The National Company Law Appellate Tribunal ( NCLAT ) held that the dispute regarding payment of Goods and Service Tax ( GST ) dues is not a “pre-existing dispute” between the parties that would preclude the initiation of Corporate Insolvency Resolution Process ( CIRP ) under Section 9 of the Insolvency & Bankruptcy Code, 2016 ( IBC ).
The Appellant , M/s Ahuja Cotspin Private Limited, incorporated under the Companies Act, 1956, was involved in the manufacturing of cotton yarn. Respondent No. 1 (or “Operational Creditor”), Aggarwal Enterprises, a sole proprietorship engaged in the trading and supply of cotton, raised multiple invoices between August 13, 2018, and September 16, 2018, for goods supplied to the Corporate Debtor.
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In December 2018, reports surfaced of a scam involving the supply of cotton based on fake bills, leading the Corporate Debtor to halt transactions with Respondent No. 1 and demand original GST documents to verify the authenticity of the transactions.
The Directorate General of GST Intelligence (DGGI) conducted searches and seized records from the Corporate Debtor’s premises, alleging the supply of cotton without proper GST payments. Respondent No. 1 later issued a demand notice on May 27, 2019, seeking recovery of Rs. 1,91,51,792, including interest, which the Corporate Debtor contested on the grounds of disputed invoices and ongoing GST investigations.
The correspondence and proceedings involving the GST authorities do not constitute a genuine pre-existing dispute between the Corporate Debtor and the Operational Creditor regarding the operational debt.
The Appellant / Corporate Debtor contends that there is a pre-existing dispute between the parties. This dispute is with respect to payment of GST dues on the alleged invoices. The Appellant / Corporate Debtor has also challenged the genuineness of the invoices issued by Respondent No. 1 / Operational Creditor before the Hon’ble Punjab and Haryana High Court Chandigarh.
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The two member Bench of Justice Rakesh Kumar Jain, Member (Judicial) and Arun Baroka, Member (Technical) has found that the Appellant / Corporate Debtor has failed to show any pre-existing dispute with respect to the invoices. Appellant / Corporate Debtor is raising the raids conducted by Department of GST and questioning the payment of GST.
The NCLAT while dismissing the appeal held that the appeal lacks merit as the Appellant / Corporate Debtor failed to demonstrate a pre-existing dispute as required under Section 9 of the IBC.
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