the management of erstwhile directors and relate to the period prior to the admission of the CD into CIRP process thus immunity/protection can only be for the period prior to CIRP. 5.1.6. RP prepares an Information Memorandum and places it before CoC. Publications are then made by RP inviting proposals for Resolution Plan. While preparing the Resolution Plan, the applicant ought to take into account the claims set out in the Information Memorandum, as would be evident from Regulation 13 of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (hereinafter referred to as “CIRP Regulations”). 5.1.7. The concept of clean slate only means that once Resolution Plan is approved by NCLT, claims dealt with by resolution applicant in the Resolution Plan are deemed to have been finally decided and cannot be resurrected after the Resolution Plan is approved and nothing more. 5.1.8. That CD is bound to make payment of dues arising during CIRP period inasmuch as in terms of the Companies Act, 2013, a company has perpetual legal existence till it is dissolved or struck off from the Registrar of Companies. The cases on hand deal with companies of such nature where legally, CD continues to have legal existence until it is dissolved and liquidated. 5.1.9. As long as CD continues to have legal existence, the company i.e., CD would be an assessee for the purposes of GST Act and the company would be liable to file returns and pay appropriate taxes. 5.1.10. IBC intervenes with regard to liabilities of the companies only till the CIRP commencement date. IBC does not deal with the manner in which fiscal liabilities arising during CIRP. 5.1.11. GST also recognize a CD under management of RP to be an entity having legal existence as evident from Notification 11/2020-GST and Circular 138/08/2020-GST, wherein it is provided that in case the returns are filed up-to- date, GST department itself makes it clear that there is no need to get any fresh registration in the name of RP and the old registration shall continue. However, in cases where due to the default of erstwhile management GST registration of the company is either suspended or cancelled, the above circular and notification enables RP to take a fresh registration to carry on the business of CD and hand over CD as a running business to SRA. Thus under the scheme of GST law, proceedings under IBC are not seen as a break in the continuous assessment process or registration process of the company. 5.1.12. Dues accruing during CIRP period cannot be categorized as claim under IBC. Claim has been defined under Section 3(6) of IBC to mean "a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured". Debt has been defined in Section 3(11) of IBC to mean "a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt". “Default” is defined under Section 3(12) of IBC to mean "non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not paid by the debtor or the CD as the case may be". On the basis of the above legislative scheme, an application for claim can be lodged with the RP or IRP only when there is a default from the CD. Default as defined under IBC means non-payment of debt when the same becomes due and payable. However, since in the present cases, the dispute assessment periods are during CIRP. Regulation 13(1) of CIRP Regulations provides that claims can be entertained by the IRP/RP, only in relation to claims that have arisen before the commencement date. 5.1.13. The scheme of IBC only recognizes such of those dues that has arisen prior to the commencement of CIRP process as constituting claims. SRA while submitting the plan is only required to resolve the statutory dues that constitute claims for the purposes of IBC. Thus any amount that becomes due after the commencement of the CIRP commencement date cannot be treated as a claim, thus will not be part of the Information Memorandum and thus cannot be dealt nor form part of Resolution Plan. 5.1.14. That any assessment under the GST Act is possible only after GST returns are filed and reconciled with the annual return that is GSTR-9 and 9C. 5.1.15. Section 73 and 74 of CGST Act provide that respondent authorities under GST Act, shall have power to assess inter alia if tax has not been paid or short paid under GST Act, within three years from the due date for furnishing of annual return and 5 years where such non-payment or short payment is by reason of fraud, wilful mis-statement or suppression to evade tax. 5.1.16. Section 14 of IBC imposes a moratorium upon initiation of CIRP proceeding. Section 14 of IBC bars recovery proceedings, however, assessment could be proceeded with in terms of the judgment of the Hon'ble Supreme Court in the case of ABG Shipyard supra, wherein it was inter alia provided that authorities can only take steps to determine tax, interest, fine or any penalty due. However, the authority cannot enforce a claim for recovery of tax, interest, fine or penalty during the period of moratorium. Once a Resolution Plan is approved by NCLT, liability that arise during CIRP cannot be said to have been extinguished for that cannot be treated as claims or dues that are dealt with or could have been dealt with in the Resolution Plan. The perception that there is a vacuum in the law in relation to the status of claims that arise during the moratorium imposed under Section 14 of IBC is misplaced. Reliance was placed on the Insolvency Law Commission Report, in this regard. 5.1.17. Reliance was sought to be placed on Section 18(3) of the TNGST Act, 2017, to submit that the above provision mandates that transfer of credit in case of sale, merger, demerger, amalgamation, lease or transfer of business is on the condition that there is a specific provision for transfer of liabilities from the existing entities. Rule 41(1) of TNGST Rules was also relied upon to state that the manner in which the transfer of credit on account of sale, merger, amalgamation, lease or transfer of a business is governed by the TNGST Rules. Reliance was then placed on Section 85 of the TNGST Act, which provides for the modus of transfer of liabilities in case of transfer of business, to submit that all the aforesaid provisions of GST Act were enacted after IBC had come into force. However these provisions, importantly, do not contain the expression "subject to IBC". It was thus submitted that transfer of business takes place when a Resolution Plan is approved by NCLT in favour of SRA or when a scheme under Section 230 of the Companies Act is approved by NCLT or when a company is sold as a going concern. 5.1.18. During CIRP, IBC would have no role with respect to any of the aspects relating to assessment under GST in view of Explanation to Section 14(1)(A) and Section 17(2)(e) of IBC. These provisions when read together would make it clear that during moratorium period, GST liabilities has to be paid in full and GST law ought to be adhered to strictly. 5.1.19. With regard to Input Tax Credit the following submissions were made: a) SRA continues to utilize the ITC available on the date the management was taken over without any break. ITC available on a particular date is the result of accumulation of ITC over a period of time. ITC is a concession under the statute which is granted/extended to avoid the cascading effect of taxation. ITC is a concession and must be strictly construed as held in Jayam & Co vs Assistant Commisioner and another, reported in (2016) 15 SCC 125 and ALD Automotive Private Limited vs Commercial Tax Officer, reported in (2018) 364 ELT 3 SC. b) Learned counsel for respondents would also submit that ITC being a concession extended by the State cannot be expected to be granted without scrutiny of its eligibility or its entitlement. ITC cannot be granted without scrutiny. He would also point out the possibility of ITC being claimed on the basis of bogus invoices/fake transactions or fictitious/non-existent dealers, and would submit that there could also be instances where ITC is claimed incorrectly, though not deliberately, may nevertheless be ineligible input tax credit. That to extend the above benefit of input tax credit without even a scrutiny by the appropriate authority smacks of arbitrariness. Even if in cases where taxes are not properly paid by the RP/liquidator after collecting it from customers, by virtue of Section 16(2)(c) of GST Act, 2017, purchasing dealers would not be entitled to input tax credit. However, applying clean slate to the CD, there could be instances where the purchasing dealer may claim that even though CD has not remitted taxes to the government, tax ought to be deemed to have been paid and therefore should not be restricted in the hands of the purchasing dealer claiming input tax credit. This he would submit is an alarming sequitur to the clean slate. Moreso, despite tax not being remitted to the government, the State would have to nevertheless extend the benefit of input tax credit. Such a result is clearly arbitrary inasmuch as apart from taking an enormous haircut in the Resolution Plan, Government would also be required to pass on input tax credit to the CD as well as to its customers without verification whatsoever. He would submit that could have never been the intent of IBC and such interpretation would be in contravention of public policy and common good. 5.1.20. The judgments of the Supreme Court in Essar Steel supra and Ghanashyam Mishra supra on which great deal of emphasis was laid was distinguished by pointing out that on facts they related to recovery sought in respect of dues arising pre-CIRP, same cannot be equated with dues arising during CIRP. 5.1.21. From the above it is clear that what weighed with the Hon'ble Supreme Court was that the Resolution Plan which was made by looking into the information memorandum, will be protected under Section 31 of IBC. A resolution applicant should not be expected to deal with anything more than what is covered under the information memorandum in relation to claims that have been made or could have been made prior to the commencement of CIRP. 5.2. CIRP costs - Lack of jurisdiction of NCLT to deal with tax matters: 5.2.1. Tax dues payable to the GST department during moratorium is not CIRP/liquidation cost. The case of the petitioner that tax dues during CIRP would constitute CIRP cost inasmuch as it is necessary for running the business and keeping the CD as a going concern is misplaced. The revenue would contend that GST payments to be made to the department by the RP/liquidator while company is a going concern is not an insolvency resolution process cost. 5.2.2. Assuming without admitting it was submitted by the counsel for the respondents that GST liability during CIRP period would constitute insolvency resolution cost and thus enjoys priority in the RP, however argument of petitioners that in order to enforce liability, GST department ought to hasten to pass the assessment orders immediately or take out application before NCLT under Section 60(5) of IBC requesting for the amount to be included in the CIRP cost is unworkable inasmuch as even assuming an assessment order could be passed before the Resolution Plan is approved, NCLT may not be the competent authority to verify or examine the correctness or legality of assessment made by GST authorities under Section 60(5) of IBC. NCLT may not be the competent authority also for the reason it may not have the domain expertise to exercise appellate jurisdiction against orders of assessment passed under GST Act. 5.2.3. NCLT in the context of IBC is expected to exercise jurisdiction only in matters concerning insolvency resolution process and liquidation under IBC. Implementation of GST Act is not within the domain of NCLT. Though RP is vested with the responsibility to adhere to GST Act, failure or otherwise of the RP to comply with GST and its consequences cannot be adjudicated by NCLT. In this regard reliance was sought to be placed upon the judgments of the Hon'ble Supreme Court in Gujarat Urja Vikas Nigam Limited v. Amit Gupta and others6 reported in and Embassy Property Development Private Limited v. State of Karnataka and others7 . He would also submit that the demands if treated as CIRP cost would have to be paid in full. In such a case, it will be self-defeating in as much as it would be to the detriment of the company if the law is that assessments will have to be paid in full without an opportunity or possibility for these assessments being challenged or questioned in appeal. Hence, he would submit that the submissions made by the counsel for the petitioners that the tax dues during CIRP would constitute insolvency resolution process cost may not be justified. 5.3. Finally, insofar as the person against whom recovery proceedings ought to be initiated, it was submitted that the dues are that of the company and it is the company that it is liable to pay the tax and to meet its consequent assessment. The source of funds to meet this liability is not within the purview of the department. He would submit that while tax dues arising during CIRP period ought to be paid and it would be recovered by the GST department against the company whether it would be paid by the SRA or RP or CoC is something which needs to be resolved between the company, SRA and CoC.
Submissions of Amicus Curiae: 6.1. Learned Amicus Curiae Mr.P.H. Aravind Pandian, Senior Advocate would submit as follows: a. That the extinguishment of all liabilities prior to CIRP is imperative to ensure that pursuant to the approval of Resolution Plan, SRA starts afresh without the burden of "hydra-head" or “suprise claims” surfacing post- resolution in light of the “Clean Slate Theory” propounded by the Apex Court in Ghanashyam Mishra supra, followed by various High Courts. b. Doctrine of Clean Slate would operates to extinguish all pre-CIRP and upon culmination of IBC process and applies when a CD exits through an approved Resolution Plan, a scheme of arrangement, or a sale in liquidation. c. That liability is extinguished even in respect of claims filed but rejected, or kept pending verification during the process, similarly, contingent, uncrystallized, and disputed claims also gets extinguished as they fall under the wide definition of a "claim" in Section 3(6) of IBC. d. That it is bounden duty of RP/Liquidator to keep the CD as a “going concern” during CIRP and to file returns and comply with the provisions of the IT Act and GST Laws. e. That the expenses incurred during CIRP are treated as “CIRP costs” in terms of Section 5(13) of IBC read with Regulation 31 to 33 of CIRP Regulations. The term CIRP Cost would take within its fold, all expenses including tax dues payable during this period as part of CIRP Cost and the same principle would also extend to Liquidation Process Costs as well. f. That the CoC cannot sit in "approval" of tax liabilities, as these are mandated by law rather than being discretionary expenses. g. That re-assessment for pre-CIRP years is held to be impermissible by courts to ensure SRA starts on a "clean slate", though SAR would be entitled to claim benefits such as tax refund that has accrued to the CD. h. That the beneficiary who has retained the funds generated during CIRP/Liquidation being the CoC/SRA/Auction purchaser may be directed to pay dues that may arise under IBC. i. Amicus emphasized that while pre-CIRP dues are wiped out, statutory taxes like payment of tax during CIRP are not extinguished by Clean Slate doctrine.
Issues that arise for Consideration: 7.1. Against the above background the question that arise for consideration is Whether “Clean Slate Theory” laid down in Ghanashyam Mishra supra and Essar Steel supra would also apply to statutory dues more particularly fiscal liabilities that arise during CIRP period.
To resolve the above controversy it is necessary to understand the “Clean Slate Theory”, one propounded by Courts, through an interpretative process adopted to further and advance the object of IBC.
Broad overview of Jurisprudential Evolution of “Clean Slate Theory”: 9.1. While on jurisprudential development of “Clean Slate Theory”, the Larger Bench decision of the Supreme Court in Ghanashyam Mishra supra, holds the prime position wherein it held that the dominant purpose of IBC is revival of the CD and to make it a running concern; that the legislative intent of making the Resolution Plan binding on all the stakeholders on approval by the adjudicating authority upon its satisfaction that the Resolution Plan approved by CoC meets the requirement as referred to in Section 30(2) of IBC. The reason being that after the approval of the Resolution Plan, no surprise claims should be flung on the SRA. The dominant purpose is that the SAR should start with fresh slate on the basis of the Resolution Plan approved. 9.2. Though I had earlier referred to the decision in Ghanashyam Mishra supra, I must clarify that “Clean Slate” was not being spoken about by the Supreme Court for the first time rather Ghanashyam Mishra supra noted and reaffirmed the earlier decisions in Essar Steel supra, wherein it was found that a SRA cannot suddenly be faced with “undecided” claims, after approval of the Resolution Plan as this would amount to a hydra head popping up which would throw into uncertainty Resolution Plan. If such claims are entertained/ permitted it would prove to be a deterrent in attracting Resolution Applicants thereby frustrating the object of IBC. 9.3. A great deal of emphasis was placed by Counsel for Petitioners on the decision in Ghanashyam Mishra supra to submit that “Clean Slate” would also cover dues until approval of Resolution Plan, while true purport and scope of the law relating to “Clean Slate Theory” expounded in the said decision was sought to be explained by the respondent as intended to cover only dues arising prior to CIRP and extension of Clean Slate to dues arising during CIRP would militate against the legislative Scheme of IBC, which mandates compliance with laws in force which would include fiscal laws. It may thus be relevant to refer to the following portions of the decision in Ghanashyam Mishra supra which reads as under: “68. All these details are required to be contained in the information memorandum so that the resolution applicant is aware as to what are the liabilities that he may have to face and provide for a plan, which apart from satisfying a part of such liabilities would also ensure, that the corporate debtor is revived and made a running establishment. The legislative intent of making the resolution plan binding on all the stakeholders after it gets the seal of approval from the adjudicating authority upon its satisfaction, that the resolution plan approved by CoC meets the requirement as referred to in sub-section (2) of Section 30 is that after the approval of the resolution plan, no surprise claims should be flung on the successful resolution applicant. The dominant purpose is that he should start with fresh slate on the basis of the resolution plan approved. ..... 74. As such, with respect to the proceedings, which arise after 16- 8-2019, there will be no difficulty. After the amendment, any debt in respect of the payment of dues arising under any law for the time being in force including the ones owed to the Central Government, any State Government or any local authority, which does not form a part of the approved resolution plan, shall stand extinguished.” ..... Conclusion: 102. In the result, we answer the questions framed by us as under: 102.1 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 respect to a claim, which is not part of the resolution plan. 102.2. The 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 the I&B Code has come into effect. 102.3. 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. 103. In the light of what has been held by us hereinabove, we now proceed to decide individual matters.” 9.4. Rainbow Papers - Departs from “Clean Slate Theory”: 9.4.1. There was a dissonance with the aforesaid view in STO v. Rainbow Papers Ltd., reported in (2023) 9 SCC 545, wherein while dealing with recovery of taxes not provided in Resolution Plan in respect of VAT dues arising under Gujarat Value Added Tax Act, on considering Section 48 of the GVAT Act which provided that tax to be first charge on property inter alia held that: a. State is a “secured creditor” with the meaning of Section 3(30) of IBC. b. Resolution Plan should provide for payment of such statutory dues, failure to provide may fall foul of sub-section (2) to Section 30 of IBC. c. A Resolution Plan not in compliance with Section 30 of IBC would not be binding on the Government. d. CoC which might include financial creditors cannot secure its dues against Statutory dues. e. Statutory First Charge under GVAT Act is not in conflict with the provisions of IBC. 9.5. Paschimanchal Vidyut Vitran Nigam Ltd. - Rainbow Papers treated as Per Incuriam: 9.5.1. The departure made in Rainbow Papers supra was noticed in the case of Paschimanchal Vidyut Vitran Nigam Ltd. v. Raman Ispat (P) Ltd., reported in (2023) 10 SCC 60, wherein it was in held that Rainbow papers was per incuriam finding that Rainbow Papers did not notice nor adverted to the “waterfall mechanism” under Section 53 of IBC. The Apex Court proceeded to find that the careful design of Section 53 of IBC locates amounts payable to secured creditors and workmen at the second place, after the costs and expenses of the liquidator payable during the liquidation proceedings. However, the dues payable to the government are placed much below those of secured creditors and even unsecured and operational creditors. The Apex Court proceeded to record that this design was either not brought to the notice of the Court in Rainbow Papers supra or was missed altogether. In any event, the judgment in Rainbow Papers supra has not taken note of the provisions of IBC which treat the dues payable to the secured creditors at a higher footing than dues payable to the Central or the State Government. 9.6. Review of Rainbow Papers – Review Petition (Civil) No.1620 of 2023 in Civil Appeal No.1661 of 2020: 9.6.1. A review of Rainbow papers supra was filed and the same came to be rejected by the Supreme Court, finding that it is settled proposition of law that a Coordinate Bench cannot comment upon discretion exercised or judgment rendered by another Coordinate Bench and the only recourse if a subsequent Bench may have to disagree with the view expressed by an earlier Coordinate Bench was to refer the matter for an authoritative decision, else the law would be thrown into a state of uncertainty. After stating so, while dismissing the Review Petition, it found the attempt by petitioners therein to take advantage of the observations in the case of Paschimanchal supra, wherein it was found that Rainbow Papers supra was decided without considering the Water Fall Mechanism as contained in Section 53 of IBC, was factually incorrect and observed that a bare reading of the judgment in Rainbow Papers supra would show that the Supreme Court therein had not only considered the Water Fall Mechanism under Section 53 of IBC but other relevant provisions of IBC while deciding the priority for the purpose of distributing the proceeds from the sale as liquidation assets. It observed that Rainbow Papers supra was decided after considering the relevant provision and also the decision of the Supreme Court in the case of Ghanashyam Mishra supra. 9.7. Other Decisions of Supreme Court - Applying Clean Slate: 9.7.1. It is relevant to note that apart from the solitary decision in Rainbow Papers supra, the decisions rendered in K.N. Rajakumar v. V. Nagarajan, (2022) 4 SCC 617, Ruchi Soya Industries Ltd. v. Union of India, (2022) 6 SCC 343, Greater Noida Industrial Development Authority v. Prabhjit Singh Soni, (2024) 6 SCC 767, Vaibhav Goel v. Dy. CIT, (2025) 8 SCC 511, and Electrosteel Steel Ltd. (now ESL Steel Ltd.) v. Ispat Carrier P. Ltd.., (2025) 7 SCC 773, reiterate the spirit and intent of the clean slate theory as propounded in Ghanashyam Mishra supra. 9.8. Clarification – By Legislature: 9.8.1. To avoid any uncertainty in the light of divergent views expressed by the Supreme Court on Clean Slate even though divergent view is on a solitary occasion in Rainbow Papers supra, Parliament with a view to fix the uncertainty, if any, that may arise has legislatively affirmed vide Insolvency and Bankruptcy Code (Amendment) Act, 2019, whereby, the following expressions/ phrase was inserted in Section 31 of IBC: "including the Central Government, any State Government or any other local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed," 9.8.2. With the above amendment any doubt as to the binding nature of Resolution Plan on the State and Central Government or any statutory dues was put to rest legislatively. Consequently, once a plan is approved, in terms of the above amendment to Section 31 of IBC, it becomes binding on State and Central Government and all statutory authorities and no fresh claims can be made.
Clean Slate – Statutorily Ingrained under IBC: 10.1. To appreciate the statutory basis on the basis of which “Clean Slate Theory”, was judicially evolved, it may be relevant rather necessary to examine Section 31 of IBC. Section 31 of IBC reads as under: “Section 31. Approval of resolution plan. (1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed, guarantors and other stakeholders involved in the resolution plan. Provided that the Adjudicating Authority shall, before passing an order for approval of resolution plan under this sub-section, satisfy that the resolution plan has provisions for its effective implementation.” 10.2. On a reading of the above provision the following position would emerge: a. Section 31 of IBC provides for approval of Resolution Plan by the adjudicating authority and also provides for the effect upon the stakeholders on such approval. b. Section 31(1) of IBC provides that if the Adjudicating Authority is satisfied that the Resolution Plan as approved by the CoC under sub-section (4) to Section 30 of IBC meets the requirements as referred to in sub-section (2) of Section 30 of IBC, it shall by order approve the Resolution Plan which shall be binding on the CD and its employees, members, creditors, [including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed,]8 guarantors and other stakeholders involved in the Resolution Plan. The amendment in 2019 was introduced appears to be a legislative affirmation of the scope of binding nature of Resolution Plan on Governments including in respect of statutory dues. c. Section 31(1) of IBC has two limbs: the first stipulates the pre- conditions for the adjudicating authority to approve the Resolution Plan and the second limb provides the effect of such approval. Under the first limb, the pre- conditions of approval inter alia require the satisfaction of the adjudicating authority in respect of two aspects: (i) the Resolution Plan is approved by the CoC under Section 30(4) of IBC; and (ii) such Resolution Plan approved by the CoC meets the requirements under Section 30(2) of IBC. Under the second limb, upon approval by the adjudicating authority, vide an order, such Resolution Plan (as approved by the adjudicating authority) shall be binding on the CD and its employees, members, creditors, including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force. d. The legislative basis/genesis of “clean slate theory”, the scope and extent of which is the subject matter of present controversy, is traceable to the words “it shall be binding” employed in sub-section(1) to Section 31 of IBC. With the 2019 amendment to Section 31 of IBC whereby doubt, if any, over the question as to on whom Resolution Plan is binding nature has been legislatively resolved with the amendment to Section 31 of IBC with Central Government and State Government also being bound by an approved Resolution Plan.
Present controversy over Clean Slate: i) The present controversy in this batch of writ petitions revolves around whether “Clean Slate Theory”, would cover dues that arise during currency of the CIRP (after the insolvency commencement date and until the approval of the resolution plan by the adjudicating authority) but not part of the Resolution Plan. ii) The sheet anchor of petitioners argument has been “Clean Slate Theory”, as enunciated in Ghanashyam Mishra supra, and other decisions applying “Clean Slate”, in support of their contention that all dues prior to the date of approval of the Resolution Plan by NCLT are extinguished and that SRA cannot be made to face the hydra heads of surprise debts due with regard to periods prior to the date of approval of Resolution Plan. iii) Revenue submitted that the aforesaid decisions dealt only with the debts that became due only until the commencement of the CIRP and not debts that arose during the CIRP process which are by legislative design not considered claims nor debts in terms of Section 3(6) and 3(11) of IBC. The above dues inasmuch as do not constitute claim of debt for the purposes of IBC, Resolution Plan can neither cover nor extinguish such claims or debts. 11.1. The Amicus, true to his position, has put forth a measured position that under Section 31(1) of IBC, it is only the “Resolution Plan” which shall be binding and, therefore, the language, purport and extent of each Resolution Plan must be examined to determine whether it covers the liability under the tax enactments during the currency of CIRP period and that there cannot be a generalized assumption that all Resolution Plans will have equal scope and effect in law, while submitting that in the absence of an express provision in the Resolution Plan, clean slate theory cannot be understood to also cover dues that arise during CIRP.
Clean Slate Theory – Applicability in respect of dues arising during CIRP – Whether judgments propounding “Clean Slate” precedent in respect of dues arising during CIRP 12.1. Now having traced the judicial history on evolution of “Clean Slate Theory”, to the extent relevant, while “Clean Slate” appears to be a theory evolved by Courts through a process of interpretation more particularly adopting a purposive construction with a view to further and advance the object of IBC. However the issue that arises for consideration is as to whether “Clean Slate” would apply to dues arising during CIRP period. While the petitioners/assessee’s would contend it would extend to dues arising during CIRP period, on the other hand revenue would contend that “Clean Slate” would not apply to dues arising during CIRP. 12.2. At the heart of the controversy is the scope and ambit of “Clean Slate Theory”, propounded by the Supreme Court in various judgments including Ghanashyam Mishra supra. There can be no doubt that “Clean Slate Theory” is a salient feature in the Insolvency process under IBC. Reason is not far to see, any intending Resolution applicant would participate in the resolution process expecting to run the business on a clean/fresh slate, without being fastened with any unseen/uninformed or surprise claims towards past liabilities. If surprise past liabilities are permitted to be raised /fastened or carried forward, it would act as deterrent against intending Resolution Applicants participating in the Resolution Process, thereby rendering the entire process unworkable frustrating the very object of IBC. 12.3. Before proceeding further it may be necessary to examine as to whether Supreme Court has applied “Clean Slate”, in respect of tax dues arising during CIRP period. If the answer to the above question is in the affirmative, decision of the Supreme Court being final would be binding on all courts, no further inquiry would be required or rather permissible on issues/questions decided by Supreme Court by any Court including High Court in view of the binding nature of the Supreme Court. 12.4. To answer the question as to whether the judgments applying “Clean Slate Theory”, would constitute a precedent for extending its applicability in respect of dues arising during CIRP, we need to understand the precedential value of those decisions in respect of dues arising during CIRP. 12.5. Now that would take one to Article 141 of the Constitution which contains a declaration that law declared by Supreme Court shall be binding on all courts within the territory of India. There can be no two views about the fact that once Supreme Court declares the law on an issue it is binding on all courts, however the question is whether the decisions relied upon by petitioners wherein “Clean Slate theory”, was applied would be a precedent with regard to tax dues arising during CIRP period. 12.6. Before embarking on this enquiry it may do well to remind ourselves that while it is beyond the pale of any doubt that law laid down by the Supreme Court is binding on all Courts, however what is binding is the law laid down by the Supreme Court on a particular issue/question. A duty is cast on the courts including the High Court to first understand the law laid down by the Supreme Court, while doing so High courts and the courts below should keep in mind and not forget the conditions and concepts which moved the judges whose rulings are cited, nor be obsessed by respect at the expense of reason while looking at the precedential value of a decision. At this juncture it may be apposite to refer to the decision of the Supreme Court in the case of Katikara Chintamani Dora v. Guntreddi Annamanaidu, reported in (1974) 1 SCC 567, wherein it was observed as under: “.............. Precedents should not be petrified nor judicial dicta divorced from the socio- economic mores of the age. Judges are not prophets and only interpret laws in the light of the contemporary ethos. To regard them otherwise is unscientific. My thesis is that while applying the policy of statutory construction we should not forget the conditions and concepts which moved the judges whose rulings are cited, nor be obsessed by respect at the expense of reason.” (emphasis supplied) 12.7. It thus becomes necessary to examine the factual and contextual setting in which “Clean Slate Theory”, was applied by the Supreme Court. On examining the judgments of the Supreme Court applying the “Clean Slate Theory”, this court finds and positively affirmed by the Counsel appearing for petitioners, respondents and Amicus Curiae, that the facts obtaining before the Supreme Court in the decisions wherein “Clean Slate Theory” was applied including Arun Kumar Jagatramka9 , Essar steel and Ghanashyam Mishra referred to supra, do not relate to dues arising during CIRP period instead in all the cases where the principle of clean slate by the Supreme Court was applied related to dues relating to pre-CIRP period. That being the case, Ghanashyam Mishra, Essar Steel and Arun Kumar Jagatramka referred to supra may not be a binding precedent on the above issue. I say so, for the following reasons: a. Factual and Contextual setting – Relevance in determining precedential value: 12.8. It is trite that a judgment is a precedent for what it decides and difference in facts or additional facts may have a material bearing in determining the precedential value. In this regard it may be relevant to refer to the following judgments: i) Bhavnagar University v . Palitana Sugar Mill (P) Ltd. , reported in (2003) 2 SCC 111 : “59. A decision, as is well known, is an authority for which it is decided and not what can logically be deduced therefrom. It is also well settled that a little difference in facts or additional facts may make a lot of difference in the precedential value of a decision.” (emphasis supplied) ii) Regional Manager v . Pawan Kumar Dubey , reported in (1976) 3 SCC 334: “7. ....... But , the application of the same law to the differing circumstances and facts of various cases which have come up to this Court could create the impression sometimes that there is some conflict between different decisions of this Court. Even where there appears to be some conflict, it would, we think, vanish when the ratio decidendi of each case is correctly understood. It is the rule deducible from the application of law to the facts and circumstances of a case which constitutes its ratio decidendi and not some conclusion based upon facts which may appear to be similar. One additional or different fact can make a world of difference between conclusions in two cases even when the same principles are applied in each case to similar facts.” (emphasis supplied) iii) Lahere Traders v. Union of India, reported in 2023 SCC OnLine MP 4109 : “14. The said judgment cannot be mechanically applied in a case of this nature. This is trite that a singular different fact may change the precedential value of a judgment.” 12.9. It is thus clear that the precedential value or ratio of a judgment cannot be understood divorced from the facts and the contextual setting, that being the case judgments applying the doctrine of “Clean Slate”, indisputably did not deal with dues arising during CIRP, that being the crucial fact on which the entire controversy/questions raised in these writ petition revolve, I would think that the judgments applying “Clean Slate” cannot be understood as precedent on the question that arises for consideration in these writ petitions viz., applicability of “Clean Slate Theory” in respect of dues arising during CIRP. 12.10. The caution in accepting the decisions rendered in the context of debts due/claims arising prior to commencement of CIRP period as binding precedents for the present lis involving debts that arise during the CIRP period currency is two fold. Firstly, the above decisions in the context of pre-CIRP commencement dues have at their core the reasoning as articulated in Essar Steel India Ltd. (CoC) v. Satish Kumar Gupta, (2020) 8 SCC 531 and reiterated in JSW Steel Ltd. v. Pratishtha Thakur Haritwal, (2025) 9 SCC 673, that “all claims must be submitted to and decided by the resolution professional so that a prospective resolution applicant knows exactly what has to be paid in order that it may then take over and run the business of the corporate debtor.” However, for the period post the commencement of CIRP and till the approval of the resolution plan, as in these cases before this Court, the fault for failure to file returns/discharge taxes due is substantially shouldered by the resolution professional himself. Secondly, the clean slate theory was a product of purposive interpretation by the Supreme Court. In Kalyani Transco v. Bhushan Power & Steel Ltd., (2025) 260 Comp Cas 1, the Supreme Court restated that one of the integral objectives of the IBC is to ensure that the interests of the company going under the CIRP are not influenced by the interests of the erstwhile management and that this can be achieved by applying a purposive interpretation to the provisions of the Code by not permitting the problems of the earlier regime to enter the resolved/revived entity through the backdoor. Therefore, in this context, the problems of the earlier regime of the corporate debtor which are wiped through the clean slate theory could necessarily be only till the date of commencement of CIRP. b. Judgment – Precedent for what it decides – Not what logically flows therefrom: 12.11. The second reason which leads me to believe that the above judgments of the Supreme Court including Ghanashyam Mishra supra applying “Clean Slate Theory” may not constitute precedent in respect of tax dues arising during CIRP period is in view of the settled position on precedent, that a judgment is a precedent for what it decides and not what logically flows therefrom. As discussed supra the question of applicability of “Clean Slate Theory” to tax dues arising during CIRP period never arose nor could have arisen inasmuch as none of the decisions of the Supreme Court wherein Clean Slate Theory was applied related to tax dues/debts that arose during CIRP period. The attempt by the petitioners to apply the above theory to dues arising during CIRP period cannot but be an attempt to logically extend the above law laid to circumstances not expressly governed by the decisions. In this regard it is relevant to refer to the following judgments: i) State of Orissa v. Sudhansu Sekhar Misra, reported in 1967 SCC OnLine SC 17 : “12. ……..A decision is only an authority for what it actually decides. What is of the essence in a decision is its ratio and not every observation found therein nor what logically follows from the various observations made in it . On this topic this is what Earl of Halsbury L.C. said in Quinn v. Leathem [[1901] AC 495] : “Now before discussing the case of Allen v. Flood, [1898] AC 1 and what was decided therein, there are two observations of a general character which I wish to make, and one is to repeat what I have very often said before, that every judgment must be read as applicable to the particular facts proved, or assumed to be proved, since the generality of the expressions which may be found there are not intended to be expositions of the whole law, but governed and qualified by the particular facts of the case in which such expressions are to be found. The other is that a case is only an authority for what it actually decides. I entirely deny that it can be quoted for a proposition that may seem to follow logically from it. Such a mode of reasoning assumes that the law is necessarily a logical code, whereas every lawyer must acknowledge that the law is not always logical at all.” (emphasis supplied) ii) Mehboob Dawood Shaikh v. State of Maharashtra, (2004) 2 SCC 362: “12. ....... A decision is available as a precedent only if it decides a question of law. A judgment should be understood in the light of facts of that case and no more should be read into it than what it actually says. It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court divorced from the context of the question under consideration and treat it to be complete law decided by this Court.” (emphasis supplied) iii) Khaja Industries v. State of Maharashtra, reported in 2007 SCC OnLine Bom 579 : “50. Firstly, as we have already noted, the point which falls for consideration did not fall for the consideration of the Supreme Court in this judgment. This was not denied by the petitioners. They however, submitted that their submissions are a logical consequence of the aforesaid observations. Apart from the fact that we do not agree with this contention, such an approach is not even permissible. It is well established that a judgment is a precedent for what it decides and not what may appear to logically flow from it.” (emphasis supplied) 12.12. The judgments relied upon by petitioners on Clean Slate related to dues that arose prior to CIRP the submission of the petitioners that it applies even in respect of dues that arise during CIRP is nothing more than an attempt by the petitioners to logically extend the principle of “Clean Slate” even in respect of dues arising during CIRP which is impermissible. c. A decision which passes sub-silentio - Not a precedent: 12.13. Yet another reason why I would think that the judgments of the Supreme Court on “Clean Slate”, may not be applicable is in view of the fact that the question with which we are confronted viz., whether Clean Slate would apply for tax dues arising during CIRP period is a point of law which had not presented itself to the Court. It is trite a decision passes sub silentio, in the technical sense that has come to be attached to that phrase, when the particular point of law involved in the decision is not perceived by the court or present to its mind. In this regard it may be relevant to refer to the following judgments: i) MCD v. Gurnam Kaur, reported in (1989) 1 SCC 101 – wherein concept of sub-silentio as explained in Salmond Jurisprudence was quoted with approval, the relevant portions of which is extracted hereunder : ''11. Pronouncements of law, which are not part of the ratio decidendi are classed as obiter dicta and are not authoritative. …. So far as the order shows, no argument was addressed to the court on the question whether or not any direction could properly be made compelling the Municipal Corporation to construct a stall at the pitching site of a pavement squatter. Professor P.J. Fitzgerald, editor of the Salmond on Jurisprudence, 12th Edn. explains the concept of sub silentio at p. 153 in these words: A decision passes sub silentio, in the technical sense that has come to be attached to that phrase, when the particular point of law involved in the decision is not perceived by the court or present to its mind. The court may consciously decide in favour of one party because of point A, which it considers and pronounces upon. It may be shown, however, that logically the court should not have decided in favour of the particular party unless it also decided point B in his favour; but point B was not argued or considered by the court. In such circumstances, although point B was logically involved in the facts and although the case had a specific outcome, the decision is not an authority on point B. Point B is said to pass sub silentio. 12. In Gerard v. Worth of Paris Ltd. (k). [(1936) 2 All ER 905 (CA)] , ....... Sir Wilfrid Greene, M.R., said that he could not help thinking that the point now raised had been deliberately passed sub silentio by counsel in order that the point of substance might be decided. He went on to say that the point had to be decided by the earlier court before it could make the order which it did; nevertheless, since it was decided “without argument, without reference to the crucial words of the rule, and without any citation of authority”, it was not binding and would not be followed. Precedents sub silentio and without argument are of no moment. This rule has ever since been followed. One of the chief reasons for the doctrine of precedent is that a matter that has once been fully argued and decided should not be allowed to be reopened. The weight accorded to dicta varies with the type of dictum. Mere casual expressions carry no weight at all. Not every passing expression of a judge, however eminent, can be treated as an ex cathedra statement, having the weight of authority.'' (emphasis supplied) 12.14. From the above discussion, I would think that inasmuch as in none of the judgments relied upon by the petitioners wherein “Clean Slate Theory” was applied the particular point of law involved in these matters viz., applicability of “Clean Slate” in respect of dues arising during CIRP was neither raised nor perceived by the court or present to its mind thus the decisions on Clean Slate relied upon by petitioners may not be precedent on the question as to whether “Clean Slate” would apply to dues arising during CIRP but thus passes sub silentio on the above question and is thus of no moment and may not carry on weight. 12.15. From the above discussion the decisions relied upon more particularly Essar Steels, ArunKumar Jagatramaka and Ghanyahsyam Mishra, cannot be treated as a precedent with regard to the question of applicability of “Clean Slate” with regard to dues arising during CIRP, any attempt to do so may not be justified for the following reasons: a. Above decisions of Supreme Court did not deal with dues arising during CIRP period but only with dues relating to pre- CIRP. b. Petitioners would urge on the basis of the decisions applying “Clean Slate” that it is only logical to extend the theory to dues arising during CIRP Period, however as seen supra such course is impermissible for it is trite that a decision is a precedent for what it actually decides and not what logically flows therefrom. c. Question whether “Clean Slate” would apply to dues arising during CIRP was never a point of law involved in the decision nor perceived by the court or present to its mind thus sub-silentio. 12.16. For all the above reasons it appears to me that there are no binding precedents of Supreme Court on the question as to whether “Clean Slate” would apply to dues arising during CIRP. It is thus open to this Court to examine the above question.
Analysis: 13.1. Broad Overview of IBC: 13.1.1. Before proceeding further it may be relevant to take a broad overview of the scheme of IBC: a. Under the scheme of IBC, a company or CD could be admitted to CIRP for default in respect of a “financial debt” or an “operational debt”. b. As provided under Section 6 of IBC, a financial creditor, an operational creditor or the CD itself can initiate CIRP on an application under Section 7, 9 or 10 of IBC. c. On receipt of such application the NCLT has to ascertain the existence of default within a statutory period of 14 days and upon satisfaction either admit or reject the application. Upon admission, a moratorium as provided under Section 14 of IBC kicks in, which inter alia prohibits initiation or continuation of any proceedings against CD, including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority. d. NCLT in terms of Section 16 of IBC appoints an “Interim Resolution Professional” (IRP), who shall, immediate to his appointment makes a Public Announcement and invite claims from interested creditors as per Sections 13 and 15 of IBC read with Regulation 6 of CIRP Regulations. e. Regulation 12 of CIRP Regulations provides that such claims may be filed with proof within the date mentioned in the Public Announcement or before 90 days from the insolvency commencement date. The claims so filed are ones that accrue upto the CIRP commencement date. f. The IRP is vested with the management of the CD, from the insolvency commencement date and is under a statutory mandate to make best endeavours to run the CD as a going concern and to perform all such duties as provided under Sections 17 to 20 of IBC. g. The IRP soon after the identification of creditors shall form the CoC in terms of Section 21 of IBC which inter alia consists of all the Financial Creditors of the CD, who shall being a Central decision making body vested with the “commercial wisdom” to determine either to revive the CD through Resolution Plan or go through the liquidation process and act as a fiduciary for all the stakeholders i.e., this process envisages suspending erring promoters/management putting the creditor in charge of the process. h. First meeting of CoC should be held within a statutory period of seven days, by majority not less than 66 per cent of voting share of Financial creditors decides either to replace the IRP by another Resolution Professional (RP) or to appoint the IRP as RP in terms of Section 22 of IBC. i. RP shall invite an expression of interest from eligible and interested prospective resolution applicants to submit Resolution Plans for the CD, who with due diligence and after considering the objections if any shall issue the final list of prospective resolution applicants in accordance with Regulation 36A of CIRP Regulations. j. RP shall within five days from the date of issue of final list of prospective resolution applicants, issue the Information Memorandum prepared in such form and manner as provided under Section 29 of IBC read with Regulation 36 of CIRP Regulation and request for submission of Resolution Plans within the period prescribed under Regulations 37 and 38 of CIRP Regulations. k. RP shall examine the Resolution Plans submitted by each prospective resolution applicant and on ensuring that the conditions under Section 30(2) of IBC are satisfied, present the same to CoC for its approval. CoC shall evaluate the Resolution Plans and through voting share of not less than 66 per cent of the financial creditor may approve the Resolution Plan in accordance with Section 31(4) of IBC read with Regulation 39 of CIRP Regulation or otherwise reject the Resolution Plan if it contravenes the provisions and regulations. l. RP shall on approval of Resolution Plan by the CoC submit it before the Adjudicating Authority viz., NCLT, if it was satisfied that the approved plan is in accordance with Section 30(2) of IBC, approve the Resolution Plan as provided under Section 31 of IBC. m. The entire proceedings of CIRP shall be completed within a statutory period of 180 days from the date of commencement of CIRP, should not exceed 330 days. 13.2. Internal Aids under IBC indicative of need to discharge Liability arising during CIRP Period: 13.2.1. Having taken a broad overview of IBC and having found power to levy and collect taxes is an attribute of sovereign and unfettered in the absence of an express prohibition, the same cannot be interdicted or prohibited by Courts through a process of interpretation, this Court finds that there are internal aids under IBC which are indicative that there is a need to discharge liability arising during CIRP period which militates against the plea of applicability of “Clean Slate” during CIRP. 13.2.2. I shall now refer to the provisions which would appear to suggest that during the CIRP period, liability to pay taxes would continue and does not cease. Thus submission by the learned counsel for the petitioners that during CIRP period, the need to discharge liabilities ceases and in any event once a Resolution Plan is approved, the same would be binding and the State would have to forego the tax dues that had arisen during CIRP period cannot be countenanced as would be clear from a reading of the following provisions under IBC: i) Section 14 of IBC: "14. Moratorium.—(1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:— (a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority; (b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein; (c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002); (d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor. Explanation.—For the purposes of this sub-section, it is hereby clarified that notwithstanding anything contained in any other law for the time being in force, a license, permit, registration, quota, concession, clearances or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license, permit, registration, quota, concession, clearances or a similar grant or right during the moratorium period; (2) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period. (2A) Where the interim resolution professional or resolution professional, as the case may be, considers the supply of goods or services critical to protect and preserve the value of the corporate debtor and manage the operations of such corporate debtor as a going concern, then the supply of such goods or services shall not be terminated, suspended or interrupted during the period of moratorium, except where such corporate debtor has not paid dues arising from such supply during the moratorium period or in such circumstances as may be specified;” ii) Section 17(2)(e) of IBC: “17. Management of affairs of corporate debtor by interim resolution professional.— ...... (2)The interim resolution professional vested with the management of the corporate debtor shall— ….. (e) be responsible for complying with the requirements under any law for the time being in force on behalf of the corporate debtor.” iii) Section 30(2)(e) of IBC: “30. Submission of resolution plan.— ….. (2) The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan— ….. (e) does not contravene any of the provisions of the law for the time being in force;” iv) Section 32A of IBC: “32A. Liability for prior offences, etc.—(1) Notwithstanding anything to the contrary contained in this Code or any other law for the time being in force, the liability of a corporate debtor for an offence committed prior to the commencement of the corporate insolvency resolution process shall cease, and the corporate debtor shall not be prosecuted for such an offence from the date the resolution plan has been approved by the Adjudicating Authority under section 31, if the resolution plan results in the change in the management or control of the corporate debtor to a person who was not— (a) a promoter or in the management or control of the corporate debtor or a related party of such a person; or (b) a person with regard to whom the relevant investigating authority has, on the basis of material in its possession, reason to believe that he had abetted or conspired for the commission of the offence, and has submitted or filed a report or a complaint to the relevant statutory authority or Court: Provided that if a prosecution had been instituted during the corporate insolvency resolution process against such corporate debtor, it shall stand discharged from the date of approval of the resolution plan subject to requirements of this sub-section having been fulfilled: ...... (2) No action shall be taken against the property of the corporate debtor in relation to an offence committed prior to the commencement of the corporate insolvency resolution process of the corporate debtor, where such property is covered under a resolution plan approved by the Adjudicating Authority under section 31, which results in the change in control of the corporate debtor to a person, or sale of liquidation assets under the provisions of Chapter III of Part II of this Code to a person, who was not— (i) a promoter or in the management or control of the corporate debtor or a related party of such a person; or (ii) a person with regard to whom the relevant investigating authority has, on the basis of material in its possession reason to believe that he had abetted or conspired for the commission of the offence, and has submitted or filed a report or a complaint to the relevant statutory authority or Court. Explanation.—For the purposes of this sub-section, it is hereby clarified that,— (i) an action against the property of the corporate debtor in relation to an offence shall include the attachment, seizure, retention or confiscation of such property under such law as may be applicable to the corporate debtor; (ii) nothing in this sub-section shall be construed to bar an action against the property of any person, other than the corporate debtor or a person who has acquired such property through corporate insolvency resolution process or liquidation process under this Code and fulfils the requirements specified in this section, against whom such an action may be taken under such law as may be applicable. (3) Subject to the provisions contained in sub-sections (1) and (2), and notwithstanding the immunity given in this section, the corporate debtor and any person who may be required to provide assistance under such law as may be applicable to such corporate debtor or person, shall extend all assistance and co-operation to any authority investigating an offence committed prior to the commencement of the corporate insolvency resolution process.” 13.2.3. From a cumulative reading of the above provisions it would appear that IBC contemplates compliance with the laws in force including payment of taxes during CIRP for the following reasons: 13.2.4. Firstly, Section 14 of IBC which provides for moratorium during CIRP vide its Explanation provides that license, permit, registration, quota, concession, clearance or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any authority constituted under any other law for the time being in force shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license or a similar grant or right during moratorium period. 13.2.5. While it is possible to suggest that the expression “Registration” used in the Explanation to Section 14 of IBC, would take colour from the company of the words it keeps such as license, permit, grant etc., which are more in the nature of grant. The notion of the need to construe the expression “Registration” employed in Explanation to Section 14 of IBC narrowly controlled by the other expressions used in the said Explanation, would be dispelled if the said Explanation is read along with Section 17(2)(e) of IBC. Section 17(2) (e) of IBC provides that the IRP, who is vested with the management of the CD, shall be responsible for complying with the requirements under any law for the time being in force, which on behalf of the CD. This is indicative of the fact that during CIRP, while the IRP/ RP is vested with the management of the affairs of the CD, he is under an obligation to ensure compliance with the requirements under any law for the time being in force, which inter alia includes obligation to discharge the statutory dues under GST and IT Act. Further under GST Act, a registration is mandated for any taxable person intending to carry on the business of supply of goods or services. Importantly GST Act also provides that if a registered taxable person fails to comply with payment of tax dues within the period prescribed under the GST Act and Rules, he may render himself liable for cancellation of his registration certificate. This is clearly indicative of the dichotomy in the treatment meted out between the dues relating to pre-CIRP and during CIRP. 13.2.6. Secondly, it may also be relevant to note under Section 14(2A) of IBC, while dealing with supply of goods or services, it provides that supply of goods or services shall not be terminated, suspended or interrupted during the period of moratorium, except where such CD has not paid dues arising from such supply during the moratorium period or in such circumstances as may be specified. This would show that even while dealing with private entrepreneurs, Parliament in its wisdom mandates that the CD during CIRP, ought to pay its dues and it is only on complying with the above conditions that it will have the protection of the supply not being terminated, suspended or interrupted. This is being referred to only for the limited purpose of indicating the differential treatment meted out by the Parliament in its wisdom in respect of the period pre-CIRP and during CIRP. More importantly, when the legislative design/intent appears to mandate payment even to private entities with regard to commercial dealings applying the same yardstick it appears to me that position of the need to discharge fiscal dues arising during CIRP cannot be of a lower status, if we only bear in mind the significance of tax under the Constitution. 13.2.7. Thirdly “Clean Slate Theory” has two aspects to it – one that applies to the civil liabilities which is governed by Section 31(1) of IBC and one that applies to criminal liability in relation to an offence committed by the CD governed by Section 32A of IBC. They both have the same intent of enabling the SRA to revive the CD without the baggage of the past liabilities. Section 32A of IBC provides for very specific language and points out with precision the time until which the clean slate theory would apply in relation to criminal liabilities; Section 32A of IBC reads thus “… the liability of a corporate debtor for an offence committed prior to the commencement of the corporate insolvency resolution process shall cease…”. 13.2.8. It would perplex any mind to consider that the statute which has expressly limited the applicability of the clean slate theory only till the date of commencement of CIRP in respect of criminal liability (which has far more serious implications) under Section 32A of IBC, could be assumed through a process of interpretation to expand the applicability of the clean slate theory even post the commencement of the CIRP process and until the approval of the Resolution Plan by the NCLT in respect of civil liability; such a view would introduce needless asymmetry in the scope of the clean slate theory and contrary to ensuring a consistent body of law. 13.2.9. Fourthly, it may also be relevant to note Section 30(2)(e) of IBC provides that the RP shall examine each Resolution Plan received by him to confirm that each Resolution Plan does not contravene any of the provisions of the law for the time being in force. The law for the time being in force would include fiscal legislations including GST and IT Act, any contravention would possibly be violative of the mandate contained in Section 30 of IBC as well. It may also be possible to suggest that contravention of any of the provisions of the law for the time being in force would also include the provisions of IBC, in particular, Section 14 and 17, which mandate compliance with the law during the CIRP period which as discussed supra mandates compliance with requirement of any law time being in force. 13.2.10. Fifthly, I would also think that the submission of the petitioners, that the tax dues arising during CIRP period cannot form part of the "Clean Slate Theory", is also in view of the fact that with the commencement of the resolution process, all claims must be lodged within a period of 90 days at the maximum, from the date of public announcement or within 14 days on public announcement. This would be clear from a reading of Regulation 12 and 13 of CIRP Regulations. Further, Regulation 13(1) of CIRP Regulations reads as under: "The interim resolution professional or the resolution professional, as the case may be, shall verify every claim, as on the insolvency commencement date, within seven days from the last date of the receipt of the claims, and thereupon maintain a list of creditors containing, along with their amount claimed by them, the amount of their claims admitted and the security interest, if any, in respect of such claims, and update it." 13.2.11. Therefore, no claims could be lodged beyond the said period. It thus appears that claims to be submitted with the RP/IRP in terms of Regulation 12 and 13 of CIRP was never envisaged to take within its fold the tax dues that arise during CIRP period. This would be consistent with the scheme of IBC, more particularly Section 14 and Section 30 of IBC which provides that during CIRP period, RP is required to discharge the entire tax dues that arise during CIRP period. As found supra, since the claims ought to be submitted within a period of 90 days from the initiation of the Corporate Insolvency Resolution Process (CIRP), it becomes well-nigh impossible to even lodge a claim in respect of the period subsequent thereto, whereas the Resolution Plans are framed much thereafter and approved much later. This may also fall foul of the doctrine of the Latin maxim Lex Non Cogit Ad Impossibilia. 13.2.12. This maxim and law itself and the administration of it must yield to that to which everything must bend, to necessity; the law, in its most positive and peremptory injunctions, is understood to disclaim, as it does in its general aphorisms, all intention of compelling to impossibilities. It is, then, a general rule which admits of ample practical illustration, that impotentia excusat legem10 ; where the law creates a duty or charge, and the party is disabled to perform it, without any default in him, and has no remedy over, there the law will in general excuse him11 . (i) Sushil Chokhaji Bambole v. State of Maharashtra, reported in 2024 SCC OnLine Bom 618 : “11. .......Moreover, in such an eventuality, the court has to consider and understand the scope of applicability of the doctrines of “Lex non-cogit ad impossibilia.” (the law does not compel a man to do what he cannot possibly perform); “impossibilium nulla obligatio est” (the law does not expect a party to do impossible). The declaration of the result of the examination was not within the powers or control of the petitioners. Hence they cannot possibly perform such act viz. declaration of result. The law does not expect the party to do the act beyond their control. Which shows that petitioners were unable to perform it. Thus, it reveals that the doctrine of impossibility applies in the case at hand.” ii) Binani Zinc Ltd. v. Kerala SEB, reported in (2009) 11 SCC 244: “35. It is also a well-settled principle of law that a statute does not envisage doing anything which is impossible to be done. Lex non cogit ad impossibilia gausa ommiss gausa ommiss is a well-known principle.....” 13.2.13. Finally Regulation 36 of the 2016 Regulations provide that the RP shall submit the information memorandum in electronic for to each member of the CoC on or before the 95th day from the insolvency commencement date. This provision has been subjected to amendments, for prior to 06.02.2018 the time was two weeks of the RP’s appointment, then till 16.09.2022 it was to be subjected within two weeks of his appointment but not later than the fifty fourth day from the insolvency commencement date, and after 04.07.2025, it is to be submitted before the ninety fifth day from the insolvency commencement date and also subsequent updates thereof. Therefore, prima facie, the resolution plan submitted by the resolution applicant is to be based on the information memorandum prepared by the RP which is immediately after the CIRP commencement and, therefore, may not include information and claims of the liability that arise or become due at the end of the CIRP period. 13.2.14. However, from the language of Section 30 read with Regulation 36, the Resolution Plan is only “on the basis” of the information memorandum; it does not dispense with the due diligence that is required of the resolution applicant to ensure that the CD is in compliance with the tax legislations; the doctrine of “caveat emptor” would equally apply to a resolution applicant. All resolution applicants are required to make their own due diligence and submit the Resolution Plan and cannot merely take shelter under the “clean slate theory” per se. 13.2.15. The rationale behind the clean slate theory as enunciated by the Supreme Court is that a SRA cannot be faced with “undecided” claims after the Resolution Plan submitted by it has been accepted as that would amount to “hydra heads popping up” which would throw into uncertainty the amounts payable by a prospective resolution applicant who would successfully take over the business of the CD. Therefore, the mischief that the clean slate theory intends to remedy is uncertainty and the hydra heads of undecided claims popping up; the resolution applicant cannot have its head buried in the sand like an ostrich with regard to non-payment/non-compliance of tax liability during CIRP period and thereafter, when the tax is eventually assessed as due, colour it as a hydra head and try to take cover under Clean Sklate Theory, which is meant to operate against surprise claims; that to which the resolution applicant has been wilfully blind cannot be termed later as a surprise. In this context, Section 29(2) of IBC, provides that the RP shall provide to the resolution applicant access to all the relevant information in physical and electronic form and the Explanation thereto defines the terms “relevant information” to mean the information required by the resolution applicant to make the Resolution Plan for the CD, which shall include the financial position of the CD, all information related to disputes by or against the CD, and any other matter pertaining to the CD as may be specified. Thus, the onus is on the resolution applicant to exercise his right of access under Section 29(2) of IBC, conduct its due diligence, and then formulate a Resolution Plan which addresses the tax liabilities during the course of CIRP. 13.2.16. That being the case, submission of the petitioner that the Resolution Plan would also include the tax dues during CIRP period, or the Clean Slate Theory would apply even in respect of tax dues during CIRP period, cannot be accepted.
Applying “Clean Slate Theory” – Would render IBC vulnerable to challenge as Unconstitutional – A construction to be avoided - Indirect Taxes : 14.1. In addition to the above reasons which would suggest that clean slate theory would not cover tax dues arising during CIRP, which would apply with equal force to direct and indirect taxes, yet another aspect which requires consideration in the context of GST is whether extending clean slate theory during CIRP period would result in unjust enrichment of CD/SRA, thus contrary to “Public Policy”, in terms of the judgment of the Supreme Court in Amrit Banaspati Co. Ltd. v. State of Punjab, reported in (1992) 2 SCC 411, wherein, it was held that if indirect taxes which after collection instead of being remitted to the State Treasury is being handed over to the benefit of an individual, it would be a fraud on the Constitution. In this regard it may be relevant to refer to the decision of the Supreme Court in Amrit Banaspati supra wherein while dealing with a promise of benefit/concession by way of refund of sales tax collected from customers with a view to encourage new industries it was held that agreement to refund tax realised by the State which is due under the Act and realised in accordance with law would be a fraud on the Constitution and breach of faith of the people, the relevant portion is extracted hereunder: “10. But promissory estoppel being an extension of principle of equity, the basic purpose of which is to promote justice founded on fairness and relieve a promisee of any injustice perpetrated due to promisor's going back on its promise, is incapable of being enforced in a court of law if the promise which furnishes the cause of action or the agreement, express or implied, giving rise to binding contract is statutorily prohibited or is against public policy. What then was the nature of refund which was promised by the government? Was such promise contrary to law and against public policy? Could it be enforced in a court of law? Taxation is a sovereign power exercised by the State to realise revenue to enable it to discharge its obligations. Power to do so is derived from entries in Lists I, II and III of the Seventh Schedule of the Constitution. Sales tax or purchase tax is levied in exercise of power derived from an Act passed by a State under Entry 54 of List II of VIIth Schedule. It is an indirect tax as even though it is collected by a dealer the law normally permits it to be passed on and the ultimate burden is borne by the consumer. But ‘the fact that the burden of a tax may have been passed on to the consumer does not alter the legal nature of the tax’ (Halsbury's Laws of England, Vol. 52, paragraph 20.04). Therefore even a legislature, much less a government, cannot enact a law or issue an order or agree to refund the tax realised by it from people in exercise of its sovereign powers, except when the levy or realisation is contrary to a law validily enacted . A promise or agreement to refund tax which is due under the Act and realised in accordance with law would be a fraud on the Constitution and breach of faith of the people . Taxes like sales tax are paid even by a poor man irrespective of his savings with a sense of participation in growth of national economy and development of the State. Its utilization by way of refund not to the payer but to a private person, a manufacturer, as an inducement to set up its unit in the State would be breach of trust of the people amounting to deception under law. 11. Exemption from tax to encourage industrialisation should not be confused with refund of tax. They are two different legal and distinct concepts. An exemption is a concession allowed to a class or individual from general burden for valid and justifiable reason. For instance tax holiday or concession to new or expanding industries is well known to be one of the methods to grant incentive to encourage industrialisation. Avowed objective is to enable the industry to stand up and compete in the market. Sales tax is an indirect tax which is ultimately passed on to the consumer. If an industry is exempt from tax the ultimate beneficiary is the consumer. The industry is allowed to overcome its teething period by selling its products at comparatively cheaper rate as compared to others. Therefore, both the manufacturer and consumer gain, one by concession of non-levy and other by non-payment. Such provisions in an Act or Notification or orders issued by Government are neither illegal nor against public policy. 12. But refund of tax is made in consequence of excess payment of it or its realisation illegally or contrary to the provisions of law. A provision or agreement to refund tax due or realised in accordance with law cannot be comprehended. No law can be made to refund tax to a manufacturer realised under a statute. It would be invalid and ultra vires. The Punjab Sales Tax Act provided for refund of sales tax and grant of exemption in circumstances specified in Sections 12 and 30 respectively. Neither empowered the Government to refund sales tax realised by a manufacturer on sales of its finished product. Refund could be allowed if tax paid was in excess of amount due. An agreement or even a notification or order permitting refund of sales tax which was due shall be contrary to the statute. To illustrate it the appellant claimed refund of sales tax paid by it to the State Government on sale made by it of its finished products. But the tax paid is not an amount spent by the appellant but realised on sale by it. What is deposited under this head is tax which is otherwise due under the provisions of the Act. Return or refund of it or its equivalent, irrespective of form is repayment or refund of sales tax. This would be contrary to Constitution. Any agreement for such refund being contrary to public policy was void under Section 23 of the Contract Act. The constitutional requirements of levy of tax being for the welfare of the society and not for a specific individual the agreement or promise made by the government was in contravention of public purpose thus violative of public policy. No legal relationship could have arisen by operation of promissory estoppel as it was contrary both to the Constitution and the law. Realisation of tax through State mechanism for the sake of paying it to a private person directly or indirectly is impermissible under constitutional scheme. The law does not permit it nor equity can countenance it. The scheme of refund of sales tax was thus incapable of being enforced in a court of law. 13. Fallacy of such constitutionally inhibited policy, sacrificing public interest resulting in illegal private enrichment is exposed by claim of refund for nearly Rs 2 crores, for a period of three years, only, when total investment in establishing the unit was Rs 1.5 crores. Levy of tax to raise revenue for promoting economic growth of the State reduced itself in (sic to) enhancing the profit margin of the manufacturer and the sales tax stood converted into income of the appellant. Such contrivance of law even though bona fide is legally unenforceable.'' (emphasis supplied) ii) State of Bihar v. Kalyanpur Cement Ltd., reported (2010) 3 SCC 274 : “34. The doctrine of promissory estoppel as developed in the administrative law of this country has been eloquently explained in Kasinka Trading v. Union of India [(1995) 1 SCC 274] by Dr. A.S. Anand, J., in the following words: (SCC pp. 283-84, paras 11-12) “11. The doctrine of promissory estoppel or equitable estoppel is well established in the administrative law of the country. To put it simply, the doctrine represents a principle evolved by equity to avoid injustice. The basis of the doctrine is that where any party has by his word or conduct made to the other party an unequivocal promise or representation by word or conduct, which is intended to create legal relations or effect a legal relationship to arise in the future, knowing as well as intending that the representation, assurance or the promise would be acted upon by the other party to whom it has been made and has in fact been so acted upon by the other party, the promise, assurance or representation should be binding on the party making it and that party should not be permitted to go back upon it, if it would be inequitable to allow him to do so, having regard to the dealings, which have taken place or are intended to take place between the parties. 12. It has been settled by this Court that the doctrine of promissory estoppel is applicable against the Government also particularly where it is necessary to prevent fraud or manifest injustice. The doctrine, however, cannot be pressed into aid to compel the Government or the public authority ‘to carry out a representation or promise which is contrary to law or which was outside the authority or power of the officer of the Government or of the public authority to make’. There is preponderance of judicial opinion that to invoke the doctrine of promissory estoppel clear, sound and positive foundation must be laid in the petition itself by the party invoking the doctrine and that bald expressions, without any supporting material, to the effect that the doctrine is attracted because the party invoking the doctrine has altered its position relying on the assurance of the Government would not be sufficient to press into aid the doctrine. In our opinion, the doctrine of promissory estoppel cannot be invoked in the abstract and the courts are bound to consider all aspects including the results sought to be achieved and the public good at large, because while considering the applicability of the doctrine, the courts have to do equity and the fundamental principles of equity must forever be present to the mind of the court, while considering the applicability of the doctrine. The doctrine must yield when the equity so demands if it can be shown having regard to the facts and circumstances of the case that it would be inequitable to hold the Government or the public authority to its promise, assurance or representation.” (emphasis supplied) 14.2. It may be relevant to note that Amrit Banaspati supra has since been followed in a series of judgments12 and has been approved by the Constitution Bench judgment in the case of Jindal Stainless Ltd. vs. State of Haryana reported in (2017) 12 SCC 1. 14.3. Now in the instant case, particularly in the context of GST which is an indirect tax, it appears if “Clean Slate Theory”, is to be applied rather extended to tax dues arising during CIRP period, there may be cases were taxes have been collected, from the recipient or otherwise, but not remitted to the government instead retained by the supplier i.e., CD a private entity for its own benefit is impermissible and may well render the legislative scheme vulnerable to challenge on the ground of falling foul of public policy as explained by the Supreme Court in Amrit Banaspati supra thus arbitrary thereby offending Article 14 of the Constitution. 14.4. Secondly, with regard to input tax credit construction placed by petitioners may offend Article 14 of the Constitution on the ground of being arbitrary for the following reasons: a) It may result in extending credit to CD without any enquiry as to CD’s entitlement under GST Act, which may well result in CD’s being extended credit which they are not statutorily entitled in view of limitation/restriction under Section 16, 17 or 18 of GST Act. b) There may be cases were ITC is claimed on the basis of bogus suppliers or fictitious transactions even such ITC credit may have to be extended without being examined. c) The “CD” may pay taxes on receipt of supplies and claim ITC of taxes so paid while not discharging its output tax liability this could produce unintended results. 14.5. Thirdly, it is possible that such construction may also render the provision vulnerable to challenge as being violative of Article 14 of Constitution in view of the fact that while Company 'A' which complies with the mandate contained in Section 14, 17 and 31 of IBC and other fiscal laws would be treated on par with an entity/CD, which does not comply with the law while committing a breach or default. This parity in treatment of two unequals would possibly attract the wrath of Article 14 of the Constitution of India. 14.6. Having considered the submissions made on either side and Amicus Curiae, this court is of the view that it is not desirable rather cannot extend Clean Slate Doctrine in respect of dues arising during the period of CIRP, else it may attract the wrath of Article 14 of Constitution.
State GST – Repugnancy with IBC – Implications under Constitution : 15.1. In addition to the reasons set out supra to state that clean slate theory would not apply to tax dues arising during CIRP, with regard to dues under State GST Act extending clean slate in respect of dues during CIRP also appears to be impermissible if one bears in mind the scheme of the 101st Constitutional Amendment. 15.2. It appears that extending the doctrine of Clean Slate even in respect of dues arising under State GST, during CIRP period would result in imposing limitation/restriction rather an embargo on the power of the State’s legislative power conferred under Article 246A of the Constitution to collect taxes under GST Act enacted by a competent State legislature. Importantly, extending the clean slate theory to dues arising under SGST would result in imposing restriction on the States power to collect SGST, one which is sought to be introduced in the context of the resolution process under IBC not through an express provision in the Constitution or even a statutory provision under IBC, but through a process of interpretation which itself is premised on the reason rather supposition that the object of IBC which inter alia includes consolidating the law relating to reorganisation and insolvency resolution of corporate person, in a time bound manner for maximisation of value of assets of such persons, to promote entrepreneurship availability of credit and balance of interest of all stake holders including alteration of order of priority of payment government dues, may be frustrated. 15.3. Objective of IBC vis-a-vis tax dues arising during CIRP: 15.3.1. To resolve the controversy it may be relevant, rather necessary, to understand the object of IBC vis-à-vis Nature, Claim, and Status of tax dues. This Court finds that what is pitted against each other is the right of the State (including Centre) to recover taxes vis-a-vis the object of IBC being frustrated. The above reasoning itself is through a process of interpretation, which itself is premised as stated supra on the supposition that the object of IBC could be better achieved by extending the Clean Slate Doctrine to statutory dues arising during CIRP period. 15.3.2. It is thus necessary to understand the Statement of Objects and Reasons of IBC: “Statement of Objects and Reasons of IBC: There is no single law in India that deals with insolvency and bankruptcy. Provisions relating to insolvency and bankruptcy for companies can be found in the Sick Industrial Companies (Special Provisions) Act, 1985, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the Companies Act, 2013. These statutes provide for creation of multiple fora such as Board of Industrial and Financial Reconstruction (BIFR), Debts Recovery Tribunal (DRT) and National Company Law Tribunal (NCLT) and their respective Appellate Tribunals. Liquidation of companies is handled by the High Courts. Individual bankruptcy and insolvency is dealt with under the Presidency Towns Insolvency Act, 1909, and the Provincial Insolvency Act, 1920 and is dealt with by the courts. The existing framework for insolvency and bankruptcy is inadequate, ineffective and results in undue delays in resolution, therefore, the proposed legislation. 2.The objective of the Insolvency and Bankruptcy Code, 2015 is to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner for maximisation of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the priority of payment of government dues and to establish an Insolvency and Bankruptcy Fund, and matters connected therewith or incidental thereto. An effective legal framework for timely resolution of insolvency and bankruptcy would support development of credit markets and encourage entrepreneurship. It would also improve Ease of Doing Business, and facilitate more investments leading to higher economic growth and development.……” “Preamble of the Code: “An Act to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner for maximisation of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of government dues and to establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto.” 15.3.3. Now before proceeding to examine the object behind IBC it may be relevant to understand the law on Insolvency which prevailed prior to introduction of IBC, its deficiencies and inadequacies, some of the key drawbacks were: (i) The absence of a single legislation governing insolvency and bankruptcy; (ii) A multiplicity of laws governing insolvency and bankruptcy of corporate entities; (iii) The existence of multiple fora established to deal with the enforcement of diverse legislative provisions; and (iv) The complexity caused by a maze of statutes resulting in inadequate, ineffective and delayed resolutions, occasioned by the (then) existing framework. 15.3.4. These inadequacies were noticed in the Statement of Objects and Reasons accompanying the introduction of the Bill. IBC reflects a fundamental change from the erstwhile legal regime. A timely resolution of corporate insolvency was conceived as an instrument to support the development of credit markets, encourage entrepreneurship, enhance the ease of doing business and provide an environment conducive to investment, setting the economy on the path to growth and development. In resolving some of the complex issues which arise under the new legal regime envisaged under the IBC, it then becomes necessary to vacuum the cobwebs of the past. Interpreting the IBC in a manner which would facilitate the salutary objects which it is intended to achieve requires all stakeholders to shed concepts and notions associated with the earlier legal regime, which was largely a debtor's paradise. The earlier regime was one in which the debtor would largely remain in possession of the company and its assets and individual creditors were left to paddle their own canoe in headwinds controlled by those in debt and default. 15.3.5. Pithly put IBC is an economic legislation and its key objectives are to ensure: (a) good corporate governance; (b) control deviant behaviour; (c) protect the integrity of the resolution process; (d) enhance commercial morality; and (e) foster respect for the rule of law. 15.3.6. IBC is premised on the principle that there is a significant element of public interest in facilitating a creditor-centric regime for achieving economic growth. Ensuring that Resolution Plans are submitted by credible persons is intrinsic to the scheme of IBC. Speed is of the essence. IBC has sought to convert a legal regime which was a debtor's paradise into a regime governed by corporate justness. The regime under IBC is dynamic, which is reflected by eight amendments which took place between November 2017 and September 2020. 15.3.7. IBC is a law which consolidated and amended existing legislation relating to reorganisation and insolvency resolution of corporate persons, partnerships and individuals. The long title to the legislation indicates the specific objects, which it is intended to facilitate. These objects include: (i) A time-bound process of reorganisation and insolvency resolution; (ii) Maximisation of the value of assets; (iii) Promoting entrepreneurship; (iv) Facilitating the availability of credit; and (v) Balancing the interests of all stakeholders.13 15.3.8. Objects and Reasons Preamble to IBC - How Far Binding: 15.3.9. A great deal of emphasis has been laid on the preamble and the statement of objects and reasons of IBC to submit that it must give way even to claim by statutory authorities including taxes. It is trite that statement of objects and reasons or a preamble cannot control or whittle down or expand the scope of express language. The following judgments are relevant and to avoid multiplying case laws, reference is confined to the following cases: i) Om Prakash Agarwal v. Vishan Dayal Rajpoot, reported in (2019) 14 SCC 526: “52. In Subhash Ramkumar Bind v. State of Maharashtra [Subhash Ramkumar Bind v. State of Maharashtra, (2003) 1 SCC 506 : 2003 SCC (Cri) 362] , this Court again laid down that the Statement of Objects and Reasons can be looked into for limited purpose of ascertaining condition prevailing at the time which prompted or actuated the proposal of bill to introduce the same and the extent of existing evil of the society. Further, in Bhaiji v. SDO [Bhaiji v. SDO, (2003) 1 SCC 692] , this Court again reiterated the following principles of statutory interpretation in para 11: “11. Reference to the Statement of Objects and Reasons is permissible for understanding the background, the antecedent state of affairs, the surrounding circumstances in relation to the statute, and the evil which the statute sought to remedy. The weight of judicial authority leans in favour of the view that the Statement of Objects and Reasons cannot be utilised for the purpose of restricting and controlling the plain meaning of the language employed by the legislature in drafting a statute and excluding from its operation such transactions which it plainly covers. (See Principles of Statutory Interpretation by Justice G.P. Singh, 8th Edn., 2001, pp. 206-09.)” 52. The Statement of Objects of the U.P. Civil Laws (Amendment) Act, 2015 thus explains the reason for bringing the amendment for increasing the pecuniary jurisdiction but the word “institution” used in the Statement of Objects shall not control the expressed language of Section 15.” (emphasis supplied) ii) Bhaiji v. SDO, reported in (2003) 1 SCC 692: “11. Reference to the Statement of Objects and Reasons is permissible for understanding the background, the antecedent state of affairs, the surrounding circumstances in relation to the statute, and the evil which the statute sought to remedy. The weight of judicial authority leans in favour of the view that the Statement of Objects and Reasons cannot be utilized for the purpose of restricting and controlling the plain meaning of the language employed by the legislature in drafting a statute and excluding from its operation such transactions which it plainly covers. (See Principles of Statutory Interpretation by Justice G.P. Singh, 8th Edn., 2001, pp. 206-09.)” 15.3.10. If we keep the above law on statement of objects and the preamble, it would leave no room for any doubt that in the absence of an express provision and the language is clear, it may not be permissible for this Court to expand the language on the basis of a supposed promotion of object. Afortiorari inasmuch as the attempt to expand the scope of clean slate theory to dues arising during CIRP would result in imposing restrictions if not embargo on the power of the State to collect taxes – a power traceable to Article 246A of Constitution. 15.4. Nature, Status and Character of Taxes : 15.4.1. Having examined the object of IBC as explained by the Supreme Court, it may now be necessary to examine the nature, status and character of taxes under the Constitution, for it assumes significance inasmuch as the Object of IBC is pitted against the interest of the State/Centre to collect/recover taxes legitimately due. In this regard it may be relevant to refer to the Constitutional Bench decision in Jindal Stainless Ltd. vs. State of Haryana, supra, wherein it was inter alia held that power to tax is an attribute of sovereignty and legislative in character. Power to tax is essential to the very existence of the government. Any restriction on power to tax must be expressly provided under the Constitution. The following extracts from the following decisions of the Supreme Court is relevant: a. Jindal Stainless Ltd. v. State of Haryana, reported in (2017) 12 SCC 1: “Power to tax : An attribute of sovereignty 17. Power to levy taxes has been universally acknowledged as an essential attribute of sovereignty. Cooley in his book on Taxation, Vol. 1 (4th Edn.) in Chapter 2 recognises the power of taxation to be inherent in a sovereign State. The power, says the author, is inherent in the people and is meant to recover a contribution of money or other property in accordance with some reasonable rule or apportionment for the purpose of defraying public expenses. The following passage from the book is apposite: “57. Power to tax as an inherent attribute of sovereignty.—The power of taxation is an essential and inherent attribute of sovereignty, belonging as a matter of right to every independent Government. It is possessed by the Government without being expressly conferred by the people. The power is inherent in the people because the sustenance of the Government requires contributions from them. In fact the power of taxation may be defined as “the power inherent in the sovereign State to recover a contribution of money or other property, in accordance with some reasonable rule or apportionment, from the property or occupations within its jurisdiction for the purpose of defraying the public expenses”. Constitutional provisions relating to the power of taxation do not operate as grants of the power of taxation to the Government but instead merely constitute limitations upon a power which would otherwise be practically without limit. This inherent power to tax extends to everything over which the sovereign power extends, but not to anything beyond its sovereign power. .....” 15.4.2. The Constitutional Bench then proceeded to examine the limitation on the sovereign power to tax and observed as under: “Limitations on the exercise of power 24. Exercise of sovereign power is, however, subject to constitutional limitations especially in a federal system like ours where the States also to the extent permissible exercise the power to make laws including laws that levy taxes, duties and fees. That the power to levy taxes is subject to constitutional limitations is no longer res integra. A Constitution Bench of this Court has in Synthetics and Chemicals Ltd . v . State of U.P . [Synthetics and Chemicals Ltd. v . State of U.P. , (1990) 1 SCC 109] recognised that in India the Centre and the States both enjoy the exercise of sovereign power to the extent the Constitution confers upon them that power. ….. Constitutional Limitations must be Express 28. The power to levy taxes, being a sovereign power controlled only by the Constitution, any limitation on that power must be express. That proposition is well settled by the decisions of this Court in Umeg Singh v . State of Bombay [Umeg Singh v . State of Bombay, AIR 1955 SC 540 : (1955) 2 SCR 164] and Firm Bansidhar Premsukhdas v. State of Rajasthan [Firm Bansidhar Premsukhdas v. State of Rajasthan, AIR 1967 SC 40 : 1966 Supp SCR 81] . In Umeg Singh case [Umeg Singh v. State of Bombay, AIR 1955 SC 540 : (1955) 2 SCR 164] this Court stated the legal position in the following words : (AIR pp. 546-47, paras 12 & 13) “12. … The legislative competence of the State Legislature can only be circumscribed by express prohibition contained in the Constitution itself and unless and until there is any provision in the Constitution expressly prohibiting legislation on the subject either absolutely or conditionally, there is no fetter or limitation on the plenary powers which the State Legislature enjoys to legislate on the topics enumerated in the Lists II and III of the Seventh Schedule to the Constitution. … 13. The fetter or limitation upon the legislative power of the State Legislature which had plenary powers of legislation within the ambit of the legislative heads specified in the Lists II and III of the Seventh Schedule to the Constitution could only be imposed by the Constitution itself and not by any obligation which had been undertaken by either the Dominion Government or the Province of Bombay or even the State of Bombay . ….. But unless and until the court came to the conclusion that the Constitution itself had expressly prohibited legislation on the subject either absolutely or conditionally the power of the State Legislature to enact legislation within its legislative competence was plenary. Once the topic of legislation was comprised within any of the entries in the Lists II and III of the Seventh Schedule to the Constitution the fetter or limitation on such legislative power had to be found within the Constitution itself and if there was no such fetter or limitation to be found there the State Legislature had full competence to enact the impugned Act no matter whether such enactment was contrary to the guarantee given, or the obligation undertaken by the Dominion Government or the Province of Bombay or even the State of Bombay.” (emphasis supplied) 15.4.3. The above view on significance of tax and unfettered power of the State except express limitations under the Constitution has been explained and reiterated by the Apex Court on numerous occasions I am not referring to other decisions to avoid multiplying case laws on an issue which is trite. 15.4.4. From the above judgment, it appears that any restriction or limitation on the State’s power to collect taxes during CIRP period ought to be through express constitutional provisions and cannot be imposed through a process of interpretation by courts. It is certainly open to the State in the context of State GST and the Centre in the context of Central GST and Income Tax to impose restrictions, in other words there can be restrictions that are self imposed by the competent legislative body through express provisions but not by courts through a process of interpretation. 15.5. 101st Constitutional Amendment – Its impact: 15.5.1. While on States legislative competence and power to levy and recover GST during CIRP, it may be necessary to examine the 101st Constitutional amendment and its scope, ambit and impact on IBC before proceeding further. a. Constitutional position as it prevailed at the time of introduction of IBC: 15.5.2. IBC is a legislation made by Parliament in exercise of its power under Article 246(2) read with Entry 9 of List III of the Seventh Schedule of the Constitution falling within the concurrent list, as it existed at the time of enactment of IBC and when it was brought into force viz., on 28.5.2016. The power of the State to levy tax prior to 101st Constitutional Amendment flowed from Article 246 read with taxing Entries under List II of the Seventh Schedule of the Constitution as it existed at the time of introduction of IBC. The relevant provision of the Constitution as it then existed reads as under: “Art.246 of the Constitution- 246. Subject matter of laws made by Parliament and by the Legislatures of States (1) Notwithstanding anything in clauses (2) and (3), Parliament has exclusive power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule (in this Constitution referred to as the Union List) (2) Notwithstanding anything in clause (3), Parliament and, subject to clause (1), the Legislature of any State also, have power to make laws with respect to any of the matters enumerated in List III in the Seventh Schedule (in this Constitution referred to as the “Concurrent List”) (3)Subject to clauses (1) and (2), the Legislature of any State has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in List II in the Seventh Schedule (in the Constitution, referred to as the “State List”). (4) Parliament has power to make laws with respect to any matter for any part of the territory of India not included (in a State) notwithstanding that such matter is a matter enumerated in the State List.” 15.5.3. The position as to the legislative competence of the State/Parliament to tax under the Constitution as it existed at the time of introduction of IBC, was such that the powers to tax was clearly demarcated and there was no overlapping between the States and the Union’s power to tax. Importantly, the Concurrent list did not provide the power to tax, which is unique and clearly reflects that the power to tax was mutually exclusive i.e., either it vested with the State or the Union. In this regard, it may be relevant to refer to the Constitutional bench decision in Jindal Stainless Ltd supra wherein after referring to a line of decision held that the constitution provides for demarcation of taxing powers and there is no overlapping of taxing powers between the Union and State. The following extract from the said decision is relevant in this regard: “194. …………..Our Constitution has demarcated the taxing powers between the Centre and States. Taxing power of the Union as well as the States residesin Article 245 read with Article 246 of the Indian Constitution. Article 246 of the Constitution, lays down that Parliament has exclusive power to make laws with respect to any matter enumerated in Union List (List I of Schedule VII). The States have complete power to make laws with respect to any matter enumerated in the State List (List II of Schedule VII) and both Parliament and State Legislature have power to make laws with respect to any matter enumerated in the Concurrent List (List III of Schedule VII). As per Article 265, no taxes shall be levied or collected except by the authority of law. It is important to note that taxation entries are to be found only in Lists I and II, indicating that in our constitutional scheme, taxation powers of the Centre and the States are mutually exclusive. There are no entries in the Concurrent List which give power of taxation. This being the case, the moment the levy contained in a taxing statute transgresses into a prohibited field, it is liable to be struck down.” (emphasis supplied) 15.5.4. It may also be relevant to note that the Constitution as it existed at the time of introduction of IBC, provided for priority/predominance of the Union over the State legislature by virtue of the non-obstante clause contained in clause (1) to Article 246 (1) of the Constitution. In other words, any parliamentary legislation traceable either to List I or III prevailed over a State Legislation falling under List II in the event of a conflict by virtue of such non- obstante clause. In this regard, it may be relevant to refer to the decision of the Supreme Court in the case of Central Bank of India v. State of Kerala and Others, reported in (2009) 4 SCC 94, wherein after relying upon decided cases, the position was reiterated as under: “30. ..... 2....If there is a repugnancy due to overlapping found between List II on the one hand and List I and List III on the other, the State law will be ultra vires and shall have to give way to the Union law.” 6. ..... While reading the three lists, List I has priority over Lists II and II and List III has priority over List II. However, still, the predominance of the Union List would not prevent the State Legislature from dealing with any matter within List II though it may incidentally affect any item in List I.” b. Position post 101st Constitutional Amendment:- 15.5.5. States’ Power under Art.246A - Its Impact: The Supreme Court in Union of India v. Mohit Minerals (P) Ltd., reported in (2022) 10 SCC 700, while dealing with the binding nature of GST Council recommendations on the State had dealt with the scope of Article 246 A of the Constitution and explained as under: Power under Article 246-A can be exercised simultaneously by the State Legislature and Parliament and none hold any “unilateral or exclusive” legislative power [Id, para 22.] . Article 246-A provides Parliament and the State Legislature with the concurrent power to legislate on GST. Article 246-A has a non- obstante provision which overrides Article 254. Article 246-A does not provide a repugnancy clause. ....... If the GST Council was intended to be a decision-making authority whose recommendations transform to legislation, such a qualification would have been included in Articles 246-A or 279-A. Neither does Article 279-A begin with a non-obstante clause nor does Article 246-A provide that the legislative power is “subject to” Article 279-A. ..... 61. If the GST Council were intended to be a constitutional body whose recommendations transform into legislation without any intervening act, there would have been an express provision in Article 246-A. 15.5.6. Article 246A of the 101st Constitutional Amendment, introduced with effect from 16.9.2016, marks a paradigm shift in the distribution of taxing powers between the Union and States in respect of indirect taxes. Mutually exclusive powers held by the States and the Centre on matters of taxation was regarded as an important feature of India's federal polity. The Constitution Amendment Act, 2016 alters the legislative distribution between the Centre and the State on indirect taxation by providing Parliament and State Legislatures with “simultaneous powers” and no provision for repugnancy. Therefore, according to Article 246-A, both Parliament and the State Legislature possess equal power to legislate on aspects of GST. 15.5.7. Article 246-A of Constitution vests Parliament and the State Legislatures with a unique, simultaneous law-making power on GST. The constitutional design of the Constitution Amendment Act, 2016 is sui generis since it introduces unique features of federalism. Article 246-A of Constitution treats the Centre and States as equal units by conferring a simultaneous power of enacting law on GST14 . 15.5.8. The Indian Constitution has sometimes been described as quasi- federal or a Constitution with a “centralising drift”. This is because when the Constitution is read as a whole, the Union is granted a larger share of the power. Instances of this centralising drift can be traced to Articles 254, 248 and 353 of Constitution. However, there are instances such as Article 246-A of Constitution, where the Centre and the States are conferred equal power. Article 246-A of the Constitution reads as under:- “246A – Special provision with respect to goods and services tax – (1) Notwithstanding anything contained in articles 246 and 254, Parliament, and subject to clause (2), the Legislature of every State have power to make laws with respect to goods and services tax imposed by the Union or by such State. . (2)Parliament has exclusive power to make laws with respect to goods and services tax where the supply of goods, or of services, or both takes place in the course of inter-state trade or commerce. Explanation.- The provisions of this article, shall, in respect of goods and services tax referred to in clause (5) of article 279A, take effect from the date recommended by the Goods and Services Tax Council)” 15.5.9. Importantly, with the introduction of Article 246A to the Constitution, as stated supra apart from putting an end to the theory of mutual exclusivity of taxing powers between the Union and States, the theory/principle of predominance of Union over the State list, may no longer survive in view of the non-obstante clause contained in Article 246-A of Constitution. The non- obstante clause in Article 246A with express reference to Article 246 is significant, if we bear in mind that a clause beginning with “notwithstanding anything” is appended with a view to give the enacting part in case of conflict an overriding effect over the provision mentioned in the non obstante clause.15 A non obstante clause may be used as a legislative device, to give supremacy and grant an overriding effect.16 15.5.10. The non-obstante clause in Article 246A of the Constitution is intended to confer primacy to the power of the State conferred to make laws . with respect to goods and service tax therein and override power of Parliament to make laws under Article 246 and 254 of the Constitution, while making it subject only to clause (2) of Art. 246A. Here it may be relevant to note that Supreme Court in Govt. of A.P. v. J.B. Educational Society, reported in (2005) 3 SCC 212., explained the scope and purpose of the non-obstante clause employed in Article 246 of the Constitution and held as under: “9. Parliament has exclusive power to legislate with respect to any of the matters enumerated in List I, notwithstanding anything contained in clauses (2) and (3) of Article 246. The non obstante clause under Article 246(1) indicates the predominance or supremacy of the law made by the Union Legislature in the event of an overlap of the law made by Parliament with respect to a matter enumerated in List I and a law made by the State Legislature with respect to a matter enumerated in List II of the Seventh Schedule. 10. There is no doubt that both Parliament and the State Legislature are supreme in their respective assigned fields. It is the duty of the court to interpret the legislations made by Parliament and the State Legislature in such a manner as to avoid any conflict. However, if the conflict is unavoidable, and the two enactments are irreconcilable, then by the force of the non obstante clause in clause (1) of Article 246, the parliamentary legislation would prevail notwithstanding the exclusive power of the State Legislature to make a law with respect to a matter enumerated in the State List. 11. With respect to matters enumerated in List III (Concurrent List), both Parliament and the State Legislature have equal competence to legislate. Here again, the courts are charged with the duty of interpreting the enactments of Parliament and the State Legislature in such manner as to avoid a conflict. If the conflict becomes unavoidable, then Article 245 indicates the manner of resolution of such a conflict. 12. Thus, the question of repugnancy between the parliamentary legislation and the State legislation can arise in two ways. First, where the legislations, though enacted with respect to matters in their allotted sphere, overlap and conflict. Second, where the two legislations are with respect to matters in the Concurrent List and there is a conflict. In both the situations, parliamentary legislation will predominate, in the first, by virtue of the non obstante clause in Article 246(1), in the second, by reason of Article 254(1). Clause (2) of Article 254 deals with a situation where the State legislation having been reserved and having obtained President's assent, prevails in that State; this again is subject to the proviso that Parliament can again bring a legislation to override even such State legislation.” (emphasis supplied) 15.5.11. The non-obstante clause employed in Article 246 of the Constitution was held to give predominance or supremacy of the law made by the Union Legislature in the event of an overlap of the law made by Parliament with respect to a matter enumerated in List I and a law made by the State Legislature with respect to a matter enumerated in List II of the Seventh Schedule. The above view as to the scope of non-obstante clause has been reiterated by the Supreme Court following J.B.Educational Society supra on more than one occasion17 . 15.5.12. Parliament vide 101st amendment to the Constitution, has employed the same legislative device i.e., use of non-obstante clause in Article 246A of the Constitution, while conferring on the State legislature power to levy tax on goods and service with reference to Article 246 and 254 of the Constitution. From the above discussion, it would appear that a non-obstante clause is a legislative device as employed in Article 246 A of the Constitution and is intended to give predominance or supremacy to a legislative body for the purposes of the present discussion the State legislature in case of conflict with any legislative instrument/exercise traceable to Article 246 by the Union/ Parliament. 15.5.13. IBC being a legislation enacted by Parliament in exercise of its power under Article 246(2) read with Entry 9 of List III of Seventh Schedule of the Constitution, as it then existed, ought to be read in a manner compliant with Article 246 A of the Constitution and with the introduction of 101st Constitutional amendment if one bears in mind the significance of non obstante clause employed in Article 246A of Constitution in the light of the above discussion. 15.5.14. I say so, for it is trite that where the meaning of a word had been judicially ascertained by a Court and while re-enacting the law on the subject, uses the same word, it must be taken to have been aware of the meaning so judicially ascertained earlier and not to have used the word with a different content. This is a well recognised guide to construction. When words acquire a particular meaning or sense because of their authoritative construction by superior courts, they are presumed to have been used in the same sense when used subsequently in the same or similar context. This is yet another reasons why it appears that Parliament must be understood to have employed the non- obstante clause in Article 246A of the Constitution vide 101st Constitutional Amendment with a view to give primacy/supremacy to the State in respect of laws made in exercise powers conferred under Article 246A of the Constitution over laws made under Article 246 and 254 of the Constitution including that made by Parliament. In this regard it may be relevant to refer to the decision of the Supreme Court in the case of Keshavji Ravji & Co. v. CIT, reported in (1990) 2 SCC 231, wherein it was held as under: “15. ...... This is, no doubt, a well recognised guide to construction. When words acquire a particular meaning or sense because of their authoritative construction by superior courts, they are presumed to have been used in the same sense when used in a subsequent legislation in the same or similar context. This principle was stated by the Judicial Committee in H.H. Ruckmaboye v. Lulloobhoy Mottichund [5 Moo IA 234, 250: 8 Moo PC 4] thus: “....it is, therefore, of considerable importance to ascertain what has been deemed to be the legal import and meaning of them, because, if it shall appear that they have long been used, in a sense which may not improperly be called technical, and have been judicially construed to have a certain meaning, and have been adopted by the legislature in that sense, long prior to the statute, 21 James I., c. 16, the rule of construction of statutes will require, that the words in the statute should be construed according to the sense in which they had been so previously used, although that sense may vary from the strict literal meaning of them.” 15.5.15. The above view has been reiterated in the following decisions18 . It is trite that where the draftsmen uses the same word or phrase in similar context he must be presumed to intend it to bear the same meaning in each place.19 15.5.16. As a sequitur to the above discussion IBC which as seen above was made by the Parliament in exercise of its power under Article 246(2) read with Entry 9 of List III of Seventh Schedule of the Constitution, as it then existed, ought to be compliant with Article 246 A of the Constitution with the introduction of 101st Constitutional amendment. In other words, it appears that in view of the non-obstante clause contained in Article 246A, Parliament may have ceded its predominance in respect of the subject matter enumerated in List III to the VIIth Schedule to the Constitution, vis a vis a law made by the State in exercise of its power under Article 246A of the Constitution, while the State begins to enjoy primacy over List III. It appears that in the event of a conflict between a Union legislation made and traceable to List III vis-a-vis a legislation by a State traceable to Art. 246A of the Constitution, it may no longer be appropriate to hold the view that the State Legislation must yield to the Union Legislation. 15.5.17. Keeping the above aspect in mind, it appears that the only provision which is made subject to IBC is Section 82 of TNGST Act, which reads as under: "82. Tax to be first charge on property - Notwithstanding anything to the contrary contained in any law for the time being in force, save as otherwise provided in the Insolvency and Bankruptcy Code, 2016, any amount payable by a taxable person or any other person on account of tax, interest or penalty which he is liable to pay to the Government shall be a first charge on the property of such taxable person or such person.” 15.5.18. It must be borne in mind that Section 82 of TNGST Act only relates to Charge in respect of due arising under TNGST Act and provides that while it would prevail over any other law for the time being in force, however this overriding effect by virtue of non-obstante clause is however made subservient to IBC by use of the expressions “save as otherwise provided in the Insolvency and Bankruptcy Code”. This is a self imposed limitation by the State legislature, recognition of the supremacy which it otherwise enjoys over Parliamentary legislations. But for this provision i.e., Section 82 in TNGST Act, in the event of conflict between the provision of SGST and IBC the former would prevail over provisions of IBC by virtue of non-obstante clause contained in Article 246A of the Constitution. 15.5.19. On gleaning through the provisions of GST, this Court finds that no other provision is designed to yield to provisions under IBC. In the absence of a similar provision with regard to the other provisions of GST more particularly, provisions pertaining to levy as well as Section 73 and 74 of SGST Act, which deals with determination of taxes inter alia of taxes not paid or short paid, in the absence of a similar “subject to” or similar such clause in provisions relating to demand and recovery under SGST which makes it subservient to IBC it appears doubtful if the provision of IBC can be understood as prevailing over Sections 73 or 74 of SGST Act. In other words, limitation, if any, in respect of law made by the State in exercise of its powers under Article 246A of the Constitution ought to be self imposed, any attempt by the Union to impose a restriction by way a legislation framed in exercise of its powers under Article 246 read with List III of the Constitution may well amount to transgression into a legislative domain which vests with the States. 15.5.20. The above discussion is made though this Court is conscious of the fact that there is no challenge to any provisions of IBC and in the absence of challenge this court will interpret according to the plain language20 and only meant to discern the broad contours or extent of the power to legislate available to the Union by virtue of power conferred under Article 246 read with List I and III of the Seventh Schedule to the Constitution vis a vis legislation by State’s in exercise of its power conferred under Article 246A of the Constitution. The above discussion would help to ensuring that provisions of IBC are construed as not to overreach or transgress Parliaments legislative powers under Article 246 of Constitution read with List III of the Constitution. I must add that this exercise is made in view of the settled legal position that attempt should be made by the courts to uphold the validity of the provision and not to invalidate it. With that intent courts have been endeavouring, sometimes to give restrictive or expansive meaning to ensure that legislations are not rendered invalid.21 15.6. Scope of Section 238 of IBC: 15.6.1. To a pointed question if there is any express provision against recovery of tax due under the GST Act or IBC during CIRP, either side have not been able to point out any express provision under the Constitution or for that other matter under GST or IBC, which imposes a fetter or a restriction or an embargo against the power of the State to collect/recover taxes that arise during CIRP period. The only provision which was relied upon by the petitioner to support their contention that “Clean Slate” would apply during CIRP is Section 238 of IBC which reads as under: “Section 238: Provisions of this Code to override other laws. 238. The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.” 15.6.2. A reading of Section 238 of IBC would make it clear that the non-obstante clause give an overriding effect to provisions of IBC in the event of conflict of law with any other law. However with the introduction of 101st Constitutional amendment the scope of the non-obstante clause must be understood in a manner consistent with Article 246A of the Constitution which confers power on the Parliament and State legislature to make laws in respect of supply on goods and service tax. The need to tread cautiously as to the scope of Section 238 of IBC assumes significance for the following reasons: a. With the 101st Constitutional amendment States by virtue of non- obstante clause in Article 246 A of the Constitution have primacy over parliamentary legislations made in exercise of Article 246 of the Constitution. Article 246A of the Constitution which confers on Parliament and State to make laws in respect of supply on goods and service tax starts with a non- obstante clause and makes the non-obstante clause expressly operational against Article 246 of the Constitution. Power of the State to make laws in respect of supply on goods and service tax is made only subject to sub-clause (2) to Article 246 A. Keeping in view the above Constitutional Scheme relating to conferment of legislative power under Article 246A and 246 of the Constitution, it would appear that non-obstante clause in Section 238 of IBC, may only be operational against legislations made under Article 246 of Constitution and not operational against a legislation made by the State in exercise of power conferred under Article 246A of Constitution. b. To my mind it appears non-obstante clause contained in Article 246A of the Constitution whittles down the scope and ambit of the non-obstante clause employed in Section 238 of IBC as not to extend in relation to any legislation made by the State in exercise of its powers under Article 246A of the Constitution. c. SGST is a law made in exercise of power under Article 246A of the Constitution, which is subsequent to IBC; if State legislature intends it, it can through self imposed restriction/limitation yield to a law or provision made under Article 246 of Constitution, but a law made by Parliament under Article 246 cannot override or be in derogation of law made by State legislature under Article 246A. One such provision is Section 82 of TNGST Act, wherein while creating a charge makes it subject to the provisions of IBC, this is a self imposed limitation. Absent the “Subject to” clause in Section 82 of IBC, provisions of SGST would prevail over IBC in view of non-obstante clause contained in Article 246A of Constitution. GST laws being a legislation subsequent to IBC, if the intent of the State legislature is to give primacy to IBC over Goods and Service Tax it could have made its intent clear by employing the “subject to” clause in other provisions which relate to determination and recovery of taxes similar to Section 82 of GST Act. In its absence, it may not be permissible for the Courts to make the provisions of collection and recovery GST subservient to IBC, when GST laws are made by the States in exercise of hierarchically superior legislative power under the Constitution. d. The non-obstante clause in Section 238 of IBC must be understood keeping in view the shift in legislative primacy which the States have now been granted and come to enjoy by virtue of the non-obstante clause contained in Article 246A of Constitution which expressly prevails over Article 246 of Constitution and is made only subject to Sub-clause (2) to Article 246 of Constitution. Any attempt to understand the non-obstante clause in Section 238 of IBC as giving the Union overarching legislative power in respect of legislation made under Article 246A may render it vulnerable to challenge as being unconstitutional and ultra vires Article 246 A insofar the States legislative competence under Article 246 A of Constitution. A non-obstante clause must be interpreted keeping in view the policy of the Constitution. In this regard it may be relevant to refer to the decision in Jay Engg. Works Ltd. v. Industry Facilitation Council, reported in (2006) 8 SCC 677: “33. In ICICI Bank Ltd. v. SIDCO Leathers Ltd. [(2006) 10 SCC 452 : (2006) 5 Scale 27] the law is stated in the following terms: (SCC p. 466, paras 36-37) “36. The non obstante nature of a provision although may be of wide amplitude, the interpretative process thereof must be kept confined to the legislative policy. Only because the dues of the workmen and the debts due to the secured creditors are treated pari passu with each other, the same by itself, in our considered view, would not lead to the conclusion that the concept of inter se priorities amongst the secured creditors had thereby been intended to be given a total go-by. 37. A non obstante clause must be given effect to, to the extent Parliament intended and not beyond the same.” 15.6.3. From the above discussion the following position emerges it is trite that power to tax is an attribute of sovereignty and legislative in character. Power to tax is essential to the very existence of the government. Power to tax is inherent because the sustenance of the government requires contribution from the people. Tax is necessary for the purpose of defraying the public expenses. Absent the power of tax, sovereign may not be able to discharge its primary governmental functions and in order to be able to discharge such functions effectively, it must be in possession of necessary funds and this consideration emphasizes the necessity and the wisdom of conceding to the State the right to levy taxes. Now having seen power of taxation being a sovereign power, controlled only by the Constitution, any limitation on that power must be express. Power of taxation would also take within its fold power to collect taxes; this would be evident from a reading of Article 265 of the Constitution which provides that no tax shall be levied or collected save by authority of law. 15.6.4. In the absence of any express provision imposing a fetter/restriction or an embargo on the States right to recover it would ill lie in the mouth of the petitioners /CD to submit that the power to recover tax imposed under GST by States in exercise of its powers under Article 246 A of the Constitution, if pitted against the object of IBC and its possible failing, must give way. Courts would not through a process of interpretation either impose an embargo nor expand the scope of a statutory embargo against collection/ recovery of taxes only on the premise that it would defeat the object of an another legislation, in the present case, IBC. Restriction or limitation more so an embargo, cannot be introduced through a process of interpretation by courts. That would not only be judicial legislation, but one which results in imposing fetters on power of a competent legislative bodies power to tax, which as seen supra in the absence of express provision under the Constitution is impermissible.
Jurisdiction of IBC Authorities and Tribunal: 16.1. While the NCLT may determine if the resolution plan has made sufficient provisions for tax dues arising during CIRP, whether the resolution plan is in consonance with the tax laws and the underlying public policy, during the course of hearing yet another aspect which was raised related to the remedy that may be available to the CD to decide disputes on merits arising under tax laws such as GST, Income Tax etc during the course of proceedings under IBC. The counsel for petitioners would submit that the petitioners are not remediless instead they would have to approach under Section 60(5) of IBC. 16.2. Question would then arise as to whether the power and jurisdiction of the authorities/ Tribunal under IBC is expansive enough so as to decide issues arising under legislations founded in public law domain. For instance, in the present case question arises as to whether the jurisdiction of the tribunal under Section 60(5) of IBC would take within its fold the power to decide/resolve disputes relating to Income tax or GST. The answer to the above question has to be in the negative. This I say so, for authorities under IBC, including the tribunal as well as the appellate tribunal, are creatures of a statute to discharge certain specific functions, the powers flow under the Act. They cannot be elevated to the status of a superior court having the power of judicial review over administrative action, A fortiori, statutory action. A decision or an order of a statutory authority in relation to a matter which is in the realm of public law cannot be brought within the fold of the phrase "arising out of or in relation to insolvency resolution process", contained in Section 60(5) of IBC. Permitting or understanding the NCLT as being vested with the jurisdiction to examine the correctness of an order of assessment or adjudication under the IT Act or the GST Act by invoking Section 60(5) of IBC would amount to elevating the authorities/tribunal under IBC to a status of a forum having powers of judicial review even over sovereign action— a course which has been disapproved by the Supreme Court, in Embassy Property supra followed in Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta, (2021) 7 SCC 209. In this regard it may be relevant to refer to the following judgments: a. Embassy Property Developments (P) Ltd. v. State of Karnataka, reported in (2020) 13 SCC 308 : “37. From a combined reading of sub-section (4) and sub-section (2) of Section 60 with Section 179, it is clear that none of them hold the key to the question as to whether NCLT would have jurisdiction over a decision taken by the Government under the provisions of the MMDR Act, 1957 and the Rules issued thereunder. The only provision which can probably throw light on this question would be sub-section (5) of Section 60, as it speaks about the jurisdiction of the NCLT. Clause (c) of sub- section (5) of Section 60 is very broad in its sweep, in that it speaks about any question of law or fact, arising out of or in relation to insolvency resolution. But a decision taken by the Government or a statutory authority in relation to a matter which is in the realm of public law, cannot, by any stretch of imagination, be brought within the fold of the phrase “ arising out of or in relation to the insolvency resolution ” appearing in clause ( c ) of sub-section (5). Let us take for instance a case where a corporate debtor had suffered an order at the hands of the Income Tax Appellate Tribunal , at the time of initiation of CIRP. If Section 60(5)( c ) of the IBC is interpreted to include all questions of law or facts under the sky, an Interim Resolution Professional/Resolution Professional will then claim a right to challenge the order of the Income Tax Appellate Tribunal before the NCLT, instead of moving a statutory appeal under Section 260-A of the Income Tax Act, 1961. Therefore the jurisdiction of the NCLT delineated in Section 60(5) cannot be stretched so far as to bring absurd results . [It will be a different matter, if proceedings under statutes like Income Tax Act had attained finality, fastening a liability upon the corporate debtor, since, in such cases, the dues payable to the Government would come within the meaning of the expression “operational debt” under Section 5(21), making the Government an “operational creditor” in terms of Section 5(20). The moment the dues to the Government are crystallised and what remains is only payment, the claim of the Government will have to be adjudicated and paid only in a manner prescribed in the resolution plan as approved by the adjudicating authority, namely, the NCLT.]” (emphasis supplied) b. Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta, (2021) 7 SCC 209 “46. NCLT owes its existence to statute. The powers and functions which it exercises are those which are conferred upon it by law, in this case, IBC. ….. 69. .....Therefore, considering the text of Section 60(5)(c) and the interpretation of similar provisions in other insolvency related statutes, NCLT has jurisdiction to adjudicate disputes, which arise solely from or which relate to the insolvency of the corporate debtor. However, in doing so, we issue a note of caution to NCLT and NCLAT to ensure that they do not usurp the legitimate jurisdiction of other courts, tribunals and fora when the dispute is one which does not arise solely from or relate to the insolvency of the corporate debtor. The nexus with the insolvency of the corporate debtor must exist. ….. 84. The respondents have relied upon the decision of this Court in Essar Steel (India) Ltd. (CoC) v. Satish Kumar Gupta [Essar Steel (India) Ltd. (CoC) v. Satish Kumar Gupta, (2020) 8 SCC 531 : (2021) 2 SCC (Civ) 443] , where this Court held that Section 60(5)(c) of IBC “is in the nature of residuary jurisdiction vested in NCLT so that NCLT may decide all questions of law or fact arising out of or in relation to insolvency or liquidation under the Code” [Id p. 589, para 69.] . ….. 91. .........However, it is pertinent to mention that NCLT cannot exercise its jurisdiction over matters dehors the insolvency proceedings since such matters would fall outside the realm of IBC. Any other interpretation of Section 60(5)(c) would be in contradiction of the holding of this Court in Satish Kumar Gupta [Essar Steel (India) Ltd. (CoC) v. Satish Kumar Gupta, (2020) 8 SCC 531 : (2021) 2 SCC (Civ) 443] . ….. 173. Although various provisions of IBC indicate that the objective of the statute is to ensure that the corporate debtor remains a “going concern”, there must be a specific textual hook for NCLT to exercise its jurisdiction. NCLT cannot derive its powers from the “spirit” or “object” of IBC . Section 60(5)(c) of IBC vests NCLT with wide powers since it can entertain and dispose of any question of fact or law arising out or in relation to the insolvency resolution process. We hasten to add, however, that NCLT's residuary jurisdiction, though wide, is nonetheless defined by the text of IBC. Specifically, NCLT cannot do what IBC consciously did not provide it the power to do.” (emphasis supplied) 16.3. There is yet another reason why I would think that it may not be permissible for the authorities or the tribunal under IBC to examine the correctness or otherwise of a claim or an assessment made under the GST Act. This is also in view of the fact that the GST Act especially the State GST Act is administered by the authorities under the State Act. It may well constitute a transgression by the authorities under IBC into the powers which are vested under the statute of a State legislation made under Article 246 A of the Constitution, which may not be permissible. There may well be two sets of orders, if we permit the NCLT/ Tribunals to also examine the correctness or otherwise of an order of assessment under the GST Act or the IT Act: one by the tribunals under IBC and the other by the tribunals or the adjudicating authority under the IT Act or the GST Act. This would only result in administrative chaos and produce results which are arbitrary and may not be permissible. In this regard, it may be relevant to refer to the following judgments wherein it has been held by the Supreme Court that any order can be the subject only before one forum. i) Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc., reported in (2012) 9 SCC 552 : “143. ………..The submissions made by Mr K.K. Venugopal, as noticed in para 42, epitomise the kind of chaos which would be created by two court systems, in two different countries, exercising concurrent jurisdiction over the same dispute. There would be a clear risk of conflicting decisions. This would add to the problems relating to the enforcement of such decisions. (emphasis supplied) ii) NGEF Ltd. v. Chandra Developers (P) Ltd., reported in (2005) 8 SCC 219 : “41 . It is difficult to accept the submission of the learned counsel appearing on behalf of the respondents that both the Company Court and BIFR exercise concurrent jurisdiction. If such a construction is upheld, there shall be chaos and confusion. ........... While interpreting the provisions of the two statutes, the court cannot remain oblivious of the fact that in a given case, possibility of a conflict in the orders passed by the two courts may arise, which must be avoided.” (emphasis supplied)
The above discussion is with regard to SGST made by the State in exercise of its power under Article 246A of the Constitution. Now when it comes to Central GST or Income Tax, the above discussion on the need to balance legislative competence of the State under Article 246A vis a vis Parliament’s power to legislate IBC, may not arise inasmuch both IBC, Central GST and Income Tax being legislation by the same legislative body i.e., Parliament, question of challenging different legislations by same legislative body on the ground of being in conflict with each other may not be available since validity of legislation can seek to support it on the basis of more than one Entry or one provision under the Constitution. In this regard it may be relevant to refer to the decision of the Supreme Court in the case of Ujagar Prints (II) v. Union of India, reported in (1989) 3 SCC 488, wherein it was held as under: “53. If a legislation purporting to be under a particular legislative entry is assailed for lack of legislative competence, the State can seek to support it on the basis of any other entry within the legislative competence of the legislature. It is not necessary for the State to show that the legislature, in enacting the law, consciously applied its mind to the source of its own competence. Competence to legislate flows from Articles 245, 246, and the other articles following, in Part XI of the Constitution. In defending the validity of a law questioned on ground of legislative incompetence, the State can always show that the law was supportable under any other entry within the competence of the legislature. Indeed in supporting a legislation sustenance could be drawn and had from a number of entries. The legislation could be a composite legislation drawing upon several entries. Such a “ragbag” legislation is particularly familiar in taxation. 54. Bennion in his Statutory Interpretation (at p. 644) refers to such a composite legislation, though the observations must be understood in the context of the supremacy of the British Parliament and one of unlimited powers and which is under no inhibitions, unlike a federal polity, of distribution of legislative powers. Learned author refers to: “Ragbag” Acts : Some Acts are “ragbag” Acts, covering many areas. The annual Finance Act is an extreme example. It is divided into Parts, dealing respectively with customs and excise duty, value added tax, income tax, capital gains tax, stamp duty, capital transfer tax and so on. Even within a Part of a Finance Act the various provisions have quite different aims.... In Hari Krishna Bhargav v. Union of India [(1966) 2 SCR 22 : AIR 1966 SC 619 : (1966) 59 ITR 243] , this Court said : (SCR p. 27) There is no prohibition against the Parliament enacting in a single statute, matters which call for the exercise of power under two or more entries in List I of the Seventh Schedule. Illustrations of such legislation are not wanting in our statute book, and the fact that one of such entries is the residuary entry does not also attract any disability. 55. So far as the exclusive competence of the Union Parliament to legislate is concerned all that is necessary is to find out whether the particular topic of legislation is in List II or List III. If it is not, it is not necessary to go any further or search for the field in List I. Union Parliament has exclusive power to legislate upon that topic or field. Of course, it has concurrent power also in respect of the subjects in List III.”
The following issues were raised during the course of hearing but not have not been raised earlier or considered by the statutory authorities. : 18.1. Reassessment -Whether covered by Clean Slate: 18.1.1. Question arises if “Clean Slate Theory” would bar reassessment proceedings initiated after the CIRP period in respect of assessments relating to the period prior to CIRP. The revenue would contend that “Clean Slate Theory” would apply only in respect of claims/assessments already made and in case of reassessment dues arise only on orders of reassessment being passed thus “Clean Slate Theory” may not apply nor bar making a reassessment. This would have to be examined keeping in view the definition of “Claim” and “Debt” as defined under IBC and as to the taxable event and when the liability gets attracted under the Income Tax Act and SGST Act respectively. This is an aspect which has not been examined in the impugned proceedings thus requires to be adjudicated. 18.2. CIRP Cost: 18.2.1. The Amicus and some of the Petitioners here have also raised the following issues: a) Although the tax dues during the CIRP period may not fall under the scope of claims, it may nevertheless be a "insolvency resolution process costs" and thus must be construed as being covered in the resolution plan. However, this aspect appears to have neither been placed nor considered in the assessment orders under challenge, and the Government also questions this interpretation as taxes are not incurred “by the resolution professional” for it is a levy on the corporate debtor per se. In response, it is submitted by the Amicus that it may be covered under Regulation 31(b) read with Section 5(13)(e) which provides that amounts due to a person whose rights are prejudicially affected on account of the moratorium imposed under section 14(1)(d) shall constitute CIRP costs and must be interpreted so since the tax authorities could not embark on an assessment/collection during the moratorium. It is the language of the resolution plan which will have to be examined to determine whether taxes have been included in the CIRP costs, and the computation of such costs. It may be added here that considering the nature, scope and binding effect of a resolution plan under the IBC, it warrants the exercise of extreme care and precision in the language employed. b) If the tax liability that arose during the CIRP period is specified in the language of the Resolution Plan as forming part of/ falling under the CIRP costs, then, as stated by the Amicus, irrespective of the quantum that may be included and the difference with the taxes as determined by the assessing authorities, it would bind the Central/State Government and, if the NCLT’s approval of the resolution plan had attained finality, the Central/State Government cannot dispute it subsequently and any differential tax liabilities during the CIRP period stated as due would stand extinguished. 18.3. Input Tax Credit : 18.3.1. While clean slate would provide immunity against recovery, however question may arise whether despite applicability of “Clean Slate”, it is permissible for the revenue to set-off dues against available ITC. Importantly, ITC is a concession22 and its denial whether would constitute a claim /surprise claim for the purposes of IBC requires to be examined. 18.3.2. This question has not been examined and needs to be considered. This court at the first instance cannot consider issues which are neither pleaded nor subjected to application of mind by the statutory authorities. 18.4. Scheme/Compromise under Section 230 of Companies Act - Transfer of Business under Section 85 of TNGST Act: 18.4.1. Whether the Scheme or Compromise under Section 230 of Companies Act, during Liquidation Process in the case of Kamatchi Industries and Frontier Lifeline wherein Resolution Plan after CIRP Period was deemed to be a Resolution Plan. The question of whether a sale in liquidation, in terms of Regulation 32(e) or Regulation 32(f), would result in the transfer of assets with liabilities of the Corporate Debtor, is a vexed question in the context of going concern sales in liquidation. The above question has not received a proper or consistent answer. 18.4.2. In this batch of writ petitions whether sale as a going concern as part of liquidation process can be treated as transfer of business as a whole for the purpose of GST in terms of Section 85 of TNGST Act has not been examined and needs to be gone into keeping in view the Terms of Scheme /Compromise under Section 230 of Companies Act.
Conclusion: 19.1. W.P.No.30364 of 2024: 19.1.1. The impugned order of assessment is set aside inasmuch as one of the grounds raised by the petitioner is that the objections and reply filed has not been considered while passing the impugned order. The respondent authority is directed to redo the assessment keeping in view the law laid down by this Court in the present batch of writ petitions. While passing fresh orders the adjudicating authority shall inter alia examine the following: a. Terms of Resolution Plan. b. Whether the tax element would constitute “Corporate Insolvency Resolution Process Cost”, if the answer is in the affirmative, whether the Resolution Plan provides for the same in terms of Section 31 of IBC, if not, whether Resolution Plan is objected to by the State, or in its absence whether Resolution Plan would attain finality. 19.2. W.P.No.33329 of 2024 : 19.2.1. Impugned demand notice to be kept in abeyance. Keeping in view the law laid down by this Court in the present batch of writ petitions. While passing fresh orders the adjudicating authority shall inter alia examine the following: i) Whether liquidation by sale of CD as a going concern would constitute transfer of business in terms of Section 85 of TNGST Act, if so, consequences thereof would ensue the petitioner. The above exercise would be made after affording the petitioner an opportunity of hearing. 19.3. W.P.No.1540 of 2023, W.P.No.1556 of 2023, W.P.No.1552 of 2023, W.P.No.1554 of 2023, W.P.No.30332 of 2022, W.P.No.1547 of 2023, W.P.No. 23856 of 2022, W.P.No.11431 of 2022: 19.3.1. Impugned orders are set aside and remitted back for fresh consideration. Keeping in view the law laid down by this Court in the present batch of writ petitions, while passing fresh orders the adjudicating authority shall inter alia examine the following: a. Whether Clean Slate by virtue of Resolution Plan being approved grants immunity against reassessment which is otherwise permissible under IT Act in respect of pre CIRP period. b. Whether clean slate would constitute an embargo against reassessment for pre CIRP period. 19.4. W.P.No. 32637 of 2024: 19.4.1. The impugned order of assessment is set aside with a direction to redo the assessment keeping in view the law laid down by this Court in the present batch of writ petitions. While passing fresh orders the adjudicating authority shall inter alia examine the following: a. Terms of compromise under Section 230 of Companies Act treated as Resolution Plan for purposes of IBC. b. Whether the compromise made during liquidation process after CIRP has failed can be deemed to be a Resolution Plan for the purposes of IBC. c) If the compromise under Section 230 of Companies Act would constitute a Resolution Plan for the purpose of IBC if so whether the tax element would constitute “Corporate Insolvency Resolution Process Cost”, if the answer is in the affirmative, whether the Resolution Plan/compromise provides for the same in terms of Section 31 of IBC, if not, whether Resolution Plan is objected to by the State, or in its absence whether Resolution Plan would attain finality. 19.5. W.P.Nos.22500 and 22505 of 2024 : 19.5.1. The impugned order of assessment passed under Section 148 (A) (d) of IT Act, dated 30.03.2024 is set aside with a direction to redo the assessment keeping in view the law laid down by this Court in the present batch of writ petitions. While passing fresh orders the adjudicating authority shall inter alia examine the following: a. Terms of Resolution Plan. b. Whether the Income Tax element would constitute “Corporate Insolvency Resolution Process Cost”, if the answer is in the affirmative, whether the Resolution Plan provides for the same in terms of Section 31 of IBC, if not, whether Resolution Plan is objected to by the State, or in its absence whether Resolution Plan would attain finality. c. Impugned order dated 10.05 2024 under Section 119(2) of IT Act is set aside and remanded back for fresh consideration in the light of the law laid down by this Court, though the same may not be directly on exercise of power under Section 119 of IT Act, however to re-examine if there are circumstances that precluded the petitioner from filing the return within the statutory period keeping in view the proceedings under IBC and importantly the law laid down by this Court. 19.6. W.P.No.15459 of 2024 : 19.6.1. The impugned order of assessment is set aside with a direction to redo the assessment inasmuch as the impugned order was passed without considering the petitioner’s response. The petitioners are permitted to file their fresh objection within a period of 4 weeks. If any such objection is made the respondent authority keeping in view the law laid down by this Court in the present batch of writ petitions while passing fresh orders shall inter alia examine the following: a. Terms of Resolution Plan. b. Whether the Income Tax element would constitute “Corporate Insolvency Resolution Process Cost”, if the answer is in the affirmative, whether the Resolution Plan provides for the same in terms of Section 31 of IBC, if not, whether Resolution Plan is objected to by the State, or in its absence whether Resolution Plan would attain finality. 19.7. W.P.No.18804 of 2023 : 19.7.1. The impugned order of assessment dated 31.03.2025 levying penalty under Section 274 read with 271(2)(c) of IT Act is set aside and respondent authority is directed to pass fresh orders keeping in view the law laid down by this Court in the present batch of writ petitions and inter alia examining the terms of the Resolution Plan. 19.8. W.P.No.15238 of 2024: 19.8.1.The impugned order of rectification dated 30.03.2024 is set aside with a direction to pass orders afresh keeping in view the law laid down by this Court in the present batch of writ petitions and inter alia examining the terms of the Resolution Plan. 19.9. These writ petitions are therefore disposed off with the above directions. No costs. Consequently, connected miscellaneous petitions are closed.
The above directions are also issued in view of the fact that in most of the cases before this Court, neither the resolution plan under IBC nor the scheme under Section 230 of Companies Act were either placed before the respondent authorities or before this Court.
It is made clear that the scope of enquiry directed/suggested is only indicative and not exhaustive; it is open to the respondent authorities to make all enquiries which it finds relevant while passing orders afresh and it is open to the Petitioners to raise all contentions. The petitioners must be put on notice regarding the grounds on which the Respondent authorities propose to examine including any case laws/documents that are proposed to be relied upon and sufficient time shall be provided to the Petitioners to make their submissions.
This Court places on record its appreciation of the assistance rendered by the Learned Amicus Curiae Mr. P.H.Arvindh Pandian, Senior Advocate, on the intricacies and evolving jurisprudence of IBC.
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(2021) 9 SCC 657 ↩
- 2.
(2023) 1 SCC 472 ↩
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(2020) 8 SCC 531 ↩
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(2021) 9 SCC 657; (2020) 8 SCC 531 ↩
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(2021) 5 SCC 1 ↩
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(2021) 7 SCC 209 ↩
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(2020) 13 SCC 308 ↩
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Inserted by Insolvency and Bankruptcy Code Amendment Act, 2019, w.e.f. 16.7.2019 ↩
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Arun Kumar Jagatramka vs Jindal Steel and Power Ltd, (2021) 7 SCC 474 ↩
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Brooms Legal Maxim: Lex Non Cogit AD Impossibilia. (Co. Litt. 231, b.).- The law does not compel a man to do that which he cannot possibly perform ↩
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Paradine v. Jane, Al. 27; cited per Lawrence, J., in Hadley v. Clarke,A ↩
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Voltas Ltd., v. State of A.P., (2004) 11 SCC 569; CCT v. Hindustan Lever Ltd., (2016) 13 SCC 28; State of Punjab v. Nestle India Ltd., (2004) 6 SCC 465 ↩
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Arun Kumar Jagatramka vs Jindal Steel and Power Ltd, (2021) 7 SCC 474; Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17 ↩
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Union of India v. Mohit Minerals (P) Ltd., reported in (2022) 10 SCC 700 ↩
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Diamond Sugar Mills Ltd. v. State of U.P., 1960 SCC OnLine SC 57, Workmen v. National & Grindlays Bank Ltd., (1976) 1 SCC 925 ↩
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Commissioner of Wealth Tax vs. Hashmatunnisa Begum and ors., 1989 Supp (2) SCC 43; Molar Mal vs. Kay Iron Works (P) Ltd., (2000) 4 SCC 285 ↩
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Union of India v. Elphinstone Spg. and Wvg. Co. Ltd., (2001) 4 SCC 139; B.R. Enterprises v. State of U.P., (1999) 9 SCC 700 ↩
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Jayam & Co vs Assistant Commisioner and another, (2016) 15 SCC 125; ALD Automotive Private Limited vs Commercial Tax Officer, (2018) 364 ELT 3 SC ↩
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