NCLAT Upholds Assignment of Tax Dues by GST Dept After CIRP Initiation

NCLAT Upholds Assignment of Tax Dues by GST Dept After CIRP Initiation

Introduction

The National Company Law Appellate Tribunal (NCLAT) has held that the assignment of tax dues by the GST Department doesn't violate Article 265 or the GST Act if the Corporate Insolvency Resolution Process (CIRP) has been initiated. The tribunal observed that once the CIRP is initiated, the tax dues become operational debt, and the GST authority becomes the operational creditor, empowered to assign its admitted debt.

Factual Background

The corporate debtor was admitted into CIRP, and the interim resolution professional (IRP) was appointed. The Assistant Commissioner of the Central GST and Excise Division submitted a claim for tax dues amounting to Rs. 78,852,896. The IRP admitted a claim of Rs. 2,71,44,043 and appointed the commissioner as a member of the Committee of Creditors (CoC) with a voting share of 12.76%. CITOC Ventures Pvt. Ltd. paid the entire amount of Rs. 27,218,885 in respect of the admitted claim and entered into a debt assignment agreement with the GST Department.

Procedural Background

The RP filed an application before the adjudicating authority for modification in the composition of the CoC, which was accepted. The appellant challenged the validity and legality of the debt assignment deed before the adjudicating authority, which was rejected. The appellant then preferred the present appeal.

Issues

1. Assignment of Tax Dues: Whether the assignment of tax dues by the GST Department is valid after the initiation of CIRP.

2. Nature of Tax Dues: Whether the tax dues become operational debt after the initiation of CIRP.

Contentions of the Parties

Appellant's Contention: The appellant argued that the debt assignment agreement is not permissible under the law, as it transfers the rights of the GST Department to a private party. The appellant also submitted that the tax dues cannot be collected by a private individual or company, as it is a sovereign function.

Respondent's Contention: The respondent argued that the nature of the amount changed from tax to debt after the initiation of CIRP, and it became an operational debt. The GST authority became the operational creditor, empowered to assign its admitted debt.

Reasoning & Analysis

The bench of Rakesh Kumar Jain (Member-Judicial) and Mr. Naresh Salecha (Member-Technical) observed that once the CIRP is initiated, the execution of the recovery order is prohibited, and the tax dues become operational debt. The GST authority becomes the operational creditor, empowered to assign its admitted debt. The tribunal held that the assignment agreement is legally valid.

Implications

The NCLAT's decision clarifies that the assignment of tax dues by the GST Department is valid after the initiation of CIRP. The tribunal's ruling ensures that the operational creditor can assign its admitted debt, including tax dues, as per the provisions of the IBC.

In this case the appellant was represented by Mr. Gaurav Mitra, Mr. Shubham Kulshreshtha and Mr. Satya Rath, Advocates.