High Court addressed the extinguishment of customs duty claims against Ruchi Soya following the Corporate Insolvency Resolution, highlighting the implications of the revenue's failure to lodge a claim during the Corporate Insolvency Resolution Process (CIRP).
The Karnataka High Court Division Bench of Justice S.G. Pandit and Justice C.M. Poonacha reviewed an appeal and observed that the demand for customs duty against the Appellant stood extinguished due to the failure of the revenue to lodge a claim during the Corporate Insolvency Resolution Process, as per Sections 31 and 32A of the Insolvency and Bankruptcy Code, 2016, and established precedents from the Supreme Court in Ghanashyam Mishra, REEDLAW 2021 SC 04534 and Ruchi Soya Industries, REEDLAW 2024 SC 01514 cases, thus rendering the CESTAT's reliance on Rule 22 of the 1982 Rules erroneous.
The present appeal was filed under Section 130 of the Customs Act, 1962, challenging the Final Order No. 21268/2023 dated 17.11.2023, passed by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Bangalore. The relevant facts leading to this appeal indicated that Ruchi Soya Industries Ltd. was engaged in the business of importing Crude Palm Oil of Edible grade in bulk. Ruchi Soya imported 8,499.980 MT of the first-grade bulk oil, which arrived at the New Mangalore Port on 22.2.2011, filing 28 bills of entry dated 21.2.2011 for clearance, claiming duty exemption as per a notification dated 1.3.2002. However, the revenue contended that the imported Crude Palm Oil was not of edible grade, denying Ruchi Soya’s entitlement to the claimed duty exemption, which led to the issuance of a show cause notice dated 17.2.2012. The assessee responded to this notice, but the Commissioner of Customs, Mangalore, passed an Order-in-Original on 31.7.2012, confirming a customs duty demand of ₹19,40,00,646. Being aggrieved, Ruchi Soya filed an appeal before the CESTAT.
During the pendency of the appeal, the National Company Law Tribunal (NCLT) issued an order on 8.12.2017, initiating the Corporate Insolvency Resolution Process (CIRP) against Ruchi Soya and appointing an Interim Resolution Professional (IRP). Following this, a public announcement was made on 21.12.2017, and on 24.7.2019, the NCLT accepted a modified resolution plan, resulting in a change of control over the company and renaming it Patanjali Foods Limited. Subsequently, Patanjali filed Miscellaneous Applications before the CESTAT to change the name from Ruchi Soya to Patanjali and to assert that the liability had been extinguished. CESTAT, in its Final Order, concluded that the appeal had abated according to Rule 22 of the CESTAT (Procedure) Rules, 1982.
The current appeal was admitted by the Court on 2.9.2024, framing the substantial question of law regarding whether the Appellate Tribunal erred in law and fact by not adhering to the Supreme Court's established position that all dues related to demands not submitted as claims, and not included in the approved Resolution Plan, stand extinguished. The Court heard submissions from both learned counsels, where the appellant-assessee argued that the CIRP proceedings initiated against Ruchi Soya and the approval of the modified resolution plan extinguished the revenue's demand since the revenue did not file a claim before the IRP. The appellant cited the Supreme Court's decisions in Ghanshyam Mishra v. Edelweiss Reconstruction Company Ltd. and Ruchi Soya Industries Limited v. Union of India to support its position. In contrast, the respondent’s counsel acknowledged the Supreme Court's ruling but argued for the continuation of the appeal based on procedural grounds.
The Court observed that it was undisputed that a show cause notice was issued, and the proceedings under the IBC against Ruchi Soya had commenced. It also noted that the revenue had failed to make a claim during the CIRP process. The Supreme Court had previously clarified that once a resolution plan is approved, all claims not included in the plan become frozen, and any unsubmitted dues are extinguished, barring any further proceedings. This was reiterated in the case of Ruchi Soya Industries Ltd., which found that claims not lodged before the resolution professional post-notice issuance would not survive after the approval of the resolution plan.
The Court concluded that since the revenue did not submit any claim before the IRP during the CIRP process and the demand was not included in the resolution plan, it stood extinguished. The Court emphasized that Rule 22 of the 1982 Rules, which pertains to the abatement of proceedings in cases of death or insolvency, was not applicable as the resolution plan had been approved and the business was to continue. Therefore, it ruled that the CESTAT's reliance on Rule 22 was erroneous.
Ultimately, the Court answered the substantial question of law in favour of the assessee and against the revenue, allowing the appeal and setting aside Final Order No. 21268/2023. The Court ordered that the demand of ₹19,40,00,646 made by the revenue against the assessee had abated and stood extinguished.
Mr. Rajesh Rawal, Advocate for Mr. Chandrashekar Reddy K.P., Advocate represented the Appellant. While Mr. Jeevan J. Neeralgi, Advocate appeared for the Respondent.
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