Andhra Pradesh High Court Rules NCLT Order Takes Precedence Over GST Demand, Even If State Is Not Notified About Pending Proceedings

Andhra Pradesh High Court Rules NCLT Order Takes Precedence Over GST Demand, Even If State Is Not Notified About Pending Proceedings

The Andhra Pradesh High Court has ruled that the order of the National Company Law Tribunal (NCLT) takes precedence over Goods and Services Tax (GST) demands, even if the state government was not notified about the ongoing NCLT proceedings. This decision was made by a Division Bench comprising Justices R. Raghunandan Rao and Harinath N.

The court dismissed the department's argument that the NCLT order is not binding on the State of Andhra Pradesh due to Section 88 of the GST Act. The Bench highlighted that Section 238 of the Insolvency and Bankruptcy Code (IBC) contains a non-obstante clause, which gives it priority over other laws.

Section 88 of the GST Act mandates that when a company is undergoing liquidation, the liquidator must inform the Commissioner within 30 days of their appointment, who then has three months to notify the liquidator of any tax liabilities. Directors of a private company may be held jointly and severally liable for unpaid taxes unless they can prove that non-recovery was not due to their negligence.

The case involved a company undergoing insolvency proceedings under the IBC, during which the NCLT approved a resolution plan on September 4, 2019, that required settling all debts, including those owed to the government, using funds from successful applicants in the resolution process. Following this, the company resumed operations under new management.

However, the company faced tax demand-cum-adjudication orders from the Assistant Commissioner in Kakinada and the Deputy Commissioner in Vijayawada, totaling approximately ₹3.07 crore for the period from July 2017 to March 2020. The company challenged these orders in the Andhra Pradesh High Court.

The petitioner argued that, based on the NCLT's resolution plan, it was not liable for these amounts, as the plan included a provision to clear statutory dues of ₹25 crores. The department countered that the NCLT's order was not binding because the state had not been notified of the insolvency proceedings.

The High Court referenced the Supreme Court's ruling in Ghanshyam Mishra and Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company, which established that once a resolution plan is approved, all claims not included in the plan are extinguished, making the NCLT order binding on all stakeholders, including the government.

Ultimately, the court determined that the company's liabilities under the AP VAT Act and GST Act were extinguished as of the NCLT order date. The Bench concluded that the department's arguments against the binding nature of the NCLT order were unfounded, leading to the allowance of the petition.