Case summary – CGST v. Dr. K.V. Srinivas, Liquidator of Veda Biofuel Limited
Sai Sumed Yasaswi Kondapalli
Associate, Dharma Legal
Introduction
The National Company Law Tribunal Amaravati Bench (“NCLT”) dismissed an appeal filed by the Central Goods and Service Tax, Vizianagaram CGST Division (“CGST”) against the Liquidator of Veda Biofuel Ltd. (“Corporate Debtor”) vide order dated 07-08-2023, reported at (2023) ibclaw.in 496 NCLT. The CGST department had sought the admission of a rejected claim amount of Rs. 8.67 crores.
Background
As per Sub-Regulation 2 of Regulation 16 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 (“Liquidation Regulations”) states that “A person shall prove its claim for debt or dues to him, including interest, if any, as on the liquidation commencement date.”
The Corporate Debtor, Veda Biofuel Ltd, went into liquidation on 26-05-2020. The CGST Department submitted its claim to the Liquidator, Dr. K.V. Srinivas, to the tune of Rs. 8.7 Crores, who had, after verifying the same, admitted Rs. 3.62 Lakhs and rejected the balance Rs 8.67 crores. This rejection was on the grounds that the demand crystallised after the liquidation commencement date (“LCD”).
CGST Department’s Appeal and Contentions:
The CGST department appealed against the partial rejection of its claim. It contended that the tax demand had arisen from dues prior to the Corporate Debtor going into insolvency.
However, the CGST department failed to provide adequate documentation such as details of tax liability period, Corporate Debtor’s responses, and reasons for delayed audit to prove crystallisation of dues prior to the commencement of CIRP.
NCLT’S Decision and Reasoning
The NCLT referred to the NCLAT judgement in Gurudeo Exports Corporation Pvt Ltd & Ors v. Mr. Akash Singhal Liquidator of Amira Pure Foods Pvt Ltd & Anr. (2023) ibclaw.in 324 NCLAT which held that claims must be backed by solid evidence to prove they were due before the liquidation commencement date.
In the absence of proper details regarding tax liability period and Corporate Debtor’s submissions, the NCLT held no finding could be conclusively given on claim’s entitlement.
The appeal was dismissed upholding the Liquidator’s decision, as the CGST department failed to substantiate with evidence that the claim amount was payable before the LCD.
Conclusion
The case highlights the importance of crystallization of debt / dues as on date of commencement of Corporate Insolvency Resolution Process/ LCD. Uncrystallized dues as on LCD are to be rejected, even if they seem reasonable otherwise.
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