Service Tax Demands Against Aircel Extinguished After NCLT-Approved Resolution Plan Under IBC: CESTAT [Read Order]

In a recent ruling, the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Chennai Bench held that service tax demands stand extinguished following the approval of a Resolution Plan by the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code (IBC)

The appeal was filed by appellant, Aircel Ltd, challenging service tax demands raised against it. However, during the pendency of the matter, the National Company Law Tribunal (NCLT) approved a Resolution Plan for Aircel under Section 31 of the IBC.

The appellant argued that with the Resolution Plan approved, the Resolution Plan and therefore the demands raised in the impugned order cannot survive as the appeal itself is to be treated as ‘abated’.

On the other hand department acknowledged the insolvency proceedings, but the Resolution Professional later sought to withdraw and filed an appeal, also requesting the appointment of another professional. Because of this, the respondent argued that there was no finality to the insolvency process

The respondent requested that the Tribunal should dispose of the appeals only after hearing both parties, since the impugned orders involved substantial tax demands.

Tribunal observed that the order of NCLT states that the Resolution Plan stands accepted, which is undisputed by both parties. Also added the Supreme Court precedent in Ghanashyam Mishra and the Karnataka High Court ruling in Patanjali Foods (2024), which makes it clear that tax claims not included in the plan are extinguished.

Tribunal also pointed out that the Hon’ble Apex Court in the case of Ghanashyam Mishra and Sons Pvt. Ltd. has, after considering the various decisions of its own and after analysing the relevant provisions of IBC, concluded as under :

“95. In the result, we answer the questions framed by us as under : (i) That once a resolution plan is duly approved by the Adjudicating Authority under subsection (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, and State Government or any local authority, guarantors and other stakeholders.

The Bench of Justice P. Dinesha, Member (Judicial), Vasa Seshagiri Rao (technical) held that once the Resolution Plan is approved by the Adjudicating Authority under Section 31 (1) of Insolvency and Bankruptcy Code, 2016 (IBC), then ‘no person will be entitled to initiate or continue any proceedings in respect to a claim which is not part of the resolution plan’.

Accordingly, the appeal was disposed.Service Tax Appeal No. 41198 of 2017

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