HC Bombay (22.12.2020) in GGS Infrastructure Private Limited ..Petitioner Vs Commissioner of CGST & Central Excise [WP-LD-VC-No.268 of 2020] held that;
The resolution plan highlighted that in the interest of safeguarding the sustainability of the company and so as not to derail the same in the event of a substantial claim by the department, the liability, if any, that would crystallize would be settled at 5% of the amount of the principal dues adjudicated by the appropriate authority and interest, penal interest as well as penalty that may be charged shall be waived.
Thus, having considered all aspects of the matter, we have no hesitation to hold that principal service tax dues quantified by the respondent vide order in original dated 22.07.2020 has to be settled at the rate of 5%, in other words 5% of Rs.7,02,20,725.00. The directions of the respondent for appropriation of the amount of Rs.6,23,82,214.00 already recovered cannot be sustained.
Excerpts of the order;
# 2. By filing this petition under Article 226 of the Constitution of India, petitioner has sought for the following reliefs :-
(I) To set aside and quash the order in original dated 22.07.2020 passed by the Commissioner of Central Goods and Services Tax and Central Excise, Mumbai Central;
II) For a declaration that total liability of the petitioner to the respondent does not exceed Rs.35,54,682.55 in accordance with the order dated 30.08.2019 passed by the National Company Law Tribunal, Mumbai Bench sanctioning the resolution plan of the petitioner under section 31 of the Insolvency and Bankruptcy Code, 2016;
III) For a direction to the respondent not to appropriate an amount of Rs.6,23,82,214.00 already recovered following the order in original dated 22.07.2020;
IV) For a direction to the respondent to refund an amount of Rs.5,88,27,531.45 to the petitioner.
# 8. The resolution applicant thereafter submitted resolution plan for revival of the petitioner. In accordance with the provisions of the Code a committee of creditors was formed to evaluate the resolution plan so submitted. In the meeting of the committee of creditors held on 25.03.2019, it voted in favour of the resolution plan submitted by the resolution applicant with 90.93% of the total voting share of the committee of creditors approving the plan. One of the important features of the resolution plan was that it provided for settlement of dues of operational creditors at the rate of 5% of the principal amount only with waiver of interest, penal interest and penalty.
# 9. Thereafter the resolution professional Shri. Naren Sheth filed misc. application before the Tribunal under section 30(1) and (6) of the Code for sanction of the resolution plan in accordance with section 31 of the Code. The misc. application was registered as MA No.1240 of 2019. It is stated that the application was heard from time to time and was finally allowed by the Tribunal vide order dated 30.08.2019. In the said order reference was made to the service tax dues of the petitioner, particularly in the backdrop of two show cause cum demand notices dated 18.04.2015 and 13.02.2017 (01.02.2017) issued to the petitioner raising demand of service tax, interest, late fee and penalty, totalling Rs.1929.85 lakhs. Tribunal noted that the claim raised on account of service tax dues fell under the definition of operational creditors and held that the dues should be settled at par with other operational creditors under the resolution plan. It was pointed out that the resolution plan provided for settlement of dues of operational creditors at the rate of 5% of the principal amount and waiver of interest, penal interest and penalty. Noting that petitioner had contested the demand raised, it was directed that in the interest of safeguarding sustainability of the company (petitioner) and not to derail the company (petitioner) in the event of a substantial claim by the department, the liability, if any, that would crystalise would be settled at 5% of the amount of principal dues adjudicated by the appropriate appellate authority/tribunal and in case of interest, penal interest and penalty charged by the authority that should be waived. By the said order the resolution plan as was approved by the committee of creditors was sanctioned by the Tribunal.
# 10. It is stated that the respondent adjudicated upon three show cause cum demand notices dated 18.04.2015, 01.02.2017 (13.02.2017) and 19.04.2018. Personal hearing granted by the respondent was attended by the resolution professional. Petitioner contended before the respondent that all the claims for and against the petitioner pertaining to the period prior to commencement of the corporate insolvency resolution process have been adequately dealt with by the Tribunal in its order dated 30.08.2019. Copy of the said order was also furnished to the respondent. At a subsequent stage petitioner informed the respondent that against the demand raised i.e. Rs.7,10,93,651.00, the liability which was contested by the petitioner stood at Rs.2,92,47,370.00. Remaining amount of Rs.4,18,46,281.00 was an admitted claim which was required to be settled at 5% in terms of the order of the Tribunal dated 30.08.2019.
# 11. It is further stated that before adjudication respondent had issued notices under section 87(b)(i) of the Finance Act, 1994 to branch managers of banks where the petitioner had maintained its accounts directing them to transfer the amounts held by them to the government treasury. Similar notices were issued to various debtors of the petitioner as well directing them to deposit the amounts owed by them to the petitioner directly to the account of government treasury. In the process respondent had recovered total amount of Rs.6,23,82,214.00 on account of service tax liability of the petitioner, the break up of which has been mentioned in paragraphs 19 and 20 of the writ petition.
# 12. Ultimately, respondent passed the impugned order in original on 22.07.2020. The demand raised in the three show cause cum demand notices dated 18.04.2015, 01.02.2017 (13.02.2017) and 19.04.2018 were confirmed. As per the said order the total demand raised against the petitioner was quantified at Rs.7,02,20,725.00. As stated above, respondent had already recovered an amount of Rs.6,23,82,214.00. In the impugned order respondent had recorded the statement of the petitioner that petitioner is required to pay 5% of the admitted liability and thereafter 5% of the crystallized amount upon adjudication of the contested liability in terms of the resolution plan as approved by the committee of creditors and sanctioned by the Tribunal. However, there appears to be no discussion of the effect of the Tribunal’s order dated 30.08.2019 on the demand raised by the respondent. However, it is seen that a copy of the impugned order dated 22.07.2020 was forwarded to the resolution professional Shri. Naren Sheth.
# 33. It may be mentioned that the respondent herein as operational creditor had submitted proof of claim against the petitioner before the resolution professional on 19.03.2018 in respect of the corporate insolvency resolution process. Referring to two show-cause notices dated 18.04.2015 and 13.02.2017 (01.02.2017), it was mentioned that the total amount of claim of the respondent against the petitioner was Rs.19,29,85,804.00 which included applicable interest and penalty as on insolvency commencement date. It was however mentioned that the said claim was being contested by the corporate debtor and was pending.
# 34.3. Thus, the resolution plan mentions that the claim of service tax dues falls under the definition of operational creditors. Such dues should be settled at par with other operational creditors under the resolution plan which provides for settlement of dues of operational creditors at the rate of 5% of the principal amount with waiver of interest, penal interest and penalties. The claim amounting to Rs.1929.85 lakhs was being contested by the corporate debtor before the concerned authority and the amount of admitted claim could not be determined until the outcome of the said proceeding. Therefore, the said amount of Rs.1929.85 lakhs was kept in abeyance. However, the amount that would come to be determined upon adjudication would be settled at the appropriate time. The resolution plan highlighted that in the interest of safeguarding the sustainability of the company and so as not to derail the same in the event of a substantial claim by the department, the liability, if any, that would crystallize would be settled at 5% of the amount of the principal dues adjudicated by the appropriate authority and interest, penal interest as well as penalty that may be charged shall be waived.
# 36. Having discussed and analyzed the resolution plan and the sanctioning order of the Tribunal, we may now advert to the order in original dated 22.07.2020 passed by the Commissioner of CGST and Central Excise, Mumbai Central. The said order in original was passed upon adjudication of three show-cause cum demand notices dated 18.04.2015, 01.02.2017 (13.02.2017) and 19.04.2018. It may be mentioned that even before issuance of the first show-cause cum demand notice dated 18.04.2015, respondent had initiated recovery proceedings under section 87(b)(i) of the Finance Act, 1994 for recovery of service tax dues by issuing letter dated 18.04.2013 calling upon the bankers and debtors to deposit the amounts of the petitioner or due to the petitioner and available with them to the government account on behalf of the noticee (petitioner). Pursuant to such proceedings various debtors made payments from time to time.
# 36.1. Show-cause cum demand notice dated 18.04.2015 covered the period from 01.06.2010 to 31.03.2014; show-cause cum demand notice dated 13.02.2017 (01.02.2017) covered the period from 01.04.2014 to 31.03.2015 and show-cause notice dated 19.04.2018 covered the period from 01.04.2015 to 31.03.2016.
# 37. While adjudication of the show-cause notices to arrive at the total service tax dues may be the requirement of law and in conformity with the resolution plan because only upon crystallization of the amount due, the amount that the petitioner would be liable to pay at the rate of 5% could be arrived at. However, what is disconcerting is the order of the respondent for appropriation of the amounts already realized/recovered from the bankers and debtors of the petitioner.
# 38.1. In the present case, what we have noticed is that section 87(b) (i) was invoked as early as on 18.04.2013 whereas the first show-cause cum demand notice was issued to the petitioner only on 18.04.2015. While invocation of section 87(b)(i) and recoveries made thereunder are highly questionable, it may not be necessary for us to delve into the legality or illegality of the same in the present proceeding because of the binding nature of the resolution plan as approved by the committee of creditors and sanctioned by the Tribunal. However, attempt by the respondent for appropriation of the amount recovered through such questionable means in the face of the resolution place so approved and sanctioned is a live issue and hence needs to be adverted to.
# 39. Following the above, we have no hesitation to hold that once a resolution plan is approved by the committee of creditors by the requisite percentage of voting and the same is thereafter sanctioned by the adjudicating authority (Tribunal in this case), the same is binding on all the stakeholders including the operational creditors. As a matter of fact, resolution professional. The resolution plan provides for settlement of service tax dues at 5% of the amount of principal dues that would be crystallized upon adjudication, further providing for waiver of interest, penal interest and penalty that may be charged. As we have held above, respondent may be justified in proceeding with the show-cause cum demand notices because that has resulted in crystallization of the total amount of service tax dues i.e., the principal amount payable by the petitioner which is Rs.7,02,20,725.00. The amount of service tax dues having thus crystallized as above, the resolution plan says that the same would be settled at 5% of the principal dues adjudicated. The word used is “adjudicated” and not “adjusted” as sought to be read and applied by the respondent. Therefore, the amount that the petitioner would be required to pay is 5% of Rs.7,02,20,725.00. In so far the recovered amount i.e. Rs.6,23,82,214.00 is concerned, the same is part of the total demand determined i.e. Rs.7,02,20,725.00. After retaining 5% of Rs.7,02,20,725.00, respondent would be duty bound to refund the balance amount to the petitioner which will not only be in terms of the resolution plan and thus in accordance with law but will also be a step in the right direction for revival of the petitioner which is the key objective of the Code. There is no question of retaining the said amount. Submissions made by Mr. Jetly that the amount already recovered should be allowed to be appropriated by the respondent and that petitioner should pay 5% of the balance of the principal dues i.e. 5% of Rs.7,02,20,725.00 less Rs.6,23,82,214.00 is without any substance and liable to be rejected. It is accordingly rejected.
# 41. Thus, having considered all aspects of the matter, we have no hesitation to hold that principal service tax dues quantified by the respondent vide order in original dated 22.07.2020 has to be settled at the rate of 5%, in other words 5% of Rs.7,02,20,725.00. The directions of the respondent for appropriation of the amount of Rs.6,23,82,214.00 already recovered cannot be sustained. Respondent shall retain 5% of Rs.7,02,20,725.00 from the above amount recovered and thereafter refund the balance amount to the petitioner. To that extent, impugned order in original dated 22.07.2020 is interfered with. Refund shall be made within a period of three months from the date of receipt of a copy of this judgment and order.
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