State Government is ‘Operational Creditor’, and Taxes payable shall be ‘Operational Debt’: Jharkhand HC [Read Judgment]

Operational Creditor - Operational Debt - State Government - Jharkhand High Court - Taxscan

The High Court of Jharkhand held that the State Government shall fall within the definition of ‘operational creditor’, and the taxes payable by the petitioner shall fall within the definition of ‘operational debt under Section 5 of Insolvency and Bankruptcy Code, 2016.

The petitioner Company, Electrosteel Steels Limited has challenged the garnishee order, issued under Section 46 of the Jharkhand Value Added Tax (JVAT) Act, 2005 by the respondent, Deputy Commissioner of Commercial Taxes to the State Bank of India, asking the respondent Bank to pay into the Government Treasury, on account of tax and penalty due under the JVAT Act, from the petitioner Company, who failed to deposit the taxes.

The petitioner Company has also challenged the letter issued by the State Tax Officer to the Respondent Bank, to deposit the amount by way of demand draft in favor of the Deputy Commissioner of Commercial Taxes, in view of the fact that pursuant to the garnishee order, the respondent Bank had furnished the information that only the amount of Rs.75,57,000/- was available in the petitioner’s account.

The resolution plan has already been approved by the NCLT, and the management of the petitioner Company has been taken over by M/s. Vedanta Limited, the resolution plan is now binding upon the corporate debtor, i.e., the petitioner Company, and its creditors, including the State Government, to whom any debt had accrued under any law, including under the JVAT Act, by virtue of Section 31 of the Insolvency and Bankruptcy Code, 2016.

The petitioner company contended that in spite of the fact that the claim of the State Government now stands barred, the garnishee order has been issued by the Deputy Commissioner of Commercial Taxes, which is absolutely illegal, void ab-initio and wholly without jurisdiction and cannot be sustained in the eyes of law.

The single-judge bench of Justice Deepak Roshan held that the State Government shall fall within the definition of ‘operational creditor’, and the taxes payable by the petitioner shall fall within the definition of ‘operational debt under Section 5 of Insolvency and Bankruptcy Code, 2016.

“Section 31(1) of the IB Code, 2016 was amended vide IBC (Amendment) Act, 2019, to make the approved resolution plan binding on the Government Authorities in relation to the statutory dues. It is pursuant to this amendment that the rights of the Government Authorities for statutory dues were affected and such right was made subject to the approved resolution plan. The said amendment was made effective from 16.08.2019, which is prospective in nature, and no express retrospective effect was given to the said amendment. The said amendment takes away a substantive right of the Government Authorities in relation to the statutory dues and thus any interpretation, which shall give a retrospective effect to the said amendment, would be unreasonable and unjust,” the single judge bench observed.

Subscribe Taxscan Premium to view the Judgment
taxscan-loader