Service Tax Demand not Part of Approved Resolution Plan fails w/o a Continuance Application: CESTAT [Read Order]

The Chennai Bench of the Customs, Excise And Service Tax Appellate Tribunal (CESTAT) recently reaffirmed the abatement of an appeal based on a service tax demand raised after approval of the resolution plan.

The tribunal held that once a resolution plan is duly approved under Section 31(1) of the Insolvencyand Bankruptcy Code, 2016 (IBC), no further proceedings can be initiated in respect to any claim not included in the approved plan.

The appellant, M/s Veesons Energy Systems Pvt. Ltd. (Veesons Pvt. Ltd.), engaged in the business of manufacturing and export of boilers and parts, had filed an appeal before the CESTAT challenging a service tax demand for the period from January 2011 to October 2011.

The demand pertained to the alleged non-payment of service tax under “Goods Transport Agency Services” on freight paid to their Carrying and Forwarding (C&F) agent for export goods. Subsequently, the company was admitted to insolvency proceedings, and a resolution plan was approved under Section 31(1) of IBC.

During the liquidation, all assets of Veesons Pvt. Ltd. were sold and the proceeds distributed as per the waterfall mechanism under Section 53 of the IBC, with some amounts remaining under dispute before the NCLT.

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The liquidator admitted claims from the tax department, but the specific demand in question in the present appeal was not submitted as a claim and therefore was not admitted. Consequently, no application for continuance of the appeal was made by the liquidator under Rule 22 of the CESTAT (Procedure) Rules, 1982.

The tribunal consisting of Vasa Seshagiri Rao (Technical Member) and Ajayan T.V., (Judicial Member) cited the case of Ghanshyam Mishra (2021) and held that once a resolution plan is duly approved by the Adjudicating Authorityunder Section 31(1) of IBC, the claims as provided in the resolution plan shall stand frozen and will be binding on all the stakeholders.

The Tribunal further rendered the proceedings impermissible as the tax department’s demand was not part of the approved plan.

Consequently, the appeal before the tribunal abated.

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