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In a development that will give priority to tax authorities’ claim from stressed assets, the National Company Law Appellate Tribunal has ruled the Committee of Creditors (CoC) should consider statutory dues such as income tax, sales tax and value-added tax as operational credit.
At present, tax claims under the Insolvency and Bankruptcy Code rank much below employees dues, financial and operational creditors. NCLAT verdict comes when the tussle between the financial and operational creditors is tilting in favour of the later. In most cases, NCLT had favoured more payment to operational creditors.
Clubbing verdict of five similar cases together, Justices SJ Mukhopadhaya and Bansi Lal Bhat said operational debt in normal course means a debt arising during the operation of the company. The goods and services including employment are required to keep the company operational as a going concern.
If the company is operational and remains a going concern, the statutory liabilities such as payment of Income Tax and Value Added Tax arise, said the judgement passed on March 20.
“We hold such statutory dues has direct nexus with operation of the company. For the said reason, all statutory dues including Income Tax, Value Added Tax come within the meaning of Operational Debt,” it added.
Hence, the Income Tax Department of the Central Government and Sales Tax Department of the State Government and local authority, who are entitled for dues arising out of the existing law are Operational Creditor within the meaning of Section 5(20) of the I&B Code, said the judgement.
NCLAT has relied on an earlier Supreme Court verdict in the case involving Swiss Ribbons and Union of India. The Apex Court had said an operational debt would include a claim in respect of the provision of goods or services including employment or a debt in respect of payment of goods or services, including employment or a debt in respect of payment of dues arising under any law and payable to the Government or any local authority.
One of the five cases on which NCLAT gave its verdict was filed by Commissioner of Income Tax Mumbai against NCLT order approving the resolution plan of Raj Oil Mills. In this case, the resolution plan has settled the income tax liability of ₹338 crore of the company for one per cent of the ‘crystallised demand’ to a maximum of ₹2.58 crore.
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