Relief to Patanjali Foods, Claim Arising out of AP VAT Act or GST Act Extinguished on Approval of Resolution Plan: Andhra Pradesh HC [Read Order]

In the case of Patanjali Foods Limited, the Andhra Pradesh High Court held that claim arising out of Andhra Pradesh Value Added Tax Act or Goods and Service Tax Act  extinguished on approval of resolution plan

Heard Sri S. Vivek Chandra Sekhar, Sri Ashwarya Sharma and Kinjal Shrivastava, counsel appeared for the petitioner and the Government Pleader for Commercial Tax and the Government Pleader for Finance & Planning, appearing for the respondents.

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The petitioner on account of its financial difficulties, had been subjected to insolvency proceedings under Insolvency and Bankruptcy Code 2016. In the course of these proceedings, a resolution plan was prepared by the committee of creditors and the same was approved by the National Company Law Tribunal, Mumbai Bench, by an order dated 04.09.2019. The resolution plan which had been approved by the NCLT provided that all dues of the creditors, including the dues of the State were to be adjusted out of amounts paid by the successful applicants in the resolution process.

The order of the NCLT was challenged before the National Company Law Appellate Tribunal (NCLAT), by way of Appeal No.1068 of 2019. The said appeal was dismissed on 09.12.2019 and the order of NCLT had become final.

The petitioner-company was put under new management and recommenced its operations. It may also be mentioned that the petitioner had earlier obtained registration for its Kakinada plant, under the AP VAT Act and a separate registration under the AP VAT Act for its Ampapuram Plant. These two registrations were carried over under the GST regime and the petitioner was operating under two separate GST registrations for its Kakinada plant and Ampapuram Plant.

The petitioner received two separate Demand-cum-Adjudication orders being the order, dated 03.06.2023, issued by the Assistant Commissioner (ST)(FAC), Kakinada and the order, dated 25.11.2023, passed by the Deputy Commissioner (ST), Vijayawada. Under these Demand-cum- Adjudication orders, the petitioner was called upon to pay tax interest and penalty amounting to Rs.20,21,420/- for the period July 2017 to March 2020 in the orders issued by the Assistant Commissioner, Kakinada and tax, interest and penalty of Rs.2,87,15,819/- in the order issued by the Deputy Commissioner, Vijayawada for the period July 2017 to March 2020.

The petitioner has approached the Court and contended that the petitioner is not liable to pay any of the aforesaid amounts in view of the order of the National Company law Tribunal dated 04.09.2019. It is contended that the resolution plan, which was approved by the NCLT, on 04.09.2019, provided for payment of Rs.25 crores towards clearing all the statutory dues, including claims by all Government authorities. Upon approval of this offer, the petitioner would not be liable to clear any of such statutory duties set out in the scheme.

The Government Pleader for Commercial Taxes submitted  that the order of NCLT would not be binding upon the State of A.P as no notice of any nature was issued to the State of Andhra Pradesh in relation to the insolvency proceedings pending before the NCLT.

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The question of extinguishment of liability of corporate which have undergone the CIRP process came to be considered by the Supreme Court of India in the case of Ghanshyam Mishra and Sons Pvt. Ltd. Vs. Edelweiss Asset Reconstruction Company wherein held 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.”

A division bench of Justice R Raghunandan Rao and Justice Harinath.N held that the liability of the petitioner, arising out of the AP VAT Act or the GST Act stands extinguished to the extent of its liability up to 4th September, 2019.

It was observed that the contention of Government Pleader for Commercial Taxes that the order of NCLT is not binding on the State of Andhra Pradesh in view of Section 88 of the GST Act would have to be negatived in as much as Section 238 of the Insolvency and Bankruptcy Code provides for a non-obstante clause overriding all other laws.

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While allowing the  Writ Petitions , the court set aside Demand-cum-Adjudication orders dated 03.06.2023, issued by the Assistant Commissioner (ST)(FAC), Kakinada and the order dated 25.11.2023 passed by the Deputy Commissioner (ST), Vijayawada. Since these proceedings have covered the period 05.09.2019 to 31.03.2020, which would not be effected by the orders of the NCLT, Mumbai Bench dated 04.09.2019, it would be open to the Assessing Authorities to issue fresh notice for quantifying the taxes and other dues arising for the period 05.09.2019 to 31.03.2020.

To Read the full text of the Order CLICK HERE

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