The Calcutta High Court clarified that by virtue of Rule 22 of the CESTAT (Procedure) Rules, 1982, the CESTAT cannot entertain appeals that have abated. The Court therefore affirmed the action of the CESTAT in not adjudicating the issue as to whether the payments made in relation to the adjudication orders, which formed the subject matter of challenge in the appeals, could constitute a claim by the Revenue Department, especially when the appeals were heard based on orders that waived payment of the pre-deposits.
The Court found that the Revenue Department, as an operational creditor, by reason of the original corporate debtor voluntarily discharging its liability, did not include any claim in relation to the assessment already made, and during the subsistence of the adjudication orders, the appeals before the CESTAT stood abated by operation of law.
A Single Judge Bench of Justice Raja Basu Chowdhury referred to the resolution plan to observe that there was no debt or liability of the petitioner towards the Revenue Department (second respondent), which was an operational creditor for the relevant period. Further, since a claim as per Section 3 of the IBC means a right to payment, whether such right is reduced to a judgment or not.
The Bench therefore emphasised that unless there is a claim which may or may not be reduced to a judgment, there would be no debt and consequently no default in the form of non-payment of such a debt. The Bench also admitted that on the date when the CIRP proceeding was initiated, there was no outstanding debt of the petitioner.
However, the Bench pointed out that when the second respondent did not include the payment made by BSL, by reversal of the CENVAT credit, during the CIRP process, then all sub-judice claims of the petitioner stand wiped out and extinguished, and accordingly, the claim made by the department in form B also stood wiped out and extinguished.
The Bench was shocked to find that the petitioner, despite the reversal of CENVAT credit without treating the same as a deposit with the adjudicating authority, had sought for waiver of the pre-deposit, which was allowed by the Tribunal. BSL, having thus sought waiver of the pre-deposit, the petitioner cannot now claim that the reversal of CENVAT Credit is, in fact, a pre-deposit.
The Bench noted that the reversal of CENVAT Credit by BSL was voluntary and not a pre-deposit within the meaning of the pre-amended Section 35F of the Central Excise Act, especially when waiver of pre-deposit was sought for and was granted by the CESTAT.
Further, since BSL ceased to exist from the date of the NCLT’s order, the entire case of the petitioner proceeds on the premise that, though the appeals have abated, the amount deposited by the BSL by way of reversal of CENVAT credit is required to be returned, as the department is not authorised to retain any amount which was essentially in nature of security deposit.
Briefly, according to the petitioner, Bhushan Steel Ltd. (BSL) had set up an integrated steel plant, which included steel structures, namely sponge iron plant, blast furnaces, rolling mills, etc, for the manufacture and sale of long and flat rolled steel products. The BSL procured steel structures, parts, accessories, and cement to be used in the foundations for installing machinery. Accordingly, treating such items to be ‘capital goods’, the BSL had taken credit for the duty paid thereon. Subsequently, the CENVAT credit of Rs. 151.98, Rs. 5.01, Rs. 4.78, and Rs. 3.04 crores were disallowed, alleging that the steel structures procured by the BSL were not “capital goods”.
According to the petitioner, the BSL, while noting that they are not in agreement with the reasons for disallowing CENVAT credit, confirmed reversal of the CENVAT credit under protest, and thereafter, appealed before the CESTAT, which stayed the recovery of the equivalent penalty. During the pendency of the appeals before the CESTAT, an insolvency proceeding was initiated by the State Bank of India. The petitioner contended that despite the filing of the claim of operational debt, no claim was filed by the second respondent (Revenue Department) about the amount of tax and penalty.
Later, the petitioner submitted a resolution plan for taking over BSL as a going concern, and contended that the claims of operational creditors, including tax dues of the governmental agencies, as they stood before approval of the resolution plan, whether claimed or not, would stand extinguished. The plan was approved by the NCLT and confirmed by the NCLAT. The BSL was then renamed as “Tata Steel BSL Limited”, which contended that the tax demands forming the subject matter of appeals are not payable in terms of the approved resolution plan.
Later, the petitioner submitted that the CENVAT credit reversed by BSL under protest was an uncrystallized claim and hence, had been extinguished by virtue of the approval of the resolution plan of BSL. Accordingly, the petitioner prayed for a refund of the reversed CENVAT deposited by the BSL under protest. The CESTAT, however, dismissed the appeals, holding that they were already abated and the CESTAT has become factious officio.
Appearances:
Senior Advocate Sujit Ghosh, along with Advocates Avra Mazumder, Salona Mittal, Suman Bhowmick, Alisha Das, Samrat Das, Elina Dey, Siddhartha Das, and Sourendra Nath Banerjee, for the Petitioner/ Taxpayer
Advocates P.K. Bhowmik, Soumen Bhattacharjee, Ankan Das, Shradhya Ghosh, Tushar Kr. Sathpathy, Debasish Sathpathy, Aishwarya Rajyashree, and Chandra Gupta Kamal, for the Respondent
