The Himachal Pradesh High court has held that tax dues cannot be regarded as crown debt once the resolution plan is approved and the GST department cannot red mark property in revenue records for tax dues once resolution plan is approved.
The bench of Chief Justice M.S. Ramachandra Rao and Justice Satyen Vaidya has observed that the department is estopped from continuing the red entry/charge on the properties of the petitioner-Company, since they had never objected to the acquisition plan submitted by the current management of the petitioner-Company andthey had also not challenged the order passed by the National Company Law Tribunal (NCLT) approving the acquisition plan for the petitioner-Company.
The bench added that the legislative intent was to extinguish all debts owed to the Central Government or any State Government or any Local Authority including the Tax Authorities, when once an approval was granted to the Resolution Plan by the NCLT.
The petitioner-Company was engaged in the business of manufacturing and trading of Inverters & Batteries and has its factory premises in the Industrial Area, Katha Baddi, District Solan, Himachal Pradesh.
For running its operations, it had availed various facilities from financial creditors and also with the State Bank of India. On account of default in adherence to the financial discipline by the erstwhile management of the Company, the State Bank of India had initiated Corporate Insolvency Resolution Process (CIRP) of the petitioner-Company before the NCLT where the registered office of the petitioner-Company was situated.
The petition was admitted on 05.04.2018 and a Resolution Professional was appointed replacing the earlier management which stood suspended, and by operation of Section 14 of the IBC, 2016 a moratorium was imposed.
Pursuant to the initiation of the CIRP process, expressions of interest were invited from prospective resolution applicants, but to no avail.
The Committee of Creditors resolved to initiate liquidation proceedings, and resultantly, the Resolution Professional filed an application under Section 33(1)(a) of the IBC, for liquidation of the petitioner-Company.
The Department of State Taxes & Excise, Government of Himachal Pradesh, filed claim of Rs.354,11,34,131 on account of arrears of Value Added Tax, Central Sales Tax & Central Goods & Services Tax/HPGST with the Liquidator.
The department wrote to the Deputy Director, District Industries Center informing that the sum was due by the petitioner-Company on account of arrears of VAT/CST & CGST/HPGST and requested to mark its charge/red entry of Government dues in land revenue record pertaining to the properties of the petitioner-Company with a request for debarring the petitioner-Company from sale/transfer of the properties.
On that basis, without issuing any notice or without hearing the Liquidator, legal proceedings were initiated by the department and the properties charged and marked with red entries bypassing the procedure laid down in the H.P. Land Revenue Act, 1954 and in violation of Principles of Natural Justice as well as Section 33(5) of the IBC.
The petitioner contended that in view of Section 238 of the IBC, the provisions of the IBC override the provisions of the HPGST Act, 2017 and also the provisions of the VAT Act and the CST Act, and that respondent no.4 is liable to issue “NOC” to the petitioners and the respondents are bound to delete the red entry/charge of the property.
The department contended that while not disputing the events mentioned by the petitioners leading to the approval of the takeover acquisition plan of the 1st petitioner-Company by the current management and also not denying that the proceedings of the NCLT approving the approval plan submitted by the current management, got confirmed upto the Supreme Court, it is, however, pleaded that the State Debts have priority over rights of secured creditors.
The court allowed the Writ Petition and directed the department to remove its charge/red entries/claim for the tax dues of the erstwhile management of the petitioner-Company on the properties of the petitioner from the revenue record.
Case Details
Case Name: Su-Kam Power System Ltd. & Another v/s State of Himachal Pradesh & Others
Citation: CWP No. 422 of 2024
Decision Date: 21/08/2024
Court: Himachal Pradesh High Court
