CENVAT Dues Excluded from Resolution Plan Stand Extinguished: Bombay High Court in Dalmia Cement (Bharat) Ltd. Vs Union of India

Background and Context

The Bombay High Court recently delivered a significant ruling in Dalmia Cement (Bharat) Ltd. Vs Union of India, addressing a critical intersection between CENVAT Credit adjudication proceedings under the Central Excise Act, 1944 and the extinguishment of claims under the Insolvency and Bankruptcy Code, 2016 (IBC). The case arose out of four adjudication orders passed by the Joint Commissioner, Central Goods and Services Tax and Central Excise, Nagpur-II Commissionerate — two dated 31.07.2020 and two dated 31.12.2020 — which had partly disallowed CENVAT Credit availed by the corporate debtor and directed recovery of the disallowed portion.

The judgment reinforces a well-established but frequently contested principle: once a Resolution Plan is approved by the adjudicating authority, all statutory dues that were not incorporated into that plan are extinguished by operation of law, and no further proceedings in respect of such dues may be initiated or continued.

The Adjudication Orders Under Challenge

The four orders impugned before the High Court, along with the periods to which they pertained, were as follows:

Each of these orders dealt with CENVAT Credit on capital goods availed by the petitioner under the CENVAT Credit Rules, 2004. The Joint Commissioner had partly allowed the credit and directed recovery of the remainder, invoking Section 11A of the Central Excise Act, 1944 read with Rule 14 of the CENVAT Credit Rules, 2004. Penalties were additionally imposed under Section 11AC of the Central Excise Act, 1944.

Insolvency Proceedings and the Resolution Plan

Petitioner No. 2 had been subjected to Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 before the National Company Law Tribunal (NCLT), Mumbai. Following the prescribed procedure, the NCLT on 03.07.2019 directed modifications to the Resolution Plan that had been placed before it. The order of the NCLT was challenged before the National Company Law Appellate Tribunal (NCLAT), which by its order dated 24.01.2020 accepted the Resolution Plan and declared it binding on all creditors — including Government authorities such as those administering the Goods and Services Tax regime and Central Excise.

It emerged during proceedings that the Deputy Commissioner, CGST and Central Excise Division, Chandrapur had filed a claim as an Operational Creditor under the IBC, but that claim was rejected by the NCLT on the ground that it was not submitted in the prescribed format as required under the CIRP Regulations within the stipulated 270-day period. The NCLAT upheld this rejection in its order dated 24.01.2020. Crucially, the claims that formed the basis of the four impugned orders were never lodged before the Resolution Professional at any stage of the insolvency proceedings.

Key fact: The Revenue Authorities failed to lodge the specific CENVAT Credit claims (forming the subject matter of the four impugned orders) as part of the resolution process. This failure became the cornerstone of the Court's reasoning.

Arguments Advanced by the Petitioners

Counsel for the petitioners raised the following principal contentions before the Bombay High Court:

1. Extinguishment of claims: Since the claims underlying the four adjudication orders were never made part of the CIRP before the NCLT/NCLAT, they stood extinguished upon approval of the Resolution Plan, in accordance with the law laid down by the Supreme Court in Ghanashyam Mishra And Sons Private Limited Through The Authorized Signatory Versus Edelweiss Asset Reconstruction Company Limited, Through The Director & Others [(2021) 9 SCC 657].

2. Recovery nature of impugned orders: The orders were not merely determining liability in respect of CENVAT Credit entitlement — they expressly directed recovery of amounts under Section 11A of the Central Excise Act, 1944, and imposed penalties under Section 11AC. They were therefore composite recovery orders and squarely within the ambit of extinguished claims under the IBC.