The Kerala High Court quashed an order of the National Company Law Tribunal ( NCLT ) in declaring tax assessment order as void.
The petitioner, Deputy Commissioner (Works Contract), has approached the Court under Article 227 of the Constitution of India impugning the Order dated 26.10.2022 passed by the National Company Law Tribunal, Kochi Bench, under Section 33(5) of the Insolvency and Bankruptcy Code, 2016 ( ‘IBC’ ).
Against the petitioner’s Form-C application, the 2nd respondent had filed an application before the National Company Law Tribunal, Kochi Bench, under Section 33(5) of the IBC seeking permission to prefer an appeal against the order of assessment dated 25.02.2021 passed by the petitioner.
Though the application was only for seeking permission to file an appeal against the assessment order dated 25.02.2021, the National Company Law Tribunal had passed the impugned order stating that the Assessment Order was passed in violation of the prohibition provided under Section 14(1)(a) of IBC. Therefore, the Assessment Order was declared void ab initio.
The National Company Law Tribunal dismissed the application of the 2nd respondent and directed the 2nd respondent to consider the claim submitted by the KVAT Works Contract Authorities independently, ignoring the assessment order dated 25.02.2021.
From the provisions of Section 14 of the IBC it is evident that Section 14 prescribes a moratorium on the initiation of CIRP proceedings and its effects. The Supreme Court, in its judgment in the case of Sundaresh Bhatt, Liquidator of ABG Shipyard v. Central Board of Indirect Taxes & Customs, after considering the February 2020 Report of the Insolvency Law Committee, held that one of the purposes of the moratorium is to keep the assets of the Corporate Debtor together during the insolvency resolution process and to facilitate orderly completion of the processes envisaged under the Statute. Moratorium under Section 14 is to ensure the curtailing of parallel proceedings and reduce the possibility of conflicting outcomes in the process.
A Single Bench of Justice Dinesh Kumar Singh observed that “Thus, after declaring the moratorium, there is an embargo on enforcing the demand, but there is no embargo under Section 14, read with Section 33(5) of the IBC, for determining the quantum of tax and other levies, if any, against the Corporate Debtor.”
“This Court finds the impugned order passed by the National Company Law Tribunal, Kochi Bench, as preposterous and untenable. The Company Law Tribunal has no power and authority under the IBC to declare an assessment order as void ab initio and non est in law. Such an order only reflects the competence of the persons who are manning such an important Tribunal. The Order shows the lack of basic understanding of the law. Instead of considering the application by the 2nd respondent for permission to file an appeal against the assessment order, the National Company Law Tribunal, Kochi Bench, has assumed the jurisdiction of the Constitutional Court to declare the assessment order as void ab initio” the Court concluded.
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