GSTAT Sets Aside DGAP’s Show Cause Notice and Closes Proceedings under Section 171 of CGST Act

The Directorate General of Anti-Profiteering had issued proceedings under Section 171 of the CGST Act against suspected non-passing on of input-tax-credit profits to customers. Pending the investigation, the company in question was declared insolvent and its assets and liabilities taken over by a new company on approval of a Resolution Plan dated 01 June 2021 under the Insolvency and Bankruptcy Code (IBC).
It was brought to the Tribunal’s attention that, because of the insolvency process, the investigation had come to a standstill and the period for lodging claims before the Resolution Professional had already lapsed.

The Tribunal therefore directed the Principal DG, DGAP to obtain a formal legal opinion on whether the alleged benefit of input-tax credit, termed “profiteered amount,” could still be recovered or passed on to customers after approval of the Resolution Plan. Acting on this direction, the Principal DG sought the opinion of a Senior Standing Counsel who analysed Sections 31 and 238 of the IBC and the Supreme Court decisions in Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta and Ors. and Ghanashyam Mishra & Sons Pvt. Ltd. v. Edelweiss Asset Reconstruction Co. Ltd.

Main Issue: Whether anti-profiteering proceedings under Section 171 of the CGST Act could continue after approval of a Resolution Plan under the Insolvency and Bankruptcy Code, when such a claim was not included in the plan.

Tribunal’s Decision: The Tribunal recorded that Section 238 of the IBC contains a non-obstante clause granting overriding effect to the Code over any other law for the time being in force. The Tribunal took note that, according to the Supreme Court in Essar Steel India Ltd. and Ghanashyam Mishra & Sons Pvt. Ltd., once a Resolution Plan is approved by the Adjudicating Authority under Section 31 of the IBC, all claims not forming part of the approved plan stand extinguished and cannot be reopened or continued before any forum. The Code contemplates that the successful Resolution Applicant takes over the corporate debtor on a “fresh slate” without being burdened with undecided or unquantified liabilities. This principle was reaffirmed in paragraph 95 of the Ghanshyam Mishra judgment, which stated that all such dues, whether statutory dues payable to Central or State Governments, become frozen as on plan approval and cannot be recovered thereafter.

The Tribunal held that the anti-profiteering claim, which had not been included in the approved Resolution Plan dated 01 June 2021, was extinguished. Because the DGAP could not ascertain the profiteered amount alleged prior to approval of the plan, as no records were submitted by the corporate debtor, the claim was not sustainable against the Resolution Applicant. Adopting the rationale in the written opinion and the established judicial perspective, the Tribunal held that there was no reasonable or plausible ground to continue with the proceedings. The show-cause notice given by the DGAP under Section 171 was thus quashed, and the anti-profiteering case was wound up. The Final Order ordered copies to be conveyed to all concerned parties for record.

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