The Bombay High Court set aside a tax recovery order passed after the approval of a resolution plan under the Insolvency and Bankruptcy Code, 2016, holding that such approval extinguishes all statutory dues not forming part of the plan and mandates refund of pre-deposit paid for the appeal. The judgment clarifies the binding effect of a ‘clean slate’ resolution plan on tax authorities and the consequential liability to refund pre-deposits.
Background & Facts
The Dispute
The petitioner, formerly known as Shop CJ Network Pvt Ltd, operated a 24x7 home-shopping television channel under the brand “Shop CJ”. It was subject to assessment proceedings under the Maharashtra Value Added Tax Act, 2002 (MVAT Act) for the financial year 2016-17, which culminated in an assessment order dated 26 February 2021 confirming a tax liability of Rs.6,20,63,981/-. The petitioner challenged the appellate order dated 31 May 2023 passed by the Joint Commissioner of State Tax (Appeals)-VII, which confirmed the assessment and directed recovery of the tax after adjusting a part-payment of Rs.31,99,174/- made during the appeal.
Key Facts
- The petitioner filed an appeal against the assessment order on 04 May 2021 and paid the statutory pre-deposit under Section 26(6A)(c) of the MVAT Act.
- The petitioner (as Shop CJ Network Pvt Ltd) was admitted to corporate insolvency resolution process (CIRP) under Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) by an order of the National Company Law Tribunal, Mumbai (NCLT) dated 19 January 2022.
- A resolution plan covering the MVAT Department’s claims for assessment years 2011-12 to 2016-17 was prepared and dated 15 September 2022.
- The NCLT approved the resolution plan on 21 March 2023 on a “clean slate” basis, binding all stakeholders including the tax authority.
- The approval order was rectified by the NCLT on 18 April 2023, clarifying that the plan included payment of Rs.1,00,00,000/- on a proportionate basis in full satisfaction of all disputed government dues (including VAT claims). An amount of Rs.58,58,444/- was paid by challan to the Office of the Commissioner of State Tax (E-611, Mumbai) towards the full and final settlement of Rs.27,91,64,187/-.
- On 19 May 2023, the petitioner informed the First Appellate Authority (respondent No.1) of the NCLT’s approval and requested refund of the pre-deposit, stating that all tax liabilities had been extinguished under the plan.
- The National Company Law Appellate Tribunal (NCLAT) dismissed the MVAT Department’s appeal against the NCLT’s rectification order on 26 July 2023, thereby affirming the NCLT’s orders.
- The First Appellate Authority passed the impugned order on 31 May 2023, dismissing the petitioner’s appeal and confirming the assessment order, leaving the petitioner in arrears of Rs.5,88,64,807/- after adjusting the part-payment of Rs.31,99,174/-.
- Despite letters dated 22 August 2025 and 23 September 2025 to the respondents (Nos.2 and 3) seeking refund of the pre-deposit on the ground that the resolution plan had extinguished the tax liability, no response was received, prompting the filing of the present writ petition under Article 226 of the Constitution.
Procedural History
- 26 February 2021: Assessment Order for AY 2016-17 passed, confirming tax liability of Rs.6,20,63,981/-.
- 04 May 2021: Appeal filed; statutory pre-deposit paid under MVAT Act.
- 19 January 2022: NCLT order admitting petitioner to CIRP under IBC.
- 15 September 2022: Resolution Plan dated, covering MVAT Department’s claims for AY 2011-12 to 2016-17.
- 21 March 2023: NCLT order approving the Resolution Plan on a “clean slate” basis.
- 18 April 2023: NCLT rectification order clarifying payment of Rs.1,00,00,000/- towards full settlement of disputed government dues.
- 19 May 2023: Petitioner’s letter to First Appellate Authority seeking refund of pre-deposit.
- 31 May 2023: Impugned order passed by First Appellate Authority dismissing appeal and directing recovery of tax.
- 26 July 2023: NCLAT order affirming NCLT’s rectification order.
- 22 August 2025 & 23 September 2025: Letters seeking refund of pre-deposit; no response.
- 07 September 2026: Judgment of the Bombay High Court delivered.
Relief Sought
The petitioner sought:
- A writ of certiorari or mandamus to set aside the impugned order dated 31 May 2023 and all proceedings pursuant thereto.
- Refund of the statutory pre-deposit of Rs.31,99,174/- paid by the petitioner, together with applicable interest.
- Costs of the petition.
The Legal Issue
The central question was whether, after the NCLT’s approval of a resolution plan on a “clean slate” basis under Section 31 of the IBC, the tax authority retains jurisdiction to proceed with assessment and recovery of tax dues, and whether the statutory pre-deposit paid for filing the appeal must be refunded when the underlying tax liability has been extinguished by the resolution plan.
Arguments Presented
For the Petitioner
The petitioner contended that the approval of the resolution plan by the NCLT on 21 March 2023 extinguished all claims and liabilities not forming part of the plan, including the MVAT Department’s tax dues, relying on the Supreme Court’s decision in Ghanashyam Mishra and Sons Private Limited v. Edelweiss Asset Reconstruction Company Limited (2021) 9 SCC 657 and this Court’s judgment in Srei Equipment Finance Ltd. v. Assistant Commissioner, DIV-III CGST & C-EX, Navi Mumbai & Ors. It argued that the First Appellate Authority lacked jurisdiction to pass the impugned order after the plan’s approval and that the pre-deposit, being part of the extinguished tax demand, must be refunded with interest.
For the Respondent
The respondents (tax authority) maintained that the MVAT Department’s claim was not covered by the resolution plan and that the authority retained jurisdiction to proceed with assessment and recovery. They argued that the pre-deposit was a statutory deposit for the appeal and could not be refunded merely because a resolution plan had been approved elsewhere, and that the impugned order was valid and enforceable.
The Court's Analysis
The Court began by noting that the issue was squarely covered by the Supreme Court’s ruling in Ghanashyam Mishra and Sons Private Limited (supra) and this Court’s earlier decision in Srei Equipment Finance Ltd. v. Assistant Commissioner, DIV-III CGST & C-EX, Navi Mumbai & Ors. It observed that once the NCLT approved the resolution plan on a “clean slate” basis, the plan became binding on all stakeholders, including the tax authority, under Section 31 of the IBC. The Court emphasized that Section 31(1) of the IBC requires the approved resolution plan to be binding on the corporate debtor and its creditors, including the Central Government, any State Government, or any local authority to whom statutory dues are owed.
The Court further held that, as per the Supreme Court’s pronouncement, on the date of approval of the resolution plan, all claims which are not a part of such plan stand extinguished and no person is entitled to initiate or continue any proceedings in respect of such claims. Consequently, the First Appellate Authority lacked jurisdiction to pass the impugned order dated 31 May 2023 directing recovery of tax, as such action was directly contrary to the binding scheme of the IBC.
Regarding the pre-deposit, the Court noted that the statutory pre-deposits made under Section 26(6A)(c) of the MVAT Act for filing appeals formed part of the overall tax demands which were now extinguished by the resolution plan. Since the NCLT-approved plan allocated a fixed sum to the tax department in full settlement of its dues, retention of such pre-deposits over and above the approved amount would be impermissible and contrary to law. Therefore, the respondents were liable to refund the pre-deposit paid by the petitioner, together with applicable interest.
The Court rejected the respondents’ contention that the MVAT Department’s claim was outside the resolution plan, finding that the plan’s “clean slate” basis expressly covered all disputed government dues, including VAT claims, and that the payment of Rs.58,58,444/- made by the petitioner was in full satisfaction of the settled amount.
The Verdict
The writ petition was allowed. The Court set aside the impugned order dated 31 May 2023 passed by the First Appellate Authority (respondent No.1) and directed respondent No.2 (Joint Commissioner of State Tax) to refund the statutory pre-deposit of Rs.31,99,174/- paid by the petitioner vide challan, together with applicable interest. It declared that the tax authority lacked jurisdiction to proceed with any recovery proceedings after the NCLT’s approval of the resolution plan on 21 March 2023.
What This Means For Similar Cases
Resolution Plan Under IBC Extinguishes Statutory Dues
- Once a resolution plan is approved by the NCLT on a “clean slate” basis, all statutory dues not forming part of the plan stand extinguished.
- Tax authorities cannot initiate or continue assessment or recovery proceedings in respect of such extinguished dues.
- Practitioners must verify the date of NCLT approval and the scope of the resolution plan before opposing any tax demand.
Pre-Deposit Refund Is Mandatory Upon Extinguishment
- Statutory pre-deposits paid under the MVAT Act (or similar tax statutes) for filing appeals are part of the extinguished tax demand.
- If the underlying tax liability is extinguished by a resolution plan, the pre-deposit must be refunded with interest.
- Failure to refund constitutes a contravention of law and is liable to be set aside by writ jurisdiction.
Tax Authority Lacks Jurisdiction Post-Approval
- The approval of a resolution plan binds the tax authority under Section 31 of the IBC.
- Any order passed by the tax authority after such approval, seeking recovery of extinguished dues, is without jurisdiction and liable to be quashed.
- Lawyers should raise the lack of jurisdiction as a primary ground in writ petitions challenging post-approval tax actions.
