GARDEN SILK MILLS LTD. vs. UNION OF INDIA

C/SCA/9153/2017 ORDER DATED: 17/02/2022 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 9153 of 2017 With CIVIL APPLICATION (FOR DIRECTION) NO. 1 of 2021 In R/SPECIAL CIVIL APPLICATION NO. 9153 of 2017 ============================================= GARDEN SILK MILLS LTD. & 1 other(s) Versus UNION OF INDIA & 1 other(s) ============================================= Appearance: MR DHAVAL SHAH(2354) for the Petitioner(s) No. 1,2 for the Respondent(s) No. 1 MR DEVANG VYAS with MR DHAVAL VYAS(2794) for the Respondent(s) No. 1 VIRAL K SHAH(5210) for the Respondent(s) No. 2 ============================================= CORAM: HONOURABLE MR. JUSTICE J.B.PARDIWALA and HONOURABLE MS. JUSTICE NISHA M. THAKORE

Date : 17/02/2022

ORAL ORDER (PER : HONOURABLE MS. JUSTICE NISHA M. THAKORE) 1. By way of this writ application under Article 226 of the Constitution of India, the writ applicant seeks relief of issuance of writ of mandamus/certiorari to quash and set aside the order dated 18.01.2017 passed by the Commissioner of Central Excise, Surat-1, by which the respondent No.2 authority has confirmed the demand though being time barred and in ignorance of the previous order dated 05.02.1998 passed by the Commissioner (Appeals), wherein it is categorically held that the writ applicant is eligible for exemption from duty in terms of Notification No.8/96, dated 23.07.1996. 2. This Court vide order dated 10.10.2018 has passed the Page 1 of 9

C/SCA/9153/2017 ORDER DATED: 17/02/2022 following order: “1. Heard Mr. Mihir Joshi, learned senior counsel with Mr. Dhaval Shah, learned advocate for the petitioner and Mr. Viral Shah, learned advocate for respondent. 2. While issuing the notice by oral order dated 4.5.2017, Division Bench of this Court recorded the submissions of learned senior counsel for the petitioner as under: “1. Mr. Mihir Joshi, Senior Advocate, learned counsel with Mr. Dhaval Shah, learned advocate for the petitioners has assailed the impugned orderin-original on several grounds. The attention of the court was invited to the impugned order to point out that the attention of the adjudicating authority was specifically drawn to the earlier order dated 05.02.1998 passed by the Commissioner (Appeals) in the assessee’s own case, whereby the Commissioner had held in favour of the assessee. It was pointed out that the attention of the adjudicating authority was further invited to the subsequent order dated 04.02.2003 of the Commissioner (Appeals), whereby he had followed the earlier order dated 05.02.1998; however, the same has been brushed aside by the adjudicating authority on a fallacious premise that the findings recorded in the order dated 05.02.1998 were mere observations. It was also submitted that the show cause notice itself was invalid on the ground that the same was being time barred. 2. Having regard to the submissions advanced by the learned counsel for the petitioners, and more particularly considering the fact that the Commissioner (Appeals) had vide order dated 05.02.1998 had already taken a view in favour of the assessee, Issue Notice returnable on 14th June, 2017. By way of ad-interim relief, the respondents are restrained from taking any coercive action pursuant to the impugned order-in original. Direct service is permitted qua respondent No.2.” 3. In answer to the above and averments made in the writ petition, affidavit-in-reply filed by respondent Nos.1 and 2 i.e. Commissioner of GST and Central Excise, Surat, do not reflect any specific answer to the above submissions. 4. We have perused the relevant orders passed by the appellate authority/CESTAT and the High Courts' initial order on 26.10.2005 and 21.1.2006 in Special Civil Application No. 12720 of 2002 wherein show cause notice dated 25.1.1999 was the same. 5. We are of the view prima facie, that earlier decisions of the appellate authority not contained comments/opinion etc., but decision was rendered after considering relevant aspects namely, facts as well as law and in turn the competent authority was directed to decide the case based on observations made therein by the appellate authority. Page 2 of 9

C/SCA/9153/2017 ORDER DATED: 17/02/2022 6. The matter deserves consideration, hence, Rule returnable on 20.12.2018. 7. Ad-interim relief to continue as interim relief till final disposal.” 3. During the pendency of the final hearing of this writ application, a vital development has taken place, which has been brought on record by the writ applicant in the form of Civil Application bearing No.1 of 2021 whereby the writ applicant has prayed for appropriate directions inter-alia seeking disposal of the petition being treated as abated and rendered infructuous and nonest in view of the order dated 01.01.2021 (approval order) in IA No.661 of 2020 with IA No.759 of 2020 (approval application) in CP(I.B) No.453 of 2018 (insolvency petition) passed by the National Company Law Tribunal, Ahmedabad Bench, which has approved the resolution plan dated 19.09.2020 along with addendum dated 23.09.2020 in exercise of power conferred under Section 31(1) of the Insolvency and Bankruptcy Code, 2016 thereby declaring the writ applicant company insolvent in terms of the insolvency resolution of corporate debtor recoverable. 4. Before we delve into the aforesaid aspect, it would be germane to take into consideration relevant facts of the case: 4.1 It appears from the record that the writ applicant company was incorporated way back in the year 1979 as a private limited company under the name and style of Vareli Weaves Private Limited. The writ applicant company was mainly engaged in the manufacturing of draw warped polyster yarn. Subsequently, on 17.07.1987, the writ applicant company became a public limited company. Page 3 of 9

C/SCA/9153/2017 ORDER DATED: 17/02/2022 4.2 It further transpires that the writ applicant company was not liable for any duty under the Central Excise Act and during the relevant assessment year had availed benefit of the exemption extended by the Union in the budget of 1995-96, in terms of Notification bearing No.35/95-CE, dated 16.03.1995 as amended by Notification bearing No.84/95-CE, dated 18.05.1995. 4.3 Subsequently, the respondent authority directed the writ applicant company for payment of duty under Rule 9(B) of the Central Excise Rules, 1944. The writ applicant had under protest paid excise duty and subsequently, lodged the refund claim which came to be rejected by the competent authority, against which the writ applicant had preferred the appeal. The first appellate authority i.e. the Commissioner (Appeals), was pleased to allow the aforesaid appeal vide order dated 05.02.1998 and remanded the matter back with a direction to adjudicate the issue as regards the entitlement of exemption. 4.4. It is the case of the writ applicant company that despite the aforesaid order, the respondent no.2 issued a show cause notice dated 25.01.1999 calling upon the writ applicant company for payment of duty. The writ applicant company had tendered reply dated 18.06.1999 thereby drawing attention of the respondent authority about being exempted in terms of Notification bearing No.8/96-CE as well as raising issue of demand being time barred. However, the Deputy Commissioner of Central Excise, Division – 2, Surat – 1, by order dated 31.12.2000 was pleased to declare that the writ applicant company’s goods are excisable as being classified under Chapter sub heading 5402.43 of CETA and were Page 4 of 9

C/SCA/9153/2017 ORDER DATED: 17/02/2022 therefore subjected to duty under the Act. 4.5 The writ applicant company was constrained to approach the first appellate authority namely the Commissioner (Appeals), whereby the attention was once again drawn of the appellate authority about the entitlement of exemption in terms of the notification. The aforesaid appeal preferred by the writ applicant came to be allowed vide order dated 04.02.2003 in line of the earlier order dated 05.02.1998. 4.6 The said order was challenged by the Revenue Department before the Appellate Tribunal whereby the Appellate Tribunal vide order dated 24.11.2004 remanded the matter back to the adjudicating authority with a further direction to hear the matter with the case remanded vide order dated 05.02.1998. 4.7 It is the case of the writ applicant company that both these cases are pending adjudication before the adjudicating authority and in such circumstances, the writ applicant has approached this Court. 5. Now, in light of the aforesaid background of facts of the case on hand and the subsequent development which has been reported to this Court, the only question which falls for our consideration is as to whether the writ application pending adjudication stand infructuous and nonest as well as the respondents claim of Rs.21,41,55,591/- stands extinguished and non recoverable with the passing of the order dated 19.09.2020 including addendum dated 23.09.2020 passed by the NCLT, Ahmedabad Bench, in case of the writ applicant. Page 5 of 9

C/SCA/9153/2017 ORDER DATED: 17/02/2022 6. At this stage, it would be appropriate to look into the relevant provision of the Insolvency and Bankruptcy Code, 2016 i.e. Section 31(1) of the Code, 2016, which reads as under: “31. Approval of resolution plan. - (1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, [including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed,] guarantors and other stakeholders involved in the resolution plan: Provided that the Adjudicating Authority shall, before passing an order for approval of resolution plan under sub-section (1), it may, by an order, reject the resolution plan.” 7. Bare reading of the aforesaid provision makes it clear that the Central Government, any State Government or any Local Authority to whom debt in respect of payment of dues arising under any law for the time being in force, then such as the authorities to whom statutory dues are owed falls within the perview of Section 31 of the Code, 2016 with effect from 16.08.2019 by Act No.26 of 2019. 8. In our view, the legal position as regards the effect of resolution plan once approved by the NCLT vis-a-vis the claims pending adjudication is concerned, is no longer res-integra in view of the recent pronouncement of the Supreme Court in the case of Ghanshyam Mishra & Sons Pvt. Ltd. vs. Edelweiss Asset Reconstruction Company Ltd. reported in (2021) 9 SCC 657 wherein the Supreme Court took the view as regards 2019 amendment being incorporated to Section 31 of the Insolvency and Bankruptcy Code, 2016 being treated clarificatory and Page 6 of 9

C/SCA/9153/2017 ORDER DATED: 17/02/2022 declaratory in nature and thereby treating it to have come into effect retrospectively. The relevant observation as recorded in paragraph 138 of the aforesaid decision are reproduce as under: “In the foregoing paragraphs, we have held, that 2019 amendment to Section 31 of I&B Code is clarificatory and declaratory in nature and therefore will have a retrospective operation. As such, when the resolution plan is approved by NCLT, the claims, which are not part of the resolution plan, shall stand extinguished and the proceedings related thereto shall stand terminated. Since the subject matter of the petition are the proceedings, which relate to the claims of the respondents prior to the approval of the plan, in the light of the view taken by us, the same cannot be continued. Equally the claims, which are not part of the resolution plan, shall stand extinguished.” 9. In view of the aforesaid legal position as well as taking into consideration the provisions of the resolution plan as approved by the National Company Law Tribunal, Ahmedabad Bench, in case of the writ applicant along with all the reliefs, concessions and dispensations as granted in the approval order, we hereby hold that the present writ application is rendered infructuous, nonest and is disposed of as abated. So far as the issue of extinguishment of claims pending adjudication of the respondent revenue department is concerned, Mr. Dhaval Vyas, the learned Senior Standing Counsel appearing for the department has submitted that though the writ petition being declared as infructuous and abated, liberty may be reserved in favour of the revenue department to invoke Section 61 of the Insolvency and Bankruptcy Code, 2016, if in any eventuality such question arises for consideration in future. It would be appropriate to consider sub section (3) of Section 61 of the Code. We quote Section 61 of the Code, 2016 in it’s entirety as under: “61. Appeal and Appellate Authority.- (1) Notwithstanding anything to the contrary contained under the Companies Act 2013 Page 7 of 9

C/SCA/9153/2017 ORDER DATED: 17/02/2022 (18 of 2013), any person aggrieved by the order of the Adjudicating Authority under this part may prefer an appeal to the National Company Law Appellate Tribunal. (2) Every appeal under sub-section (1) shall be filed within thirty days before the National Company Law Appellate Tribunal: Provided that the National Company Law Appellate Tribunal may allow an appeal to be filed after the expiry of the said period of thirty days if it is satisfied that there was sufficient cause for not filing the appeal but such period shall not exceed fifteen days. (3) An appeal against an order approving a resolution plan under section 31 may be filed on the following grounds, namely:— (i) the approved resolution plan is in contravention of the provisions of any law for the time being in force; (ii) there has been material irregularity in exercise of the powers by the resolution professional during the corporate insolvency resolution period; (iii) the debts owed to operational creditors of the corporate debtor have not been provided for in the resolution plan in the manner specified by the Board; (iv) the insolvency resolution process costs have not been provided for repayment in priority to all other debts; or (v) the resolution plan does not comply with any other criteria specified by the Board. (4) An appeal against a liquidation order passed under section 33 may be filed on grounds of material irregularity or fraud committed in relation to such a liquidation order.” 10. Thus, we find that the provision itself makes it clear that if in case the revenue is dissatisfied in any manner with the sanctioning of the resolution plan by the National Company Law Tribunal then the liberty is always reserved in favour of the revenue to prefer an appeal under Section 61 of the Code, 2016 before the National Company Law Appellate Tribunal. 11. For the reasons stated above, the present writ application does not survive and is hereby disposed of as abated and infructuous. We further clarify that we have otherwise not expressed any opinion on the merits of the case and at the Page 8 of 9

C/SCA/9153/2017 ORDER DATED: 17/02/2022 same time, we reserve the liberty in favour of the revenue department to file appropriate proceedings or an appeal as provided under Section 61 of the Code, 2016. Resultantly, the civil application bearing No.1 of 2021 filed in the main writ application also stands disposed of accordingly. Notice stands discharged. (J. B. PARDIWALA, J) (NISHA M. THAKORE,J) NEHA Page 9 of 9