Amounts deposited by Assessee as mandatory statutory obligation while filing appeals before Tax Board shall be reimbursed to assessee.

This bunch of Sales Tax Revisions involves identical questions of facts and law and hence, the same is being decided together by a common order. These revisions have been preferred by the petitioner M/s. UltraTech Nathdwara Cement Limited for assailing the order dated 28.12.2020 passed by the Rajasthan Tax Board, Ajmer, rejecting the applications of the petitioner for refund of mandatory statutory obligation pre-deposit with interest made with appeals filed before the Tax Board.

With the consent of the learned counsel for the parties, the matters have been heard finally.

The following substantial questions of law are proposed for adjudication in these revisions :-

A. Whether in the facts and circumstances of the case, the learned Rajasthan Tax Board exercised its jurisdiction excessively and with material irregularity by ignoring the order dated 14.11.2018 passed by NCLAT, New Delhi read with the resolution plan and as well as not adhering to the orders passed by Hon’ble Supreme Court dated 26.07.2019 & 19.05.2020 & 24.01.2020 and the judgment dated 07.04.2020 of the Hon’ble Division Bench of Rajasthan High Court in true spirit of law and in rejecting the prayer to refund the amount paid as pre-deposit with the appeals (along with interest)?

B. Whether in the facts and circumstances of the case, the learned Rajasthan Tax Board wrongly exercised its jurisdiction and acted with material irregularity as on one hand it has held that in view of order dated 14.11.2018 passed by NCLAT, New Delhi read with the resolution plan and orders passed by Hon’ble Supreme Court dated 26.07.2019 and 19.05.2020 and 24.01.2020 and the judgment dated 07.04.2020 of the Hon’ble Division Bench of Rajasthan High Court, maximum amount which can be recovered from the petitioner is Rs. 61.05 Cr while on another hand has rejected the refund of pre-deposit amount which was deposited and lying with the respondent department in excess of Rs. 61.05 Cr?

Brief facts, relevant and essential for disposal of these revisions are noted here in below :-

The Assistant Commissioner, Commercial Taxes Department issued VAT assessment orders fixing liability of company M/s. Binani Cement Limited for different periods ranging from 2005-06 to 2015-16 and also imposed upon it, additional tax and interest. These orders were carried by M/s. Binani Cement Limited in appeal to the Deputy Commissioner (Appeals), Commercial Taxes Department, Jodhpur, who dismissed the same by separate orders. Being aggrieved by the orders passed by the assessing authority and the appellate authority, M/s. Binani Cement Limited preferred appeals before the Rajasthan Tax Board, Ajmer.

As per Section 82 (3) of the Rajasthan Value Added Tax Act, 2003 (for short, “the Act of 2003”), the appeals were entertained with the mandatory statutory pre-deposit of stipulated percentage of the amounts levied under the disputed Tax Assessment orders.

Binani Cement Ltd. suffered losses and became sick during the pendency of these appeals, whereupon its Creditors initiated Insolvency procedure under the Insolvency and Bankruptcy Code, 2016 (for short, hereinafter referred to as ‘the IBC, 2016’) before the National Company Law Tribunal, Kolkata (for short, ‘NCLT’). Various players including the petitioner M/s UltraTech Nathdwara Cement Ltd. submitted their Resolution Plans before the NCLT. The respondent Commercial Taxes Department, in the capacity of an operational statutory creditor, made a claim to the tune of Rs.479,73,13,819/-towards Value Added Tax in the resolution proceedings. By virtue of the orders of Hon’ble Supreme Court, the resolution proceedings were transferred to the National Company Law Appellate Tribunal (for short, ‘NCLAT’), which admitted claim of the Department to the extent of Rs.61.05 Crores only and dismissed the remaining claim. The NCLAT approved the Resolution Plan submitted by the petitioner UltraTech Cement Limited for Rehabilitation/Revival of the sick industrial unit, i.e. Binani Cement Ltd. As a consequence to acceptance of its Resolution Plan and upon being declared the successful resolution applicant, the present petitioner took over the company Binani Cement Limited.

In terms of the approved Resolution Plan, all liabilities of the sick unit, except those admitted by the NCLAT, as they existed prior to acceptance of the Resolution Plan stood wiped off. This proposition of law has been enunciated by Hon’ble Supreme Court in the case of State of Gujarat Vs. Essar Steel Ltd.

[2016 SCC Online Guj 4125] .

Despite acceptance of the petitioner’s Resolution Plan, the GST Department continued to raise demands for the period prior to acceptance of the Resolution Plan, upon which Writ Petition No.9480/2019 (Ultra Tech Nathdwara Cement Ltd. Vs. Union of India & Ors.) came to be filed on behalf of the petitioner in this court, which was accepted vide order dated 07.04.2020 and the demands raised by the GST Department were quashed as being contrary to the IBC and the Judgment of Hon’ble Supreme Court in the case of Essar Steel Ltd. (supra). The said judgment of this court has attained finality. Pursuant to acceptance of its Resolution Plan, the petitioner stepped into the shoes of the original appellant M/s. Binani Cement Ltd. in the pending appeals before the Tax Board. As the Commercial Taxes Department was itself contemplating to dispose off the outstanding demands against the sick unit as a consequence of the NCLAT’s acceptance of the petitioner’s Resolution Plan, applications seeking withdrawal of the appeals and refund of the amount of pre-deposits made by way of mandatory statutory obligation along with the appeals filed before the Tax Board on behalf of the petitioner. All the appeals were disposed off by the Tax Board by the common order dated 28.12.2020 observing that all demands of the Commercial Taxes Department, Government of Rajasthan beyond a sum of Rs.61.05 crores had been turned down by the NCLAT and hence, were not recoverable. Nonetheless, the prayer made by the petitioner for refund of the pre-deposit amount with interest was negated in the following terms :-

The Tax Board was of the view that if the appeals had been dismissed, the petitioner would not have been in position to claim refund of the mandatory statutory obligation pre-deposit amounts. Refund of such amount would only be admissible in the event of appeals being accepted. However, neither of the consequences ensued and since the demands prior to acceptance of the resolution plan had simply been disposed off and as the Department had not incorporated the amounts towards pre-deposit in the claim filed before the NCLAT, the argument of the petitioner regarding the entire liability of the sick unit towards the respondent Department including the pre-deposit amounts also having been washed off was self-defeating. Accordingly, the appeals and the applications for refund were dismissed by the Tax Board by the common order dated 28.12.2020, which is assailed in these revisions with a prayer to refund the amounts furnished as mandatory pre-deposit while filing the appeals.

Learned Senior Advocate Dr. Sachin Acharya, learned Senior Advocate, assisted by Mr. Manish Priyadarshi and Mr. Gopal Sandu, Advocates, representing the petitioner, vehemently and fervently urged that the appeals preferred by the petitioner were disposed off as infructuous on account of the fact that the respondent Department itself accepted that pursuant to the acceptance of the Resolution Plan and with the approval of the petitioner as the successful resolution applicant, all outstanding demands of the Department against the defaulting unit M/s. Binani Cement Ltd. had been extinguished over and above the amount of Rs.61.05 crores approved under the Resolution Plan. He pointed out that all existing liabilities of the unit prior to the acceptance of the Resolution Plan have been disposed off by the Commercial Taxes Department by a formal order dated 12.08.2021. Thus, the Department has no subsisting claim against the unit beyond the sum of Rs.61.05 crores. If the respondent Department is permitted to retain the amounts paid towards mandatory statutory obligation with the appeals, it would amount to unjust enrichment of the Department, which is not at all warranted. In support of his contentions, Dr. Acharya relied upon the following judgments :-

1. Ghanshyam Mishra and Sons Private limited Vs. Edelweiss Asset Reconstruction Company Limited & Ors [2021 SCC Online SC 313]

2. GGS Infrastructure Private Limited Vs. Commissioner of CGST & Central Excise (WP-LD-VC-NO.269 of 2020) decided on 22.12.2020

3. M/s. Jagat Janani Services Vs. Goods & Service Tax Council and Others [W.P.(C) No.17196 of 2020] decided on 21.09.2021

4. Suvidhe Ltd. Vs. Union of India, 1996 (82) ELT 177 (Bom.) (Affirmed in Union of India Vs. Suvidhe Ltd., [(2016) 11 SCC 808)])

5. State of Gujarat Vs. Essar Steel Ltd. [2016 SCC Online Guj 4125]

6. Nelco Limited Versus Union of India [2001 SCC Online Bom 1251] and prayed that the revisions deserve to be accepted and the amounts pre-deposited with the appeals by way of mandatory statutory obligation deserve to be reimbursed to the petitioner with interest. Per contra, Mr. Hemant Dutt, learned counsel representing the respondent Commercial Taxes Department, vehemently opposed the submissions advanced by Dr. Acharya. He contended that the amounts pre-deposited with the appeals filed by Binani Cement Ltd. as mandatory statutory obligation were never claimed by the Department during the resolution proceedings. The pre-deposits were mandatory for filing the appeals, which were withdrawn and hence, the petitioner cannot claim refund of such amounts. He urged that the petitioner would have been acting well within its right to request for refund of the pre-deposits in case the appeals had been accepted. However, as the appeals were withdrawn, the claim for refund got extinguished as an automatic consequence. He, thus, submitted that the instant bunch of revisions does not involve any substantial question of law and hence, the same should be dismissed.

We have given our thoughtful consideration to the submissions advanced at bar and have gone through the material available on record as well as the impugned orders. The Department acted under the Act of 2003 and issued notices/assessment orders raising demands of outstanding tax and penalty etc. from the unit M/s. Binani Cement Ltd. for the Financial Years 2005-06, 2006-07, 2007-08, 2007-2008, 2008-2009, 2009-2010, 2010-2011, 2013-2014, 2014-2015, 2015-2016. M/s. Binani Cement Ltd. assailed these demands by filing appeals as referred to supra before the learned Tax Board. Pre-deposit of a percentage of the assessed amounts was paid with the appeals by way of mandatory statutory obligation as per Section 82 (3) of the Act of 2003. The procedure for filing the appeals is provided under Section 82 of the Act of 2003, which reads as below :-

82. Appeal to the appellate authority.– (1) Subject to the provisions of section 86, an appeal against any order of an Assistant Commissioner, a Commercial Taxes Officer, an Assistant Commercial Taxes Officer or Junior Commercial Taxes Officer or Incharge of a check–post or barrier shall be to the appellate authority.

(2) The appeal shall be presented within sixty days of the date on which the order sought to be appealed against is communicated; but the appellate authority may admit an appeal even after the said period of sixty days if it is satisfied that the appellant had sufficient cause for not preferring the appeal within the said period.

(3) Notwithstanding anything contained in sub–section (4) of section 38, no appeal under this section shall be entertained unless it is accompanied by a satisfactory proof of the payment of tax and other amounts admitted by the appellant to be due from him or of such installment thereof as might have become payable and in case of an appeal from an ex-parte assessment order, five percent of, and in other cases ten percent of the 3[“disputed tax amount”] .

(Emphasis supplied)

(4) Notwithstanding that an appeal has been preferred to the appellate authority, the tax or any other sum shall, subject to the provisions contained in sub– sections (4) and (5) of section 38, be paid in accordance with the order against which appeal has been preferred.

(5) The appeal shall be in the prescribed form and shall be verified in the prescribed manner.

(6) The following shall have the right to be heard at the hearing of the appeal, –

(a) the appellant, either in person or by the authorized representative;

(b) the authority or officer against whose order the appeal has been preferred either in person or by a representative.

(7) The appellate authority may, before disposing of any appeal make such further enquiry as it thinks fit, or may direct the assessing authority or the officer against whose order appeal has been preferred to make further enquiry and report the result of the same to the appellate authority and in disposing of the appeal the said authority may,–

(a) in the case of an order of assessment, interest or penalty,–

(i) confirm, enhance, reduce or annul the assessment, interest or penalty; or

(ii) set aside the order of assessment, interest or penalty and direct the assessing authority to pass fresh order after such further enquiry as may be directed; and

(b) in the case of any other order, confirm, cancel, vary or remand such order.

(8) The appellate authority shall send a copy of the order passed by it to the appellant, the assessing authority or such authority against whose order the appeal has been preferred, the Deputy Commissioner (Administration) concerned and the Commissioner.”

Section 82(3) of the Act of 2003 imposes a mandatory statutory obligation of making a pre-deposit for entertaining an appeal. In appeals against ex parte assessment orders, the mandatory statutory pre-deposit would be 5% of the Value Added Tax and 10% of the Value Added Tax amount in other cases. Section 53 of the Act of 2003 deals with the concept of refund and reads as below:-

53. Refund.– (1) Where any amount is refundable to a dealer under the provisions of this Act, after having duly verified the fact of 1[“deposit of such amount”], the assessing authority or the officer authorized by the Commissioner, shall in the prescribed manner refund to such dealer the amount to be refunded either by cash payment or by adjustment against the tax or other sum due in respect of any tax period.

(2) Notwithstanding anything contained in this Act, where a registered dealer files a return and claims refund on account of sales in the course of export outside the territory of India, the assessing authority or officer authorized by the Commissioner may require such dealer to furnish such documents as may be prescribed and after having been satisfied shall within thirty days from the date of such claim, grant the dealer a refund in cash.

(3) Where an amount or tax is collected from any person who is not registered under this Act and such amount or tax is not found payable by him, or where an amount in lieu of tax for any works contract is deducted in any manner by an awarder from any bill of payment to a contractor, who is not liable to pay tax under this Act, the amount so collected or deducted shall be refunded in the prescribed manner by the Assistant Commissioner or the Commercial Taxes Officer, as the case may be, in whose territorial jurisdiction such person or contractor ordinarily resides; and where such person or contractor does not reside in the State, then such refund shall be made by such officer as may be directed by the Commissioner. [(3A) Where any amount has been deposited wrongly or in excess, by a dealer and it is found that such amount is not payable or has been deposited in excess of the amount payable by the dealer for the tax period mentioned in the challan, the Commissioner or any officer as authorized by the Commissioner in this behalf shall direct the assessing authority to grant refund of the said amount in the manner as prescribed.]

(4) [Where refund of any amount becomes due to a dealer, he shall be entitled to receive, in addition to the amount of refund, simple interest at such rate as may be notified by the State Government with effect from 1st April of the year immediately following the year to which it relates upto the date of payment:

Provided that where the dealer has paid any amount of tax after the closing of the year and such amount is required to be refunded, no interest shall be payable for the period prior to the date of the deposit of such amount.]

(5) Notwithstanding anything contained in this section or in any other law for the time being in force, only the dealer or the person, who has actually suffered the incidence of tax or has paid the amount, can claim a refund and the burden of proving the incidence of tax so suffered or the amount so paid shall be on the dealer or the person claiming the refund.

[(6) Where tax is collected on any official or personal purchase by Foreign Diplomatic Missions or their Diplomats or by UN Bodies or their Diplomats, it shall be refunded to such person or Mission or Bodies, as the case may be, within thirty days of the receipt of the application, by such officer as may be authorized by the State Government in this behalf by notification.]” As per Section 53 (4) of the Act of 2003, where refund of any amount becomes due to a dealer, he shall be entitled to receive simple interest at such rate as may be notified by the State Government. The Act of 2003 has further been supplemented by the Rajasthan Value Added Tax Rules, 2006 (for short, “the Rules of 2006”). Rule 27 of the Rules of 2006 also deals with refund of excess tax/penalty/interest/other sum due, as a result of an assessment made or in pursuance of an order passed by any competent officer, authority or court, and is quoted here in below for the sake of ready reference :-

“ 27. Refund.- (1) (a) Subject to the provisions of sub-section (2) of section 17, section 53 and section 54, the assessing authority or the authorised officer, after having verified the fact of deposit of such amount, is satisfied that the payment made by a dealer or a person is in excess of any tax, penalty, interest or other sum due, as a result of an assessment made or in pursuance of an order passed by any competent officer, authority or court, such assessing authority or authorised officer, either suo motu or on an application made in this behalf in Form VAT-20 or VAT-21 or VAT-22 as the case may be, shall pass an order for refund within fifteen days of such assessment or receipt of such order or receipt of completed application. Refund order shall be passed in favour of a dealer or a person who has account in a bank having core banking system (CBS) in Form VAT-23A, and in case of others in Form VAT-23.]”

On going through the aforesaid provisions of the Act of 2003 and the Rules of 2006, it becomes clear that mandatory statutory obligation pre-deposit with the appeal comprises of a proportion of VAT liability imposed upon the assessee by the assessing authority. M/s. Binani Cement Limited became sick and during pendency of the insolvency proceedings and Corporate Insolvency Resolution process was undertaken under the IBC, 2016. With the acceptance of the Resolution Plan of the petitioner who was declared the successful applicant by the NCLAT, the petitioner gained absolute control over the unit and was under an obligation to discharge the existing liabilities of the sick unit, strictly in terms of the Resolution Plan approved by the NCLAT. It is not in dispute that the respondent Department had submitted a claim for an outstanding amount of Rs.479,73,13,819/-before the NCLAT in the resolution proceedings in the capacity of an operational creditor. The amount so claimed would relat to Value Adeed Tax and nothing else. The NCLAT disposed of the demands raised by all corporate/operational creditors including the respondent Department while accepting its claim only for a sum of Rs.61.05 crores. It may be mentioned here that the respondent Commercial Taxes Department challenged the order of the NCLAT by filing a SLP, which was dismissed by Hon’ble Supreme Court. Thus, the liability of the petitioner towards the respondent Department was fixed at Rs.61.05 crores. Any demand made or amount retained by the Department beyond the said sum of Rs.61.05 crores either from the sick unit or from the petitioner would, thus, be invalid as being contrary to the Resolution Plan approved by the NCLAT.

Consequently, all that the Department could claim from the petitioner, being the successful resolution applicant, would be the said amount and nothing beyond that.

It cannot be disputed that if the appeals had been accepted on merits, a fortiori , the amounts deposited with the appeals as mandatory statutory obligation would have to be reimbursed to the assessee. Nonetheless, the Tax Board was not called upon to decide the appeals on merits because the Department itself took a conscious logical decision to dispose all liabilities of the sick unit as they existed prior to acceptance of the Resolution Plan and hence, the petitioner was not required to invoke the appellate jurisdiction of the Tribunal for getting the appeals decided on merits. The applications were correctly moved by the petitioner for withdrawal of the pending appeals, which had virtually become infructuous with the liabilities of the unit towards the Department having been settled by the NCLAT. The withdrawal of the appeals was as good as acceptance because in effect, all the outstanding liabilities of the Department stood disposed of, by virtue of the Department’s order dated 12.08.2021.

Once the tax liability raised by the Department had been fixed by effect of acceptance of Resolution Plan, manifestly, the Department could not hold on to any payment made by the assessee in excess of what has been approved under the Resolution Plan, i.e. Rs.61.05 crores.

The reasoning given by the Tax Board in the impugned orders that the amount deposited by the assessee by way of statutory pre-deposit was not a part of the Resolution Plan is absolutely without foundation for the simple reason that this amount was a proportion of the tax liability fixed on the assessee and once the total tax liability has been quantified by the NCLAt, any amount paid by the assessee over and above such amount would have to be reimbursed as per Section 53 (3) (3A) of the Act of 2003 read with Rule 27 of the Rules of 2006.

The Tax Board held that the burden of establishing that the amount deposited with the appeals by way of mandatory statutory obligation was also a part of the Resolution proceedings and in absence of any such material, the appellant could not stake a claim for the same. Superficially this logic of the Tax Board appears to be justified in view the stipulation made in Section 53 (5) of the Act of 2003 that the burden of proof is on the dealer or the person claiming the refund.

However, when the situation is considered in light of the order passed in the insolvency proceedings, it becomes clear that the entire tax liability accruing to the Department was put forth by way of a claim filed by the Department before the NCLAT in the capacity of a statutory creditor. As the NCLAT comprehensively decided the claim of the Department and restricted the liability of the Resolution applicant, i.e. the petitioner herein, towards the Department to Rs.61.05 crores, it can be presumed that there was no other liability of the petitioner against the outstanding amounts due to be paid by way of Commercial Taxes. The Resolution Plan having been approved and the claim of the Department having been finally decided by the NCLAT, if at all the Department was desirous of claiming that the pre-deosit amounts were exclusive and beyond the claim filed by the Department before the NCLAT, then the burden would be on the Department to prove the same. The assessee discharged the burden put upon it by Section 53 (5) of the Act of 2003 by virtue of the Resolution Plan finalized by the NCLAT. Thus, the finding recorded by the Tax Board that the amount of pre-deposits were distinct and were not covered under the claim filed by the Department before the NCLAT has no foundation whatsoever.

The petitioner questioned validity of the demand notices issued by the CGST Department in relation to the period prior to the transfer date on which the petitioner took over the company M/s Binani Cement Ltd. in proceedings under the IBC, 2016 by filing a Writ Petition No.9480/2019 (Ultra Tech Nathdwara Cement Ltd. Vs. Union of India & Ors.) , which was accepted by this court vide order dated 07.04.2020 by making the following observations :-

“Therefore, we are of the firm opinion that the respondents would be acting in a totally illegal and arbitrary manner while pressing for demands raised vide the notices which are impugned in this writ petition and any other demands which they may contemplate for the period prior to the resolution plan being finalized.

The demand notices are ex-facie illegal, arbitrary and per-se and cannot be sustained. Accordingly, the impugned demand notices and orders viz. notice dated 11.2.2019 (Annex.10), letter dated 7.9.2018 (Annex.11), order dated 20.3.2019 (Annex.12), notice dated 6.3.2019 (Annex.13), notice dated 8.3.2019 (Annex.14), notice dated 29.3.2019 (Annex.15), notice dated 29.3.2019 (Annex.16), notice dated 10.4.2019 (Annex.18), order dated 9.4.2019 (Annex.19), two notices dated 11.6.2019 (Annex.20) and any further demands pending as on the date of finalization of the resolution plan issued/raised by the respondents Central Goods and Service Tax Department, Govt. of India are quashed and struck down.”

Drawing analogy from the conclusions drawn by this court in the judgment dated 07.04.2020, any demand made by the State Commercial Taxes Department in excess of that approved by the NCLAT would have to be struck off and if any amount has already been received over and above what has been approved under the Resolution Plan, the same would have to be refunded.