NCLT Ahmedabad Upholds Liquidator's Rejection of ₹211.87 Crore VAT and CST Claim Against Gujarat Foils

The National Company Law Tribunal (NCLT) at Ahmedabad has recently held that the liquidator of Gujarat Foils Ltd. was justified in rejecting a VAT and CST claim of about Rs 211.87 crore filed by the State Tax Department during the company's liquidation, finding that the liabilities were still disputed and pending before appellate authorities.

A bench of Judicial Member Chitra Hankare and Technical Member Dr. V.G. Venkata Chalapathy observed that the claim could not be admitted when the underlying tax demands had not been finally determined.

The tribunal observed, “No injustice is caused to the applicant as it is gross negligence as the respondent has already rejected the claim and the applicant has lost further legal rights to file the claim with appropriate adjudicated value in appeal, in time during the liquidation process.”

Insolvency proceedings against the company began on November 30, 2017 and, after the resolution process failed, the tribunal ordered liquidation on September 16, 2019 and appointed Alok Kailash Saksena as the liquidator.

After the liquidator issued a public announcement inviting claims, the State Tax Department lodged its claim on October 22, 2019, seeking around Rs 211.87 crore towards VAT and CST dues, along with interest and penalties. The demand related to assessment years 2006–07 to 2017–18, including the first quarter of the 2017–18 assessment year.

The liquidator, however, declined to admit the claim. In a communication dated March 5, 2020, he said the tax demands stemmed from assessment orders that were still under challenge before appellate authorities, meaning the liabilities had not yet attained finality.

The State Tax Officer disputed that position before the tribunal. According to the department, the pendency of appeals against the assessment orders could not by itself justify rejecting the claim in its entirety. It maintained that the liquidator had wrongly treated the tax demand as incapable of consideration during the liquidation process.

The department argued that the existence of appellate proceedings does not make the underlying tax liability uncertain. The department also argued that the liquidation regulations required the liquidator to assign a notional value to disputed claims based on available records instead of rejecting them outright. It relied on the Supreme Court's ruling in State Tax Officer v. Rainbow Papers Ltd., contending that statutory tax dues can qualify as secured claims.

OFB Tech Private Limited, which acquired the company through the liquidation auction as a going concern, opposed the move.

It argued that once the sale was completed under the Insolvency and Bankruptcy Code, earlier liabilities of the corporate debtor could not be enforced against the purchaser.

The tribunal found no merit in the department's challenge. It noted that the tax demands arose from disputes over the classification of aluminium foil for VAT purposes and from disallowances linked to statutory CST forms, issues that were already pending before appellate authorities.

Rejecting the argument that the liquidator should have assigned a notional value to the claim, the bench observed, “The plea of the applicant that the respondent liquidator should have formed a notional value for accepting the claim without rejection stating the reason that it was under appeal, is untenable and not in terms of the IBC provisions.”

Referring to the statutory powers of the liquidator, the tribunal said the duties under Section 35(1)(a) of the Insolvency and Bankruptcy Code had been properly exercised in examining and rejecting the claim.

Since the tax demands were still being contested and had not resulted in a final determination, the tribunal concluded that the department's claim remained “in fluid forms without any concrete crystallised liability.” The application was therefore dismissed.