Kochi NCLT penalizes GST department for raiding corporate debtor during moratorium

Kochi NCLT penalizes GST department for raiding corporate debtor during moratorium

Directs it to pay Rs.50,000 towards the CIRP cost, which could be recovered from the officials who erred

The Kochi Bench of the National Company Law Tribunal (NCLT) has imposed a fine on the Goods and Services Tax Department (GST) for raiding the premises of the corporate debtor during the moratorium period and seizing account documents.

While adjudicating a petition filed in the Kosamattam Finance Ltd. vs Mangomeadows Agriculture Pleasure Land Pvt. Ltd case, the Tribunal Bench comprising P. Mohan Raj (judicial member) and Satya Ranjan Prasad (technical member), held that the raid and seizure of documents by the GST department during the Corporate Insolvency Resolution Process (CIRP) was violative of the moratorium under Section 14 of the Insolvency and Bankruptcy Code (IBC), 2016.

The Bench set aside the summons issued to the Resolution Professional (RP) by the GST department.

Kosamattam Finance (financial creditor) filed a petition under Section 7 of the IBC seeking initiation of CIRP against Mangomeadows Agriculture (corporate debtor).

Early this year, the corporate debtor was admitted into CIRP and a moratorium was imposed. The GST department submitted its claim of Rs.36 lakhs to the Interim Resolution Professional (IRP).

However, abruptly in March, the GST department conducted a raid on the premises of the corporate debtor despite being aware of the moratorium and seized all account documents. It also issued a summons to the RP to appear for inquiry.

Thereafter, the RP filed an application under Section 60(5) of IBC, seeking direction to the GST department to release the documents.

The GST department argued that the raid was conducted merely to determine the tax due and was not a proceeding to recover dues from the corporate debtor.

The Bench observed that as per a Circular No. 134/04/2020-GST of the Ministry of Finance, no coercive action can be taken in respect of a corporate debtor under CIRP. It meant that the directions were violated by the GST department.

The Tribunal stated, “The acts of the respondent undermined the authority of the Resolution Professional. Also, because of the seizure of books of accounts of the corporate debtor, it caused much inconvenience and paralyzed the resolution process. Therefore, the same shall be completed in a time-bound manner.”

The Bench concluded that the search and seizure of the corporate debtor’s records and issuance of summons to the RP were violative of the moratorium under Section 14 of IBC.

The Bench directed:

• The GST department must return the documents seized from the corporate debtor’s premises;

• The summons issued by the department to the RP is to be set aside;

• The GST department must pay a compensatory cost of Rs.50,000 to the Resolution Professional, towards the CIRP cost. The department could recover the compensatory cost from the erred officials.