NCLT Kochi: Section 238 Of IBC Has Overriding Powers Over The Karnataka Value Added Tax Act Of 2003 And Its Proceedings

The National Company Law Tribunal (“NCLT”), Kochi Bench comprising of Justice T Krishna Valli (Retd.) (Judicial Member) and Shri. Shyam Babu Gautam (Technical Member), dismissed an appeal filed in Deputy Commissioner, Works Contract, Kerala State Goods and Services Department, Ernakulam vs. Vinod Balachandran FCA, Liquidator challenging Liquidator’s rejection of the claim in the liquidation proceedings of the Albanna Engineering (India) Pvt. Ltd. (‘Corporate Debtor’). The Tribunal held that the Supreme Court has upheld that Section 238 of the Insolvency and Bankruptcy Code, 2016 (‘Code’) has overriding powers over the Karnataka Value Added Tax Act, 2003 (‘KVAT Act’) and its proceedings. Background Facts: The Corporate Debtor was admitted into liquidation by NCLT Kochi’s order dated 02.12.2021. The Appellant stated that on verification of the assessment records for the period 2016-17, certain irregularities were noted and notice under Section 25(1) of the KVAT Act was issued to the Corporate Debtor. Post consideration of the submissions from the liquidator a demand notice of Rs. 5.96 Crores (Tax: Rs. 3.59 Crores and Interest: Rs. 2.37 Crores) was issued. Public announcement of liquidation with the last date for filing of claim as 16.01.2022. The Appellant due to non-intimation of the liquidation by the liquidator filed its claim only on 01.10.2022 and the same was rejected by the Liquidator. The Appellant argued that the rejection of the claim by the Liquidator is in violation of Section 88(1) of the CGST Act, 2017 as per which the liquidator shall be bound to within 30 days of his appointment give intimation to the commissioner. NCLT Verdict: The NCLT Kochi dismissed the appeal against the Liquidator’s rejection of the claim and held that the Supreme Court has upheld that Section 238 of the Code has overriding powers over the KVAT Act and its proceedings. It observed that the claim raised by the Appellant is based on an assessment order for Tax pertaining to 2016-17 for an amount of Rs. 5.96 Crores. The claim was filed with an inordinate delay of 266 days. Moreover, this claim arises out of what can be clearly termed as ‘proceedings’ which is prohibited under section 33(5) of the Code. The Tribunal highlighted that the Appellant has misplaced reliance on State Tax Officer vs. Rainbow Papers Ltd. since it has different set of facts. Moreover in Paschimanchal Vidyut Vitran Nigam Ltd. vs. Raman Ispat Pvt. Ltd. & Ors., the Apex Court clarified that the government dues shall have priority as under Section 53(1)(f) of Code. It is also pertinent to note that the present claim if admitted will only hinder the time bound process of the Code and the liquidation process of the Corporate Debtor. In conclusion, the NCLT held that the demand notice of the Appellant is void and non est in law as per the Code. Case Title: Deputy Commissioner, Works Contract, Kerala State Goods and Services Department, Ernakulam vs. Vinod Balachandran FCA, Liquidator Case No.: Company Appeal (IBC)/01/KOB/2023 Click Here To Read/Download Order

NCLT Kochi: Section 238 Of IBC Has Overriding Powers Over The Karnataka Value Added Tax Act Of 2003 And Its Proceedings

Sachika Vij

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