The approval of a corporate resolution plan under the Insolvency and Bankruptcy Code, 2016, extinguishes all pre-insolvency tax liabilities not included in the plan, rendering pending service tax appeals abated. This landmark ruling by the Customs, Excise & Service Tax Appellate Tribunal reaffirms the primacy of the I&B Code’s statutory framework over legacy tax enforcement mechanisms.
Background & Facts
The Dispute
The appellant, M/s. Amtek Auto Ltd., a public limited company engaged in automotive component manufacturing, was assessed for service tax under the Reverse Charge Mechanism for services received from overseas providers between 2004-05 and 2006-07. The services in question related to Global Depository Receipts (GDR), External Commercial Borrowings (ECB), and Foreign Currency Convertible Bonds (FCCB), rendered by non-resident merchant bankers such as Barclays Bank Plc and Citigroup Global Markets Ltd. The Department contended these services fell under 'Banking and Other Financial Services' and 'Management Consultant Services' as defined under the Finance Act, 1994.
Procedural History
- 2014: Commissioner (Adjudication), Service Tax, New Delhi, issued an Order-in-Original demanding Rs. 6.4 crore in service tax, interest, and penalties under Sections 75, 76, 77, and 78.
- 2014: The demand was partially confirmed at Rs. 3.02 crore in service tax, Rs. 43.5 lakh in interest, and penalties of Rs. 1,000 under Section 77 and Rs. 31 crore under Section 78.
- 2018: The National Company Law Tribunal (NCLT), Chandigarh, approved the Resolution Plan for Amtek Auto Ltd. under Section 31 of the I&B Code.
- 2015: The appellant filed an appeal before the CESTAT challenging the tax demand.
- 2026: The appeal was heard by CESTAT after the appellant failed to appear, with the Department represented by its authorised representative.
Relief Sought
The appellant sought abatement of the appeal on the ground that the approved Resolution Plan extinguished all pre-insolvency claims, including service tax liabilities, under Section 31 of the I&B Code. The Department sought confirmation of the tax demand based on the nature of services received.
The Legal Issue
The central question was whether the approval of a resolution plan under Section 31 of the Insolvency and Bankruptcy Code, 2016 extinguishes all pre-insolvency service tax liabilities, thereby abating pending appeals before the Customs, Excise & Service Tax Appellate Tribunal.
Arguments Presented
For the Appellant
The appellant relied on the Supreme Court’s decision in Ghanashyam Mishra & Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Company Ltd. (2021) 9 SCC 657, which held that once a resolution plan is approved under Section 31, all claims not included therein stand extinguished. The appellant further cited CBEC Instruction No. 1083/04/2022, which directs tax authorities not to raise demands against resolution applicants for pre-insolvency dues. The Tribunal’s own precedents in Monnet Ispat & Energy Ltd., Jet Lite, and Alok Industries were cited to establish that appeals against corporate debtors abate upon approval of a resolution plan.
For the Respondent
The Department argued that the services rendered by overseas entities for GDR/FCCB issuance clearly fell under 'Banking and Other Financial Services' as defined in Section 65(105)(zm) and Section 65(12) of the Finance Act, 1994. It relied on G.V. Films Ltd. to assert that the taxability of such services was well-established and that the nature of the liability was not extinguished merely by the approval of a resolution plan. It contended that the tax liability arose from statutory provisions independent of the I&B Code.
The Court's Analysis
The Tribunal acknowledged the Department’s legal position on the taxability of services rendered by overseas merchant bankers. It accepted that the services received by the appellant were indeed taxable under Section 65(105)(zm) read with Section 66A and Rule 3(iii) of the Taxation of Services Rules, 2006, as the recipient was located in India and the services were used for business purposes.
"Once a resolution plan is duly approved by the adjudicating authority under sub-section (1) of Section 31, the claims as provided in the resolution plan shall stand frozen and will be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority... all such claims, which are not a part of resolution plan, shall stand extinguished."
The Tribunal emphasized that the Supreme Court’s ruling in Ghanashyam Mishra was not merely interpretative but foundational to the I&B Code’s structure. The 2019 amendment to Section 31 was held to be clarificatory and retrospective, reinforcing that extinguishment of claims is automatic upon approval. The Tribunal further relied on Rule 22 of the CESTAT Procedure Rules, 1982, which mandates abatement of appeals against a company undergoing winding up, and held that approval of a resolution plan under the I&B Code is functionally equivalent to such a status.
The Department’s reliance on G.V. Films Ltd. was distinguished on the ground that the resolution plan in that case had not yet been approved at the time of adjudication. In the present case, the NCLT’s approval on July 25, 2018, triggered the statutory extinguishment of all non-included claims, rendering the appeal functus officio.
The Verdict
The appellant prevailed. The Tribunal held that the approval of a resolution plan under Section 31 of the I&B Code extinguishes all pre-insolvency service tax liabilities not included in the plan, and accordingly, the appeal stands abated. The Tribunal declared itself functus officio in the matter.
What This Means For Similar Cases
Pre-Insolvency Tax Claims Are Extinguished
- Practitioners must immediately cease pursuing service tax, excise, or customs demands against corporate debtors once a resolution plan is approved under Section 31.
- Tax authorities cannot initiate or continue proceedings for dues not expressly included in the approved plan, even if the liability is statutory.
Abatement Is Automatic, Not Discretionary
- CESTAT and other tribunals must abate appeals suo motu upon proof of NCLT approval, without requiring a formal application.
- The 60-day window under Rule 22 of CESTAT Rules does not apply - extinguishment is immediate upon approval, not contingent on procedural steps.
Documentation Must Reflect Resolution Plan Status
- In all pending tax proceedings, counsel must file certified copies of the NCLT order approving the resolution plan as a jurisdictional bar.
- Tax officers must update their case management systems to flag corporate debtors with approved plans and halt all enforcement actions.
