Once Resolution Plan Succeeds, Appeals Before CESTAT Abate, CENVAT Reversal Not Pre-Deposit: Calcutta High Court

The Calcutta High Court has upheld the disallowance of ₹165 crores of CENVAT credit on steel structures, parts, accessories, and cement as confirmed earlier by the Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT).

Justice Raja Basu Chowdhury, on the issue of abatement of the appeals, dismissed the grounds of challenge relating to (i) abatement of appeals before the CESTAT, and (ii) the Tribunal's jurisdiction to adjudicate the issue after the Corporate Insolvency of the assessee's erstwhile entity, Tata Steel Bhushan Steel Limited. Citing Rule 22 of the CESTAT (Procedure) Rules, 1982, the Court held that the CESTAT had become functus officio.

The High Court clarified that once Tata Steel submitted a resolution plan—which was later affirmed by NCLAT—“all sub-judice claims of the assessee…stood wiped out and extinguished,” whether claimed or not, prior to the plan's approval. As a result, Bhushan Steel Limited was renamed Tata Steel BSL Ltd. in November 2018, and later merged with Tata Steel Ltd. in November 2021.

The Court further held that the Tribunal's refusal to examine the effect of the resolution plan on the reversed amount did not amount to a failure to exercise jurisdiction. Instead, it was a recognition of the legal consequence of abatement.

The assessee operated a steel plant and had availed CENVAT credit on steel structures, accessories, and cement used in construction and installation.

Several show-cause notices (SCNs) were issued for the period August 2005 to July 2009, seeking to disallow the CENVAT credit on steel structures, parts, accessories, and cement used in the manufacture of steel structures, prefabricated RCC items, and for creating foundations for machinery installation. These SCNs resulted in orders disallowing CENVAT credit of ₹140,46,88,065, ₹2,74,86,476, ₹2,09,40,479, and ₹15,46,214, alleging that the items constituted “supporting structures” and therefore did not fall within the definition of “capital goods.” During the pendency of the appeals before the CESTAT, the Corporate Insolvency Resolution Process was initiated.

Regarding the effect of the resolution plan, the High Court relied on the Supreme Court's reasoning in Ghanashyam Mishra and Sons, holding that once the appeals abated, the Tribunal's jurisdiction over the matter came to an end.

The Court rejected the assessee's argument that the voluntarily reversed CENVAT credit qualified as a pre-deposit. It noted that the CESTAT/Tribunal, being a creature of statute, could not adjudicate whether the voluntary deposit made prior to filing the appeals constituted a security deposit once the appeals had abated, and therefore had not acted irregularly.

Accordingly, the High Court dismissed the writ petitions challenging the final order passed by the CESTAT. Since the appeals themselves had ceased to exist due to abatement, the Tribunal could not adjudicate any consequential refund claim arising from those very appeals.