"Preposterous": Kerala High Court on NCLT exceeding jurisdiction in declaring tax assessment of company void

The Kerala High Court recently criticised the National Company Law Tribunal (NCLT) bench at Kochi for assuming the jurisdiction of the Constitutional Court in declaring as void a tax assessment order issued against a company undergoing liquidation. .The Court added that the NCLT Kochi's order showed a lack of basic understanding of the law, and indicated that it reflected poorly on the competence of the tribunal's members..Justice Dinesh Kumar Singh explained that while a new tax demand cannot be enforced during the moratorium period (under Section 14 of Section 33 (5) of the IBC) when a company is undergoing insolvency or liquidation, there is no such embargo for determining the amount of tax other levies against the corporate debtor. .As such, the Court was displeased to find that the NCLT Kochi had declared a tax assessment of the corporate debtor as void despite having no such power under the Insolvency and Bankruptcy Code (IBC)..“This Court finds the impugned order passed by the National Company Law Tribunal, Kochi Bench, as preposterous and untenable. The Company Law Tribunal has no power and authority under the IBC to declare an assessment order as void ab initio and non est in law. Such an order only reflects the competence of the persons who are manning such an important Tribunal. The order shows the lack of basic understanding of the law,” the Court said..By way of background, a company (corporate debtor) named M/s Albanna Engineering (India) Private Limited was admitted to the Corporate Insolvency Resolution Process (CIRP) in October 2019. A moratorium was also declared under Section 14 of the IBC until December 2021, when a liquidation order was passed against the company. On finding certain irregularities in the company's assessment records for 2015-16, a notice was issued under Section 25(1) of the Kerala Value Added Tax Act (KVAT Act). Subsequently, a tax assessment was carried out and the company's liability was pegged at about ₹11.76 crores.This amount was then claimed by the Deputy Commissioner (works Contract) of the Kerala State Goods and Services Tax Department. The said claim was submitted before the resolution professional.However, the liquidator/ resolution professional of the corporate debtor sought to challenge this tax assessment and filed a plea before the NCLT Kochi for permission to file an appeal against the assessment order. The NCLT Kochi, however, decided on the validity of the tax assessment directly. In its order dated October 26, 2022, the NCLT bench of Judicial Member P Mohan Raj and Technical Member Satya Ranjan Prasad observed that since the tax assessment order dated February 25, 2021, was passed during a moratorium period, it violated Section 14 (1)(a) of the IBC.The NCLT, therefore, directed the liquidator to disregard the tax assessment order and consider the KVAT department's claims without factoring in the assessment order."Hence the impugned order is void ab initio and nonest in law. In the situation, no appeal needs to be filed against the void order. In this situation, this application is liable to be dismissed. The applicant/ Liquidator is directed to consider the claim submitted by the KVAT Works Contract Authorities independently, ignoring the supra void impugned order," the NCLT said.This development was challenged by the tax authorities before the High Court..The High Court opined that the NCLT exceeded its authority and took over the High Court's jurisdiction when it declared the assessment order void. "Instead of considering the application by the 2nd respondent (corporate debtor represented by its resolution professional) for permission to file an appeal against the assessment order, the National Company Law Tribunal, Kochi Bench, has assumed the jurisdiction of the Constitutional Court to declare the assessment order as void ab initio," the High Court said. Therefore, the Court set aside the NCLT's order and remitted the matter back to the tribunal."The impugned order is unsustainable, and the same is set aside. The writ petition is allowed. The matter is remitted back to the National Company Law Tribunal, Kochi Bench, to consider and pass an order on the application of the 2nd respondent at an early date," the Court said. .The petitioner, Deputy Commissioner (Works Contract) of the Kerala GST Department, was represented by government pleader Arun Chandy.Advocate KB Arunkumar appeared for the corporate debtor, M/S Albana Engineering (India) Private Limited represented by its resolution professional..[Read Judgment]