GST V.

IBC – An insight on juxtaposition

By

Name of the Student: K.MEGHANA

Roll No: 2018LLB039

Semester: VII th

Name of the Program: 5 year (B.A., LL.B.)

Name of the Faculty Member

Mr. R. Vishnu Kumar

Date of Submission

31/12/2021

DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

NYAYAPRASTHA “, SABBAVARAM,
VISAKHAPATNAM – 531035, ANDHRA PRADESH

1
 ACKNOWLEDGEMENT

I heartfully express my special thanks to my subject teacher Mr. R. Vishnu Kumar for giving me
the opportunity to do the project on the topic ‘Interpretation of the judgment of 15 June 1962 in
the case concerning the temple of Preah Vihear ( Cambodia V. Thailand) (I.C.J.) ’. It helped me
to know many things and gain knowledge. I also thank him for guiding me throughout the
project and responding for my doubts regarding the project.

I would also like to thank my University ‘Damodaram Sanjivayya National Law University’ for
providing me with all the required materials for the completion of my project and I also came to
know many new things.

2
 TABLE OF CONTENTS :-

1.SYNOPSIS ……………………………………………………………………………..…….04

2. INTRODUCTION …………………………………………………………………………....05

3. THE INTERPLAY BETWEEN IBC AND INCOME TAX LAWS …………………………05

4. GST vs IBC – An insight on juxtaposition …………………………………………………...07

5. IMPACT OF GST ON COMPANIES UNDER IBC ……………………………….………..10

6. THE GST – IBC INTERPLAY – A CRITICAL ANALYSIS ………………………………11

7. DISTRIBUTION MECHANISM OF ASSETS SALE PROCEEDS UNDER THE CODE…11

(I) Purpose of the code

POST LIQUIDATION IRRITANT – INTERPLAY BETWEEN IBC AND GST LAWS……..12

9. CASE LAW ………………………………………………………………………………….16

10. ANALYSING THE CURRENT POSITION ………………………………………………22

11.CONCLUSION ……………………………………………………………………….…….23

12. BIBLIOGRAPHY ………………………………………………………………………….23

3
 SYNOPSIS

Title of the project :- GST V. IBC – An insight on juxtaposition

Aim of the Study:

The study's goal is to learn about the GST and IBC position

Significance of the Study:

This project specifically deals with the overall content of the GST and IBC briefly

Scope of the Study:

The scope of the study is confined only to the GST and IBC; How those are different

Research Methodology:

This project shall be done by following the doctrinal research of study by referring to certain
acts, articles, journals and judgment.

Hypothesis:

Whether the outbreak of novel coronavirus (COVID-19) has resulted in uncertainty for
individuals and businesses; how it dealt with the current situation.

4
 INTRODUCTION

India's preferred taxation scheme is separated into sorts of taxes: direct taxes and oblique taxes.
Direct taxes are the ones charged at the earnings of people and different entities, while oblique
taxes are the ones levied at the sale or buy of products and offerings. In the case of direct taxes,
the weight of paying tax falls immediately at the person or assessee. In the case of oblique taxes,
however, the responsibility of gathering and depositing tax falls at the dealers of products and
offerings in place of on human beings or customers. The Indian Constitution offers the Central
and State Governments the authority to levy and gather taxes.1

Numerous changes have been made to various laws in order to achieve the objectives of the IBC,
such as the Companies Law, the 1993 Law on the Collection of Receivables Due to Banks and
Financial Institutions (RDBFI), securitization and the reconstruction of financial assets and the
enforcement of the 2002 Law on Security Interests (SARFAESI), and so on. The Income Tax
Act is also one such regulation that has undergone revisions to keep the provisions in
compliance with the Bankruptcy and Bankruptcy Code. Therefore, it is necessary to study the
relationship between the IBC and the Income Tax Act in order to assess its impact not only on
taxpayers but also on other stakeholders in the business sector, such as taxpayers. creditors,
corporate debtors, resolution seekers. liquidator. light on the interaction between the two
executives with particular attention to the Leo Edibles and Fats Ltd. case. vs. The Tax
Collection Officer (Central) IT Service

THE iINTERPLAY iBETWEEN iIBC iAND iINCOME iTAX iLAWS i

The ikey ipoint ito iconsider iwhen iconsidering ithe iinteraction ibetween iIBC iand iincome
itax ilaws iis iwhether ithe iIBC ihas ian iadvantage iover iany iincome itax irule. i, ithat iis,
iwhether ithe iprovisions iof ithe iIBC iwill ihave ipriority ieffect iin ithe ievent iof i iconflict
iwith i iincome itax ilaws. iexamining ithis iissue ithrough ithe ilens iof iSection i238 iof ithe
iIBC. iThis isection icontains2 i-

1
https://www.taxmann.com/research/indian-acts
2
ihttps://www.grantthornton.in/insights/articles/impact-of-gst-on-companies-under-ibc/
5
"The iprovisions iof ithis iCode i ihave i ieffect, inotwithstanding ianything ito ithe icontrary
icontained iin iany iother ilaw icurrently iin iforce ior iin iany iinstrument ihaving ieffect iby
ivirtue iof ithis ilaw". i

In iorder ito idetermine iwhether ithe iterms iof ithe iIBC iwill iprevail iover ithe iprovisions iof
ithe itax ilaws, ione imust irely ion ia ilandmark idecision iof ithe iSupreme iCourt iof iIndia. iIn
ithe icase iof iPr iCommissioner iof iIncome iTax iv. iMonet iIspat iand iEnergy iLtd., ithe
iSupreme iCourt iruled ithat iSection i238 iof ithe iIBC itakes iprecedence iover ianything
iinconsistent iin iany ilaw, iincluding ithe iIncome iTax iAct. i ithe iLimitation iAct, i1963 ito
ivarious iproceedings iunder ithe iIBC ihas ibeen ithe isubject iof imuch idiscussion. i

The iLimitation iAct iprovides i ia ispecific itime ilimit ifor ilimiting ithe ivarious istages iof
ilegal iaction ias iwell ias iother iproceedings.In i iSpeculum iPlast iPrivate iLimited iv. iPTC
iTechno iPrivate iLimited, iParag iGupta iand iAssociates iv. iBK iEducational iServices iPrivate
iLimited iand iAshlay iInfrastructure iPrivate iLimited iv. iLDS iEngineers iPrivate iLimited
iand iInnoventive iIndustries iLimited iv. iICICI iBank iand iAnr, ithe iNational iThe iTribunal
iof ithe iCompany iLaw iAppeal iBoard i(NCLAT) icollectively iheld ithat iin ithe iabsence iof i
ispecific iprovisions irelating ito ithe iapplicability iof i ithe ilimitation iperiod ito iproceedings
iunder ithe iIBC, iit iis iopen ito ithe icourts ito ianalyze iand idecide iwhether ior inot ithe
ilimitation iperiod iapplies ito isuch iproceedings.Such ia idecision iwould ihave iled ito ithe
iaccumulation iof iinsolvency iclaims iand iother irelated ilawsuits iand iappeals. iTo iavoid
ithis, isection i238A ihas ibeen iincluded iin ithe iBankruptcy iand iBankruptcy iCode. iThis
isection iprovides ithat i3 i–

"The iprovisions iof ithe iLimitation iAct iof i1963 iapply, ito ithe iextent ipossible, ito
iproceedings ior iappeals ibefore ithe ijudicial iauthority, ithe inational icompany ilaw iappeals
itribunal, ithe idebt icollection itribunal ior ithe icourt. idebt icollection iappeal, ias ithe icase
imay ibe. i

3
ihttps://blog.ipleaders.in/juxtaposition-income-tax-laws-insolvency-bankruptcy-code-2016/

6
"This isection iclearly iimplies ithat ithe ilimitation iperiod iapplies ias isoon ias ia iprocedure iis
iestablished ibefore iany iauthority. iIt ialso ishows ihow ithe ilaws iare iinterconnected, ithe
istatute iof ilimitations ibeing ilinked ito ithe ibankruptcy icode iand ithe iimplication iof
iinsolvency iwith iincome itax ilaw icreates ia irelationship ibetween ithe idifferent ilegislations.

GST ivs iIBC i– iAn iinsight ion ijuxtaposition

The iGST iin iIndia ihas iencountered imany ichallenges isince iits iimplementation iin ithe
icountry. iThere iare imany ilegislative iand iprocedural iissues ithat ihave iplagued ibusinesses
ifor isome itime. iThe iliability iand icompliance iof ientities iwith iregard ito ithe iGST iunder
ithe iBankruptcy iand iBankruptcy iCode, i2016 i(IBC) ihas igenerated i igreat i iconfusion iand
iuncertainty iin ithe ibusiness, iwhich ihas iled ito ia iconflict iof ilaws iand, isubsequently, ito
ithwart ithe ispirit iand ipurpose iof ithe ilegislative iprocess..4

The iintention iand ipurpose iof ithe iIBC ilegislation iis ito icome iup iwith ia iresolution iplan
iwith ithe irelaunch iof ithe iindustry ithat iis ifalling iinto ioblivion. iAccording ito ithe iIBC,
ithe icorporate iinsolvency iresolution iprocess i(CIRP) iis iinitiated iwith ithe idefault iof ia
icertain ithreshold iamount iand ithe imanagement iof ithis imatter i(debtor icompany) iand iits
iactivities iare ientrusted ito ia iresolution iprofessional. i. itemporary i(IRP) ior ito ia iresolution
iprofessional. i(RP), iif iapplicable. iSubsequently, ithe iIRP i/ iRP iis iresponsible ifor
icomplying iwith ithe irequirements iof ithe iGST ilaw. i

However, ithere ican ibe imany icases iof ilitigation ior inon-payment ion ithe iGST ifronts ifor
ilegitimate ireasons. i i iIn ia ipositive igesture, iwith ithe iintention iof ibringing icertainty iand
iclarity ito ithe iissues, ithe iCBIC iprovided isome iclarification ithat iit isaw. iAs ifor ithe
iCIRP ientity, i ithis ientity iultimately icontinues ito imanage ithe ibusiness iand ioperates
icontinuously iuntil ithe iresolution iof ithe iinsolvency iproceedings.However, ithe idifficulty
ilies iin ithe iapplicability iof iarticle i148 iof ithe iCGST ilaw iand iin icompliance iwith ithe i

4
iBhumika iIndulia, iInterplay ibetween itax ilaws iand iIB iCode iduring iliquidation, iSCC
iBlog i(2021), ihttps://www.scconline.com/blog/post/2021/01/23/interplay-between-tax-laws-
and-ib-code-during-liquidation/ i(last ivisited iAug i20, i2021).

7
iprocedure i iprovided ifor itherein. iTo ifacilitate iunderstanding, ithe iprovisions iof iarticle
i148 iof ithe ilaw iare iextracted ibelow; i i i

“The igovernment imay, ion ithe irecommendation iof ithe iCouncil iand isubject ito ithe
iconditions iand iguarantees iwhich imay ibe iprescribed, inotify icertain icategories iof
iregistered ipersons iand ithe iparticular iprocedures ito ibe ifollowed iby ithese ipersons, iin
iparticular ithose irelating ito iregistration, iprovision iof ithe ideclaration, ipayment iof itaxes
iand iadministration iof ithese ipersons i”.In iview iof ithe iongoing idebate ion ithe imatter ias
idescribed iabove, iin iorder ito iallay ithe ifear iof iconflicts iin irelated iprovisions, ithe iCBIC
ihas iprescribed icertain iprocedures iin iorder ito iensure iuniformity iin ithe iimplementation iof
ithe iprovisions. ifor idebtor icompanies isubject ito ithe iCIRP iin iaccordance iwith ithe
iprovisions iof ithe iIBC iWith ithe iaforementioned icircular iof i23.03.2020 imany
ifundamental iquestions ihave ibeen iclarified ias iindicated iabove. iThe inew isystem ifor
ientities isubject ito ithe iCIRP iis iclarified. iIt iis iclarified ihow iGST iallowances iare ito ibe
itreated ifor ithe ipre-CIRP iperiod ifor ibetter iclarity iand iunderstanding. i i i

Regarding ithe irelease iof iTPS iquotas, iit iis ispecified ithat ino icoercive iaction imay ibe
itaken iagainst ithe idebtor icompany iwith ireference ito ithe iquotas irelating ito ithe iperiod
iprior ito ithe idate iof ithe istart i iof ithe iinsolvency ior ithe ipre-insolvency iperiod.Allocations
ifrom ithe ipreCIRP iperiod iwill ibe itreated ias ian i“operational idebt” iand irelated irequests
imay ibe isubmitted iby ithe iagent ito ithe iNCLT iin iaccordance iwith ithe iprovisions iof ithe
iIBC. iIn iaddition, iit iis ivery iimportant ito iremember ithat iArticle i14 iof ithe iIBC iimposes
ithe iimposition iof ia imoratorium iperiod, iduring iwhich ithe iinitiation iof ilegal iactions ior
ithe icontinuation iof iactions ior ipending iproceedings i iagainst ithe idebtor icompany iis
iprohibited.5

Although ithe iaforementioned icircular iis iintended ito iaddress isome iof ithe iconcerns iof
iCIRP ientities, iparticularly iregarding ithe icancellation, ifiling iof ireturns ior ithe iadoption iof
ienforcement iaction iby ithe iGST iservice ito iprosecute iGST idefaults, ihowever, iit idoes inot

5
iInsolvency iand iBankruptcy iCode ibeyond ithe iTip iof ithe iIceberg, ia iDeloitte iResearch
iStudy, iaccessible iat i<https://www2.deloitte.com/content/dam/Deloitte/in/Documents/tax/in-
tax-ibc1-noexp.pdf>.

8
icontain iany iclarity. isome iissues isuch ias ihow ito ideal iwith icredit iaccumulated iunder
icurrent i/ iold imembership. iIt iis inot iclear iwhether iit ican ibe itransferred ito ithe inew
iregistration iand iused iby ithe iIRP i/ iRP ito imake ithe ipayment iof itaxes. iIn ia isimilar
icase, ithe iRajasthan iHigh iCourt i irecently isettled iand iresolved idisputes iby ieliminating
iareas iof iconfusion iover iGST iliability i iduring ithe iCIRP. i i

A iwritten ipetition ipresented iby iUltra iTech iNathdwara iCement iLtd i(formerly i iBinani
iCements iLtd) iinjured iby i inotices iof icomplaint iissued ifrom itime ito itime iby ithe iGST
iDepartment i(Respondent) ifor ithe iperiod iof iApril i i2012 ito iJune i2017 ior ibefore ithe
iplaintiff iis inot itaking ion ithe icompany iin ia iproceeding iunder ithe iBankruptcy iCode
i2016. iNow ithe iquestion iraised iby ithe iHigh iCourt iof i iHonorable iMembers iwas ithe
ivalidity iof ithe icompensation iclaim i iraised iby ithe iGST idepartment iafter ithe iapproval iof
ithe iresolution iplan.6

The iHigh iCourt iof iRajasthan iin i iUltra iTech iNathdwara iCement iLtd iv. iUnion iof iIndia
ihas ifound ithat ionce ithe icomplainant's iresolution i ioffer iis iaccepted iand ithe iresolution
iplan iapproved iby ithe icompetent iauthority, iit iis ibinding ion iall iinterested iparties. iin
iwhich ithe i isector icompany icould ihave ilegal iinterests. iNo iright iof ihearing iis igranted iin
ithe iresolution iprocedure ito ithe ioperating icreditor, ithat iis ito isay ithe iState. ior ithe istate
igovernment. iAs ipart iof ithe iresolution iplan iwith ithe irevival iof ithe iindustry i iat ithe
irequest iof ithe iresolution iapplicant, itheir irights ihave ibeen isecured iup ito iRs. i72 icrore,
iwhich iis iassessed iby ithe iresolution iprofessional iand ihas ialready ibeen ifiled iby ithe
irequester ifor ia ipositive iresolution. i. iConsequently, ithe idefendant, ithat iis i ito isay ithe
iservice iof ithe iGST, iwould ihave iacted iin ia icompletely iillegal iand iarbitrary imanner iby
ilobbying ifor ithe irequests iraised iin iview iof ithe idisputed iopinions iand ifor iany iother
irequests iwhich iit icould itake. iinto iconsideration ifor ithe iperiod ipreceding ithe iconclusion
iof ithe iresolution iplan.Notice iof iclaim iis iconsidered iillegal, iarbitrary iand iexfacie ilost
iand imay inot ibe iretained.7

Therefore, ithe iRajasthan iHigh iCourt iruled ithat ithe iclaims imade iagainst ithe idisputed
iopinions iin ithe iwritten iproceedings iwere iillegitimate iand iarbitrary. iAs ia iresult, ithe

6
ihttp://www.lawstreetindia.com/experts/column?sid=324
7
ihttps://cleartax.in/s/gst-compliance-company-insolvency-bankruptcy
9
inotices iand irequest iorders iand iother irequests ipending ion ithe idate iof iconclusion iof ithe
iresolution iplan iissued i/ iextended iby i iAgenzia idelle iEntrate iBeni ie iServizi iare icanceled
iand icanceled. iThe irelative iextract iof ithe isentence ifollows; i i

i"... ioperational icreditors, ithat iis, ithe icommercial itax iservice iof ithe icentral igovernment
ior ithe istate igovernment, ias ithe icase imay ibe, ihave ino iright iof ihearing. ithe ilaw iis ivery
iclear ithat ihe iintends ito irevive ithe idying iindustry ioffering ian iopportunity ifor ia
iresolution iseeker ito itake iover i iand iinitiate ithe ioperation ion ia iclean islate. i i i

It ican ibe ipointed iout ihere ithat ithe iamount iof iRs.72 icrore iassessed iby ithe iresolution
ipractitioner iin ifavor iof ithe i iGST idepartment iagreed ithat iit ihas ialready ibeen ideposited
iby ithe iperson ientitled ito itermination ior iby ithe irequesting icompany.The idemand inotices
iare iex-facie iillegal, iarbitrary iand iper-se iand icannot ibe isustained."

It iis iclear ithat ithe igovernment iis idoing ieverything iit ican ito iresolve idisputes iand
iachieve ilegislative iharmonization iby iamending ivarious ilaws iand ipromulgating
iclarifications, ibut ithe icontribution iof ithe ijudiciary ito iensuring isafety iand ifairness iis
ialso icommendable. iconfusion ias ito ithe iapplicability iand isupremacy iof iGST iand i/ ior
iIBC ior iany iother iact, ihowever, ia idecision isuch ias ithat iof ithe iHigh iCourt iof iRajasthan
ias imentioned iabove iwould icertainly iprovide ithe inecessary iclarity ion iambiguous
iquestions. i i

In iconclusion, iit ican ibe isaid ithat iin ithe ilong iterm, ithe igovernment iwill ineed ito ibe
imore icareful iand ipragmatic iin idrafting ilaws iin iorder ito iminimize iconflicting iprovisions
iacross ithe ilegal ispectrum. iIt iis ihoped ithat ithe iCBIC icircular iand ithe icurrent iruling iof
ithe i iHigh iCourt iof ithe iHonorable iRajasthan iwill iprovide iclarity iand icertainty ion ithe
iissue iof ithe iGST iobligation iwhen ichallenged iby ithe iIBC. iFinally, iin iorder ito ifulfill
ithe i ipurpose iand ispirit iof ithe ilaw iin ithe icountry, ithe ijuxtaposition iof iGST iand iIBC
imust iprevail.8

IMPACT iOF iGST iON iCOMPANIES iUNDER iIBC i

8
iCivil iWrit iPetition iNo. i9480/2018, iRajasthan iHigh iCourt i(Jodhpur iBench) i- i2020-
TIOL-760-HC-RAJ-GST
10
The iIndian igovernment ihas iannounced iseveral irelief imeasures iin ilight iof ithe icoronavirus
ipandemic, iwhich ihas iaffected ibusinesses iand ieconomies iaround ithe iworld. ibeen irevised
ito iINR i1 icrore ifrom iINR i1 ilakh. i i i

To iovercome iand isimplify icompliance iunder ithe iGoods iand iServices iTax i(GST), ithe
igovernment ihas iprescribed ispecial iprocedures iunder ithe iGoods iand iServices iTax iAct
ifor idebtor ibusinesses imaking ithe isubject ito ia iCorporate iInsolvency iResolution iProcess
i(CIRP) iunder ithe iprovisions iof ithe iIBC iand i iwhose ibusiness iis ihandled iby ian iInterim
iResolution iProfessional ior ia iResolution iProfessional.9 i i i

This ipublication iexplains isome iof ithese iclarifications iand ichallenges ifaced iby idebtor
icompanies iand iinterim iresolution iprofessionals ior iresolution iprofessionals, iwith iour
iperspective iin iaccordance iwith i iprocedures iintroduced iby ithe iMinistry iof iFinance ito
iensure icompliance iwith ithe iGST i iof idebtor icompanies isubject ito ithe iCIRP.

THE iGST i– iIBC iINTERPLAY i– iA iCRITICAL iANALYSIS i

When ia ibusiness ibecomes iinsolvent, imany iproblems iarise. iThe igovernment iissued ithe
iInsolvency iand iBankruptcy iCode, i2016 i("the iCode") ito iaddress ithese iissues iand imake
ithe iprocess ismoother. iUnfortunately, ithe igovernment ioften ifails ito idraft ivarious irelated
ilaws iwell. i

The iproblem ithat iarises itoday iis ithe iinteraction ibetween ithe iCode iand ithe iGoods iand
iServices iTax i('GST') ilaws. i i iRecently, icompanies iin ithe iprocess iof iresolving
iinsolvency i iare iat ian iimpasse idue ito ithe irestriction iunder iArticle i39 i(10) iof ithe
iCentral iGoods iand iServices iTax iLaw iof i2017 i(“Law iCGST i”). iBusinesses ihave ino
ichoice ibut ito igo ito icourt ifor ia iresolution.10

9
iBankruptcy iLaw iReforms iCommittee, iVolume iI i"Report iof ithe iBankruptcy iLaw
iReforms iCommittee" i(November, i2015)
10
Hindustan iLever iLtd. iv. iState iof iMaharashtra i& iOrs., i(2004) i9 iSCC i438; iVadilal
iDairy iInternational iLtd. iv. iState iof iMaharashtra, i2009 i(111) iBom iLR i3585

11
DISTRIBUTION iMECHANISM iOF iASSETS iSALE iPROCEEDS iUNDER iTHE
iCODE

The iCode iprovides ifor ia imechanism ifor idistributing ithe iproceeds i ifrom ithe isale iof
iassets iduring ibankruptcy iproceedings. iTypically, ia ibusiness iin ithe iprocess iof iresolution
ihas iliabilities igreater ithan iits iassets. i i i

The iliquidator iis ian iinsolvency iprofessional ito iwhom ithe iCode iconfers iall idecision-
making ipowers. iArticle i35 iof ithe iCode, irelating ito i“Powers iand iduties iof ithe
iLiquidator”, ialso iincludes ithe iliquidation iof icreditors' iclaims i ias ione iof ithe iduties iof
ithe iLiquidator. i

The iCode ialso iprovides ifor ithe iorder iof idistribution iof ithe iproceeds iof ithe isale iof
igoods iregardless iof iwhat iis icontrary ito iany iother ilaw. i i iUpon iliquidation iby i isale iof i
ithe iactive icompany, ithe iobligation ito ipay ithe idebts idue idoes inot ipass ito ithe
iPurchaser. iIn ifact, ithe iBuyer ionly ipurchases ithe igoods.The iliquidator iremains
iresponsible ifor isettling ipast idebts. iAs ia icorollary, ithe iPurchaser iis inot ilegally ibound ito
ipay idue icompensation.

PURPOSE iOF iTHE iCODE

In ithe i2015 ibudget ispeech, iShri.Arun iJaitley idiscussed ithe igoal iof imaking ibankruptcy
ilaws i ia ipriority iarea ito iimprove ithe iease iof idoing ibusiness iin iIndia. iThe ireport iled ito
ithe ipublication iof ithe iCode iin iMay i2016. iThe iobjective iof ithe iCode iis i“to iconsolidate
iand imodify ithe ilaws irelating ito ithe ireorganization iand iinsolvency iof ilegal ipersons,
icompanies iand iindividuals iin ia ibinding imanner”. i i

The iCode ifacilitates ithe iCompany's ibusiness ioperations i iby icodifying ithe i iinsolvency
iresolution iprocess. iGood iinsolvency ilaw icontributes ito ithe irapid irealization iof iassets,
ithe isystematic idistribution iof iincome iamong iclaimants, iand iminimal idisruption ito ithe
ibusiness iof ithe icompany. i iThe iCode ihas iundergone iseveral imodifications isince iMay
i2016.This idemonstrates ithe iserious iintention iof ithe icentral igovernment ito imake itimely
ichanges ibased ion ithe inumber iof iissues ithat iarise ifrom itime ito itime.11
11
iCompany iAppeal i(AT) i(Insolvency) iNo. i82/2018; iNCLAT i(New iDelhi iBench)
12
 POST iLIQUIDATION iIRRITANT i– iINTERPLAY iBETWEEN iIBC iAND iGST
iLAWS

Section i39(10) iof ithe iCGST iAct ibars ia iregistered iperson ifrom ifurnishing iits ireturn ifor
ia itax iperiod iif iit ihas inot ifurnished iall ithe ireturns ifor iprevious itax iperiods. i

Is ithe irestriction iunder iSection i39(10) iinvalid? iNO i

This irestriction iis iindeed ivalid ias ithe ilawmakers iare iempowered ito iput isuch irestrictions
ito iensure icompliances iunder ithe iGST ilaws. iHowever, iit iis iunfortunate ithat ithe iGST
ilaws ido inot icontain ispecific iprovisions ifor ipayment iof itaxes iin iinsolvency isituations
iprovided iunder ithe iCode. iThe iGovernment iwould ihave idone iwell ito ialign ithe iCode
iand iGST ilaws. i

Section i82 iand i93 iof ithe iCGST iAct i- iDo ithey ishow iinherent iinconsistency iin ithe iGST
ilaws? i iYES i

Section i82 iand i93 iof ithe iCGST iAct icontains ispecific iprovisions iwhere ithe iGST ilaws
ihave ibeen ialigned iwith ithe iCode. iThese iare:12 i

 Tax ito ibe ifirst icharge ion iproperty(Section i82)

 Continuation iof ibusiness iafter ideath iof iproprietor i[Section i93(1)(a)]
 Discontinuation iof ibusiness idue ito ideath iof iProprietor, i[Section i93(1)(b), i(2), i(3), i(4]

Partition iof iHUF i& iAOP, idissolution iof iFirm, itermination iof iGuardianship i&
iTrust i

While ithe iaforesaid iprovisions ideal iwith ispecific isituations, ithe ilawmakers ihave ifailed ito
ialign iGST ireturn ifiling imechanism iwith ithe iCode. i

Despite ithe iCode iproviding ia iclear imoratorium ifor ithe iBuyers ifrom ipaying idues
i(including iGST) ifor ithe ipast iperiod, ithe iabove irestriction iis iforcing ithe iBuyer inot ito

12
iSahoo, iM.S. i"Resolution: iThe iSoul iof iIBC", iInsolvency iand iBankruptcy iNews,
iOctober-December, i2017

13
 ifile icurrent iGST ireturns ias iwell. iThe iBuyers ihave ibeen ileft iwith ino ioption iexcept ito
ichallenge ithis irestriction iin ithe iCourts ibeing icontrary ito ithe iCode. i

This iissue iwill inot ionly iresult iinto iblockage iof iworking icapital iof ithe iBuyers ibut ialso
idefeats ithe ientire ifoundation iof iinsolvency iresolution iconcept iin iIndia. iUltimately, iit
iwould iadd ito idifficulties iin idoing ibusiness ias iopposed ito ipromoting iease iof idoing
ibusiness iin iIndia. i

This ivery iissue i(if inot iaddressed isoon) iis icapable iof iderailing ithe iunbeatable
idevelopment iof ithe iCode iin iIndia. iThe iGovernment ishould iimmediately iintroduce ian
iexception iin ithe iGST ilaws ito ienable ithe iBuyers ito ifile ipresent iand ifuture iGST ireturns
iirrespective iof ipayment iof ipast iGST idues.13

Notwithstanding ianything ito ithe icontrary icontained iin iany ilaw ifor ithe itime ibeing iin
iforce, isave ias iotherwise iprovided iin ithe iInsolvency iand iBankruptcy iCode, i2016,
iany iamount ipayable iby ia itaxable iperson ior iany iother iperson ion iaccount iof itax,
iinterest ior ipenalty iwhich ihe iis iliable ito ipay ito ithe iGovernment ishall ibe ia ifirst icharge
ion ithe iproperty iof isuch itaxable iperson ior isuch iperson.”14
 Financial icreditor: iOne iwho ilent imoney ito ia icompany ifor iinterest
 Operational iCreditor: iOne iwho iis ia icreditor iin ibusiness idealing iwith ithe icompany.
ie.g. ithe ivendors, itax iauthorities, iemployees
 Corporate iDebtor: iThe icompany iitself ican ialso igo ifor iits iown iliquidation.

Section i“238 iof iIBC iprovides ifor iits ioverriding inature ion iany iother ilaw ifor ithe itime
ibeing iin iforce. iIt iwill iprovide iimmunity ifrom iany iproceeding iin iany iLaw.
“The iprovisions iof ithis iCode ishall ihave ieffect, inotwithstanding ianything iinconsistent
itherewith icontained iin iany iother ilaw ifor ithe itime ibeing iin iforce ior iany iinstrument
ihaving ieffect iby ivirtue iof iany isuch ilaw.”
ULTRATECH iNATHDWARA iCEMENT iLTD., i(formerly iknown ias ibinani icement
iltd):

13
iStatement iof iObjects iand iReasons ito ithe iInsolvency iand iBankruptcy iCode
i(Amendment) iBill, i2019, inote i3(f)
14
iMinistry iof iCorporate iAffairs, iPress iRelease, iJul. i17, i2019
14
In ithis icase, inotices iwere iissued ifor ithe idues iof iBinani iCement. iThe idemand iwas imade
iafter itaking iover iof iBinani iCement iby iUltratech. iBinani iCement isuffered ihuge ilosses
iand itheir ifinancial icreditor iBank iof iBaroda ipreferred ian iinsolvency iapplication. iAfter
ithe idue iprocess iof iinsolvency, iNCLAT iapproved ithe iproposal iof iUltratech, ito itake iover
iBinani iCement. iLater ion, ithe idepartment iissued inotices idue ito itax. iThe iappellant ifiled
ian iappeal iunder iArticle i226 iof ithe iconstitution iof iIndia. iOnce ithe iresolution iplan iis
iapproved, ithere ican ibe ino ifurther idemand. iApplicant irequest ito iquashed ithe inotices iand
ibar iany ifurther iissuance iof inotices.15

Information iUtility i& ilodgment iof iDefault iunder iIBC, i2016

SLP ifiled iby ithe idepartment iin iSupreme iCourt iwas ialso imentioned. i

Then iamendment iin isection i31 iof iIBC ispecifically icovers ithe icentral iand istate
igovernment. iThe iresolution iplan ionce iapproved iwill ibe ibinding ion iall ifinancial
icreditors, ioperation icreditors, icentral iand istate igovernments. iThis iprovision iwas
iamended. iRead ithe ibold iand iunderlined ipart. iIt iis ithe ichange iincorporated iin isection
i31 iof iIBC. iEven iif iis inot iamended, iTax iauthorities iare ifairly icovered iby ithe
ioperational icreditors. iSection

Also, ithe iFM iin iher ispeech ifor ithis iamendment iensured ithe iimmunity ito ithe iresolution
iapplicant ifrom iany idues ior iliabilities.

Finally, iafter iall ithese iarguments, ithe ihonorable iRajasthan ihigh icourt idecided iin ifavor
iof ithe iapplicant.

Electrosteel isteels ilimited iV. iThe istate iof iJharkhand i:

15
iThe iConstitution iof iIndia, iart. i254(1); iI. iT. iC. iLimited iv. iAgricultural iProduce
iMarket iCommittee i& iOrs., iAppeal i(Civil) i6453 iof i2001, iSupreme iCourt iof iIndia

15
Although iin ithis icase ialso idemand iwas iraised iby ithe iVAT idept. iBut iit ihas isome
idifferences. iIn ithis icase, igarnishee iproceedings iwere istarted. iThe iBank iof ithe iinsolvent
icompany iwas iasked ito ipay.

Three iimportant istands itaken iby ithe iauthorities iwere

Tax iauthorities iare inot ioperational icreditors iin ithis icase:

The itax iauthorities iclaimed ithat itheir idues iare inot ian ioperational idebt. ithey iare inot
icovered iby ithe iterm ioperational icreditors. iThe irationale ibehind iit iwas.(Para i23)

This iTax iliability ican ivery iwell ibe itreated ias ithe iamount iof itax ialready irealized iby ithe
ipetitioner iCompany ifrom iits icustomers, ion ibehalf iof ithe iState iGovernment, iand inot ithe
idirect idebt iof ithe ipetitioner iCompany itowards ithe iState iGovernment, iin iwhich icase ithe
itax iliabilities iof ithe ipetitioner iCompany, ifor irealising iwhich ithe iimpugned igarnishee
iorder ihas ibeen iissued, imay inot icome iwithin ithe idefinition iof i“operational idebt”, ias
idefined iin ithe iIB iCode.
iThe iresolution iplan iis inot ibinding ion istate itax iauthorities.
The iadjudicating iauthority iis irequired ito imake ia ipublic iannouncement iof ithe iinitiation
iof iICRP iand iinvite iclaimed. iThis iwas inot idone iin ithe ipresent icase. iSection i13 iof ithe
iIBC iCode iprovides ifor ithis icommunication iimmediately. iBut iin ithe icurrent icase, ithe
iannouncement iwas imade iin ithe iarea iof iKolkata iand init iin iJharkhand. iRegulation i6 iof i
iInsolvency iand iBankruptcy iBoard iof iIndia i(Insolvency iResolution iProcess ifor iCorporate
iPersons) iRegulations, i2016, iprovide ifor ithe idetailed iprocedure iof ithis ipublic
iannouncement.16

Leo iEdibles i& iFats iLtd. iv. iThe iTax iRecovery iOfficer i(Central) iIT iDept. i

16
iExplanatory iNotes ito ithe iUnited iKingdom iFinance iBill, i2020, icl. i95 inote i13

16
Facts iof ithe icase

The ipetitioner, ithat iis, iLeo iEdibles i& iFats iLtd. ifiled ia ipetition ibefore ithe iHigh iCourt.
iThe ipetition iwas ifiled ion ithe igrounds ithat ithe isub-registrar iof iErragadda, iHyderabad
idid inot iregister iits ipurchase iof ian iimmovable iproperty iwhen ithe iliquidation iproceedings
iwere igoing ion ifor iVNR iInfrastructures iLimited iduring ithe itime iwhen ithe iIT
idepartment iclaimed icharge iover isuch iabove-mentioned iproperty iwhich iwas ipreceded iby
ian iearlier inotice iof iattachment ifor idues iof itaxation iby ithe icorporate idebtor, ii.e., iVNR
iInfrastructures iLimited.

Following ithe iorder iof iliquidation iby ithe icorporate idebtor iwhich iwas ipassed iby ithe
iNCLT iHyderabad, ia iliquidation iestate iwas iformulated. iAfter ithe iestate ibeing ideclared
ias ia iliquidation iestate, iassets ibelonging ito ithe icorporate idebtor iwere isold ithrough ithe
iplatform iof ie-auction. iThis iwas iwhen ithe ipetitioner ibought ian iasset ias ihe iwas ithe
ihighest ibidder iof ia iproperty. iSubsequently, ithe ipetitioner ipaid i25 iper icent iof ithe itotal
iamount ias iconsideration iand ithe irest iof ithe iamount iwould ibe ipaid iwithin i15 idays.
iLater, ihe igot ito iknow ithat ithe iproperty iwhich iwas ibought iby ihim ithrough ithe ie-
auction iwas iattached iby ithe iIT iDepartment iand itherefore ithe ipetition iwas ifiled iby ithe
ipetitioner.17

Judgement iof ithe icourt

The icourt iordered ithe ipetitioner ito ideposit ithe irest iof ithe iamount ifor ithe ibalance isale
iconsideration iwith ia icondition ithat ithe iliquidator iwas inot ito ispend iany iamounts ion iany
ipending iorders ifurther ion. iThe icourt ialso idirected ithe isub-registrar ito iregister ithe
iproperty iin ithe ifavour iof ithe ipetitioner iand ithe iIT idepartment iwas iinstructed ito isubmit
ithe iclaims iaccording ito iSection i53 iof ithe iInsolvency iand iBankruptcy iCode.18

17
iUnited iKingdom iDraft iFinance iBill, i2020, icl. i95, i96

18
iS.O. i2953(E), iAug. i16, i2019
17
Relation iof ithe iIncome iTax iAct, i1961 iand iInsolvency iand iBankruptcy iCode iwith
ithis icase

 Section i178 iof ithe iIncome iTax iAct, i1961 isuggests ithe iway ithe iincome-tax
idepartment ishall irecover ithe iamount iwhich iaccording ito ithe iassessing iofficer
iwould ibe ienough ito iprovide ifor itax iduring ithe iprocess iwhen ithe icompany iis
iunder iliquidation. iSection i178(6) igives ieffect ito ithis isection. iSection i178 iwas
ieffectively inot iused iin ithis icase ibecause ithe iregistrar idid inot iregister ithe
iclaims ithat iwere iput iforth iby ithe ipetitioner iwith iregards ito ithe iproperty
iwhich iwas ibought iby ithe ipetitioner. iIn ithe ijudgement ias iwell, ithe icourt igave
idirection ito ithe iregistrar ito iregister ithe iproperty iand idecided ipertaining ito
ithe isame iin ifavour iof ithe iplaintiff, ito icalculate ithe itaxable iamount iof ithe
iliquidator icompany.

 Section i238 iof ithe iInsolvency iand iBankruptcy iCode, i2016, istates ithat ithe
iprovision iof iact ishall ihave isupremacy iover ithe iother ilaws, iwhich imeans ithat
ithe iapplicability iof iSection i178 iof iIncome iTax ishall inot isupersede ithe
iInsolvency iand iBankruptcy iCode, i2016.

 Section i53(1) iof ithe iCode ilays idown ia i‘waterfall imechanism’, iwhich istates
ithe ipriority iaccording ito iwhich idebt iis ito ibe ipaid.
“53. i(1) iNotwithstanding ianything ito ithe icontrary icontained iin iany ilaw ienacted iby ithe
iParliament ior iany iState iLegislature ifor ithe itime ibeing iin iforce, ithe iproceeds ifrom ithe
isale iof ithe iliquidation iassets ishall ibe idistributed iin ithe ifollowing iorder iof ipriority iand
iwithin isuch iperiod iand iin isuch imanner ias imay ibe ispecified, inamely:19 i—

(a) ithe iinsolvency iresolution iprocess icosts iand ithe iliquidation icosts ipaid iin ifull;

(b) ithe ifollowing idebts iwhich ishall irank iequally ibetween iand iamong ithe ifollowing: i—

19
iBankruptcy iLaw iReforms iCommittee, i"Interim iReport iof ithe iBankruptcy iLaw iReforms
iCommittee" ip.no. i96 i(February, i2015)

18
(i) iworkmen’s idues ifor ithe iperiod iof itwenty-four imonths ipreceding ithe iliquidation
icommencement idate; iand

(ii) idebts iowed ito ia isecured icreditor iin ithe ievent isuch isecured icreditor ihas irelinquished
isecurity iin ithe imanner iset iout iin isection i52;

(c) iwages iand iany iunpaid idues iowed ito iemployees iother ithan iworkmen ifor ithe iperiod
iof itwelve imonths ipreceding ithe iliquidation icommencement idate;

(d) ifinancial idebts iowed ito iunsecured icreditors;

(e) ithe ifollowing idues ishall irank iequally ibetween iand iamong ithe ifollowing: i—

(i) iany iamount idue ito ithe iCentral iGovernment iand ithe iState iGovernment iincluding ithe
iamount ito ibe ireceived ion iaccount iof ithe iConsolidated iFund iof iIndia iand ithe
iConsolidated iFund iof ia iState, iif iany, iin irespect iof ithe iwhole ior iany ipart iof ithe
iperiod iof itwo iyears ipreceding ithe iliquidation icommencement idate;

(ii) idebts iowed ito ia isecured icreditor ifor iany iamount iunpaid ifollowing ithe ienforcement
iof isecurity iinterest;

(iii) iany iremaining idebts iand idues;

(iv) ipreference ishareholders, iif iany; iand

(v) iequity ishareholders ior ipartners, ias ithe icase imay ibe.”

The idebt iowed iby ithe iincome-tax idepartment iis inot isecured iand ithe iamount ihas ito igo
ithrough ithe iconsolidated ifund iof ithe irespective istate. iHence, ino ipriority iper ise ineeds

19
ito ibe igiven ito ithe iIncome iTax idepartment iand ithe iwaterfall imechanism imust ibe
icomplied iwith.

 The iIncome iTax idepartment istated ithat iInsolvency iand iBankruptcy icode idid
inot iapply ito ithem ibut ithe ifact ithat iSection i14 iof ithe icode istates ithat ithe
imoratorium istarts ias isoon ias ithere iis ian iinitiation iof iliquidation.

Sections i178 iand i179 iof iIncome iTax iAct, i1961 iversus iSection i53 iof iIBC

The iinterplay ibetween iSections i178 iand i179 iof ithe iIncome iTax iAct iand iSection i53 iof
iIBC iled ito iarising iof icertain iissues iduring ithe iprocess iof iliquidation iproceedings iof
ivarious icorporations iunder ithe iCode. iThe iissues ipertained ito ithe ilevying iand icollection
iof itaxes iwhile ithe icorporate idebtor iwas iunder iliquidation iand iinsolvency iresolution iwas
iunder iprocess. iFor ithe ipurpose iof iunderstanding ithe iaspects irelating ito ithe irelationship
ibetween ithese iprovisions, ione ineeds ito iresort ito ithe icases iin iwhich isuch iissues ifirst
iarose.20 i

1. One isuch icase iis ithat iof iLML iLtd., iIn ire, iin iwhich ithe iissue ithat iarose iwas
ithat i“under iwhich i‘head’ iwill ithe ipayment iof icapital igain itax ion ithe isale iof
iassets iof ithe icorporate idebtor iduring iliquidation ifall iinto.” iThere iwere itwo
ioptions iunder iconsideration ifor ithe isame, iincluding ithe itax iunder ithe
i“liquidation iexpense” ior imaking iit ias icreditor’s idue iwhich iwould ithen icome
iunder i“operational idebt”. i
The iNational iCompany iLaw iTribunal i(NCLT) iheld ithat isuch itax imust ifall iunder ithe
ipurview iof ioperational idebt iand ithe isame iis iliable ito ibe irecovered iin iaccordance iwith
ithe iwaterfall imechanism iwhich ihas ibeen iprovided iunder iSection i53 iof iIBC. iThe
ireasoning ibehind isuch ia iruling iof iNCLT icould ibe ifound iin iSection i178 iof iIncome
iTax iAct, i1961 iwhich italks iabout i“company iin iliquidation”. iSub-clause i(6) iof iSection
i178 iwas itaken iinto iconsideration ifor ideciding ithis icase. iIt ireads ias, i“The iprovisions iof

20
iUnited
iNations iCommission ion iInternational iTrade iLaw, i"Legislative iGuide ion
iInsolvency iLaw" i(August, i2005)
20
ithis isection ishall ihave ieffect inotwithstanding ianything ito ithe icontrary icontained iin iany
iother ilaw ifor ithe itime ibeing iin iforce iexcept ithe iprovisions iof ithe iInsolvency iand
iBankruptcy iCode, i2016.” iThe icourt iwas iof ithe iopinion ithat ithe iintention iof ithe
ilegislature ibehind iamending ithis iclause iof iSection i178 iwas ito igive ian ioverriding ieffect
ito ithe iprovisions iof iIBC, ii.e., iSection i53 iin ithis icase, iover iSection i178 iof ithe iIncome
iTax iAct, i1961.

It iis ipertinent ito inote ihere ithat ithe ilegislature idid inot iamend iSection i179 ibut ionly
iamended iSection i178. iSection i179 iprovides ifor ithe iliability iof idirectors iof ia iprivate
icompany iin iliquidity iin itheir ipersonal icapacity. iIt iprovides ithat, i“where iany itax iis idue
ifrom ia iprivate icompany iand iif ithe isame icould inot ibe irecovered, ithen, ievery iperson
iwho iwas ia idirector iof ithe iprivate icompany iat iany itime iduring ithe irelevant iprevious
iyear ishall ibe ijointly iand iseverally iliable ifor ithe ipayment iof isuch itax iunless ihe iproves
ithat ithe inon-recovery icannot ibe iattributed ito iany igross ineglect, imisfeasance ior ibreach
iof iduty ion ihis ipart iin irelation ito ithe iaffairs iof ithe icompany.”

1. Another isimilar iissue iwas idiscussed iin ithe icase iof iPooja iBahry, iIn ire
i(Liquidator iv. iGee iIspat iPvt. iLtd.). iIn ithis icase, ithe iliquidator isold ioff ia ifew
iproperties ithat iwere igiven iup iby ithe isecured icreditors iand ithe iissue ithat
icame iup iwas ithat, iwhether ithat iliquidator iwas irequired ito ideposit i“capital
igains” iout iof ithe iproceeds iof ithe isold iproperties iand iwhether ithat ican ibe
iincluded iwithin ithe i“liquidation icost”. iThe iNCLT iheld ithat ithe itax ion ithe
igains icoming ifrom ithe isold iproperties iwas irequired ito ibe idistributed
iaccording ito ithe i“waterfall imechanism” iunder iSection i53 iof iIBC.21

21
iBankruptcy iLaw iReforms iCommittee, iVolume iI i"Report iof ithe iBankruptcy iLaw
iReforms iCommittee" ipara. i5.5.8 i(November, i2015)

21
TDS iversus iSection i53 iof iIBC

In ithe icase iof iOm iPrakash iAgarwal iv. iCIT i(TDS), ithe iissue iin ithe ihand iof ithe
iTribunal iwas ithat ipertaining ito ideduction iof iTDS iby ithe isuccessful ibidder iwho ihad
iobtained ithe ibid iin ifavour iof ihimself iagainst ione iof ithe iassets iin iliquidation. iThe
iliquidator iapproached ithe iNCLT iin iorder ito iprevent ithe ibidder ifrom ideducting iTDS
iwhile imaking ithe ipayment ifor ithat iasset. i

The iNCLT, ihowever, irejected ithe ipetition iand iheld ithat ithe ioverriding ieffect ias
iprovided iunder iSection i238 iwould ionly ibe iapplicable ito iissues ipertaining ito icreditor
iand idebtor iand iit iwon’t iinclude iissues ipertaining ito iTDS ideductions. iThe ireasoning
igiven iby ithe iTribunal iwas ithat iTDS ideduction iwould inot iamount ito i“payment iof idues
ito ithe igovernment iin ipriority ito iother icreditors” ibecause iof ithe ifact ithat iit icannot ibe
iconsidered ito ibe ia itax idemand ior irealization iof itax iby ithe igovernment ias ithe
igovernment iis inot ilevying iany itax ion ithe icorporate idebtor. i

It iis irather ithe iduty iof ithe ipurchaser ito icredit ithe iTDS iin ipursuance iof ihis ipurchase ito
ithe iIncome iTax iDepartment. iHence, ithe iNCLT iobserved iand iheld ithat iSections i53 iand
i238 iof iIBC iwould inot ibe iapplicable iin ithe icases iconcerning iTDS ideductions.22

OTHER ISSUES

In addition to the issues that have been discussed above, there exist several other issues and
inconsistencies that may arise while the insolvency resolution process of the corporate debtor is
in progress or even during the course of liquidation proceedings.

One of those inconsistencies lies under Section 5(13) of IBC which defines the term “insolvency
resolution process costs”. It refers to the costs that are incurred by the resolution professional
22
iBankruptcy iLaw iReforms iCommittee, i"Interim iReport iof ithe iBankruptcy iLaw
iReforms iCommittee" ip.no. i97 i(February, i2015)

22
while the resolution process is going on. It also includes other costs such as fees payable to a
resolution professional, costs incurred while carrying out the business activities of the corporate
debtor, etc. The main issue pertains to levying taxes on all such expenses as to whether an
expense would fall under the ambit of “capital expenditure” or “revenue expenditure.” The same
was dealt with in the case of CIT v. Akzo Nobel India Ltd. In this case, it was held that the costs
of restructuring shall be classified as revenue expenditure and shall be taxed accordingly.

Another issue arises in relation to Section 56(2)(x) of the Income Tax Act, 1961. This section
levies taxes on “gifts” and provides that if a person receives a property, except for immovable
property, as a gift, in exchange for a consideration which is very less than the “fair market value”
of that property by more than fifty thousand rupees, then that person would be liable to pay
income tax on for that property and it will be chargeable under the head “income from other
sources”. The issue arises in the case of a corporate restructuring process when “lenders convert
their outstanding loans into the equity of the borrower company at a price which is less than the
prescribed fair market value of such shares.”

ANALYSING THE CURRENT POSITION

The Insolvency and Bankruptcy Code was enacted for the purpose of making laws for the
rehabilitation of the corporate debtor and reorganisation of the business of the corporate debtor.
It also serves the purpose of carrying out insolvency resolution proceedings in a time-bound
manner so as to protect the interests of all the stakeholders. The IBC provides that once the
resolution plan has been approved by the adjudicating authority after the approval of the
committee of creditors, the same is considered to be binding on all the stakeholders who have a
stake in the resolution plan. This would also apply to any governmental authorities on whom any
taxes are due. The decision as to whether priority must be given to the statutory dues rests with
the committee of creditors and after that, the adjudicating authority has the option to consider it
in the resolution plan.23
23
Cork, Kenneth "Report of the Review Committee on Insolvency Law and Practice" (1982)
Cmnd 8558

23
The issues that have been discussed above clearly reflect the inconsistencies of various income
tax laws in relation to various provisions of IBC and even the objective behind the enactment of
IBC. There are still certain challenges and inconsistencies that need to be settled in order to
avoid any conflicts between the two laws. It can very well be conclusively settled that the laws
relating to taxation have taken a secondary spot when in conflict with the provisions of IBC.
However, Section 179 of the Income Tax Act, 1961 still implies that in case the directors of a
company are personally liable to pay any taxes, then this liability would still exist for the period
of non-recovery of due taxes. Even if the dues are considered as a priority, it would be in
contradiction to the essence of Section 53 of the Code that provides for the “waterfall
mechanism” for the payment of dues and hence, it would then be considered as overriding the
rights of the secured creditors and would go against the objective of the statute. Therefore, the
tax dues are generally not considered as a priority over the dues to secured creditors and other
financial creditors as well.24

CONCLUSION

The interplay of all of the above-mentioned sections of IBC leads us to a perspective wherein it
becomes relevant to assess that the various aspects inherent to taxation cannot be estimated
solely by taking into account the analysis of income tax law due to the inadequacy that would
come along. Meaning thereby, that it would, therefore, be pertinent to look through the
provisions of tax laws, not in a separate mechanism but in a way that it associates its relevance
with the insolvency and bankruptcy code. The above-mentioned inadequacy lies in the very fact
that ever since the IBC came into the picture, it has widened its scope by expanding its wings
into various other legislations.25

BIBLIOGRAPHY :-

1. www.taxmann.in
24
R.K. Garg v. Union of India, - 2002-TIOL-1706-SC-IT-CB DG of Foreign Trade v. Kanak
Exports, - 2015-TIOL-275-SC-EXIM; Swiss Ribbons Pvt. Ltd. & Anr. v. Union of India &
Ors., Writ Petition (Civil) No. 99/2018, Supreme Court of India
25
Swiss Ribbons Pvt. Ltd. & Anr. v. Union of India & Ors., Writ Petition (Civil) No. 99/2018,
Supreme Court of India.
24
2. www.manupatra.in
3. www.livelaws.in
4. https://ibclaw.in/ibc-case-laws-subject/gst-vs-ibc/
5. www.lawjournal.in
6. www. blog.ipleaders.in
7. www.GST.in

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