M/S Rabirun Vinimay Private Limited And Anr. vs. Union Of INDIA And Ors.

Held

The Court held that it is well-settled that upon the successful completion of a CIRP or upon a corporate debtor being sold in liquidation as a going concern on a "clean state" basis, all past dues of the corporate debtor stand frozen and extinguished. Creditors are entitled to their dues only in terms of the waterfall mechanism under Section 53 of the Insolvency and Bankruptcy Code, 2016. The Court referred to its own decision in Kashvi Power and Steel P. Ltd. and another vs. West Bengal State Electricity Distribution Co. Ltd. and others, which discussed the scope of Section 53 in the context of a corporate debtor sold in liquidation as a going concern. The Court found no reason to deviate from this established principle. The avowed object of the IBC is corporate revival, and a buyer of a corporate debtor as a going concern should not be saddled with past dues. Therefore, the proceedings initiated by the respondent/CGST authorities for the financial year 2019-2020, culminating in the impugned order, could not have been initiated. The Court quashed the impugned order dated August 31, 2024.

Facts

The petitioner, M/s. Rabirun Vinimay Pvt. Ltd., is challenging an order dated August 31, 2024, passed by the Joint Commissioner, CGST and Central Excise, Kolkata North Commissionerate. This order imposed a tax demand of Rs. 4,28,33,922/- along with interest and penalty for the tax period April 2019 to March 2020 (Financial Year 2019-2020). The petitioner was admitted into liquidation by the NCLT on March 5, 2020, after a Corporate Insolvency Resolution Process (CIRP) failed. Subsequently, the petitioner was sold as a going concern, a sale confirmed by the NCLT on December 11, 2023. The NCLT's order noted that the sale of a corporate debtor as a going concern is akin to a de-facto CIRP. A show-cause notice for the disputed period was issued on May 31, 2024, after the NCLT confirmation. The petitioner argues that past dues should not be levied post-sale as a going concern, citing the NCLT's observation and a previous instance where CGST authorities dropped proceedings for FY 2017-18 based on a similar NCLT order.

Key Issues

1. Whether the tax demand, interest, and penalty for the financial year 2019-2020 can be levied on the petitioner after it was sold as a going concern and its sale was confirmed by the NCLT, particularly in light of the NCLT's observation that such a sale is akin to a de-facto CIRP? (Question of law) Petitioner's arguments: The petitioner contends that upon being sold as a going concern and confirmation by the NCLT, it should not be held liable for past dues prior to the sale and confirmation. They argue that the "clean state" principle applicable to successful CIRP should also apply here. They rely on the NCLT's order dated December 11, 2023, which stated that the sale of a corporate debtor as a going concern is akin to a de-facto CIRP, and on a prior instance where CGST authorities dropped proceedings for FY 2017-18 based on a similar NCLT order. Revenue's arguments: The judgment records no specific arguments from the revenue or the Union of India regarding this issue.