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Judgment
[Per.: Dr. Alok Srivastava, Member (Technical)]
This appeal arises out of order dated 22.1.2020 in CP No. (IB) 585/ND/2019 (hereafter called ‘Impugned Order’) whereby the Adjudicating Authority (National Company Law Tribunal, New Delhi) has dismissed the application filed under section 9 of the Insolvency and Bankruptcy Code, 2016 (hereafter called ‘IBC’) filed by K.B. Polychem (India) Ltd. as Operational Creditor against the Corporate Debtor Rapt Industries Pvt. Ltd. on the ground of pre-existing dispute.
In brief, the case as stated by the Appellant is that he had supplied goods/chemical/printing ink etc. to the Corporate Debtor on verbal purchase orders and raised many invoices and an outstanding amount of Rs. 4,76,154 is due since 28.6.2018 along with interest @ 24% p.a. and applicable taxes for payment. He has alleged that the Corporate Debtor failed to issue C Form, as the sale was done against ‘C’ Form, and further, amount including taxes and interest and penalty are also due to be paid to the appellant/operational creditor by the corporate debtor. The Appellant has further stated that since no payment of the due amount was forthcoming from the corporate debtor, notice under section 8 of IBC was issued to the corporate debtor through his (operational creditor’s) legal counsel on 13.7.2018 and the corporate debtor replied to the Section 8 notice vide letter dated 16.8.2018 denying the demand made in the said notice and, inter alia, raising the issue of defect in quality of the supplied goods for the first time. In addition, the appellant has stated that the corporate debtor mentioned about the debit note in his reply for the first time. This debit note, the appellant has claimed was neither signed by the corporate debtor nor it contained necessary particulars about GST number, PAN number and other particulars, therefore, it was a fabricated debit note made as an afterthought, created only to deny liability for payment by the corporate debtor. The appellant has stated that he issued a rejoinder dated 7.12.2018 vehemently opposing the false and concocted story of defective goods and fabricated debit note, put forth by the corporate debtor.
The appellant has further stated that upon his filing section 9 application under IBC against the corporate debtor and the reply of the Corporate Debtor thereon, he came to know that respondent/corporate debtor has filed a suit for recovery of damages for Rs.7,50,000/- against the Appellant in Rohini Civil Court, New Delhi. He has also stated that no document in support of the purported debit note or statement of accounts or return of goods or any communication regarding quality of goods were placed on record by the corporate debtor before the Adjudicating Authority, and no evidence of filing of VAT or GST return has been submitted by the corporate debtor in support of the veracity of the said debit note.
During the consideration of the present appeal, the respondent/corporate debtor was served notice on 7.11.2021 which is evidenced from the tracking report of the notice sent by speed post, but the respondent has not made appearance before the Appellate Tribunal to present his case. Furthermore, the case was fixed for hearing on 28.4.2020 by this tribunal, but the respondent did not appear even for verbal hearing. It may also be mentioned that the respondent has not filed reply to the appeal memo. Therefore, on 5.7.2022 when the appeal was listed for oral hearing, the learned counsel for appellant was heard, but since no one appeared for the respondent despite notice, the Respondent did not avail the opportunity to present oral arguments.
In arguments, the Learned Counsel for Appellant has stated that the debit note, which was sent as attachment with e-mail dated 25.2.2018 addressed to Mr. Nitin Batra, Managing Director of K.B. Polychem (India) Ltd. (attached at pp.180-182 of the appeal paperbook) is a fabricated debit note as it contains no date, no PAN/GST and excise number of the corporate debtor and is not signed by anyone on behalf of the corporate debtor. To show the format of a debit note issued in accordance with legal provisions under the Central GST Act, 2017, the Learned Counsel for Appellant has referred to a sample debit note, issued to another party by the Appellant (attached at pg. 275 of the appeal paperbook), wherein the date, GSTIN/UIN number, GST amount, details of bill by which the sale was initially made and the Company PAN number are stated clearly, and which contains the signature of the party issuing the debit note. He has referred to section 34 of the Central Goods and Services Act, 2017 which stipulates how credit/debit notes are issued including their format. He has also referred to Rule 53 (1A) of the Central Goods and Services Tax Rules, 2017, which contains details of particulars to be included in legally-valid debit notes. He has further argued that the debit note has to be issued in the same financial year in which the goods were returned on account of defect in quality, whereas in the present case, the debit note is sent for the first time on 22.5.2018, whereas the sale took place in the year 2016. Furthermore, he has argued that no goods were ever returned to the operational creditor in connection with the purported debit note. He has stated that the debit note shown to have been sent by the corporate debtor vide e-mail dated 22.5.2018 is a fabricated debit note, which has been produced by the corporate debtor only to escape the responsibility and liability for payment of amount due to the operational creditor. He has further argued that till date of issue of section 8 notice, no suit or legal proceedings had been initiated by the corporate debtor, which also shows that the defence now being put forth by the corporate debtor is moonshine defence, which is vague and sham, and which has been raised only for evading the liability of payment.
The relevant provision of Section 34 of the Central Goods and Services Tax Act, 2017 and the Rule 53(1A) of the Central Goods and Services Tax Rules, 2017 are reproduced below: -
Section 34 of Central GST Act, 2017
“34.(1) Where a tax invoice has been issued for supply of any goods or services or both and the taxable value or tax charged in that tax invoice is found to exceed the taxable value or tax payable in respect of such supply, or where the goods supplied are returned by the recipient, or where goods or services or both supplied are found to be deficient, the registered person, who has supplied such goods or services or both, may issue to the recipient a credit note containing such particulars as may be prescribed.
(2)Any registered person who issues a credit note in relation to a supply of goods or services or both shall declare the details of such credit note in the return for the month during which such credit note has been issued but not later than September following the end of the financial year in which such supply was made, or the date of furnishing of the relevant annual return, whichever is earlier, and the tax liability shall be adjusted in such manner as may be prescribed:
Provided that no reduction in output tax liability of the supplier shall be permitted, if the incidence of tax and interest on such supply has been passed on to any other person.
(3)Where a tax invoice has been issued for supply of any goods or services or both and the taxable value or tax charged in that tax invoice is found to be less than the taxable value or tax payable in respect of such supply, the registered person, who has supplied such goods or services or both, shall issue to the recipient a debit note containing such particulars as may be prescribed.
(4)Any registered person who issues a debit note in relation to a supply of goods or services or both shall declare the details of such debit note in the return for the month during which such debit note has been issued and the tax liability shall be adjusted in such manner as may be prescribed.
Explanation.––For the purposes of this Act, the expression “debit note” shall include a supplementary invoice.“
Rule 53(1A) of the Central GST Rules, 2017
“ 53(1A) A credit or debit note referred to in section 34 shall contain the following particulars, namely:–
(a)name, address and Goods and Services Tax Identification Number of the supplier;
(b)nature of the document;
(c)a consecutive serial number not exceeding sixteen characters, in one or multiple series, containing alphabets or numerals or special characters-hyphen or dash and slash symbolised as “-” and “/” respectively, and any combination thereof, unique for a financial year;
(d)date of issue of the document;
(e)name, address and Goods and Services Tax Identification Number or Unique Identity Number, if registered, of the recipient;
(f)name and address of the recipient and the address of delivery, along with the name of State and its code, if such recipient is un-registered;
(g)serial number(s) and date(s) of the corresponding tax invoice(s) or, as the case may be, bill(s) of supply;
(h)value of taxable supply of goods or services, rate of tax and the amount of the tax credited or, as the case may be, debited to the recipient; and
(i)signature or digital signature of the supplier or his authorised representative.
(2)Every registered person who has been granted registration with effect from a date earlier than the date of issuance of certificate of registration to him, may issue revised tax invoices in respect of taxable supplies effected during the period starting from the effective date of registration till the date of the issuance of the certificate of registration:
Provided that the registered person may issue a consolidated revised tax invoice in respect of all taxable supplies made to a recipient who is not registered under the Act during such period:
Provided further that in the case of inter-State supplies, where the value of a supply does not exceed two lakh and fifty thousand rupees, a consolidated revised invoice may be issued separately in respect of all the recipients located in a State, who are not registered under the Act.
(3)Any invoice or debit note issued in pursuance of any tax payable in accordance with the provisions of section 74 or section 129 or section 130 shall prominently contain the words “INPUT TAX CREDIT NOT ADMISSIBLE”.
It is observed that the so-called debit note issued by the corporate debtor vide e-mail dated 22.5.2018 which is attached at page 182 of the appeal paperbook, does not contain any particulars regarding the date of issue, PAN, GSTIN, UIN of the corporate debtor nor it is signed by any representative of the corporate debtor. The respondent has also not presented any document or brief in support of the fact that the said debit note was actually issued for return of defective goods and that the defective goods were actually returned to the operational creditor. Moreover, we find that there is no communication from the corporate debtor regarding any defect or quality of the goods supplied sent to the operational creditor nor there is any evidence of the defective goods being returned to the operational creditor after raising a demur or protest about its quality. Thus we come to the conclusion that there is no material on record to suggest that were not returned for any defect in quality and it was only 2 years later in 2018 that the purported debit note was raised.
The paragraph 7 of the Impugned Order dated 22.1.2020 (attached at pp.38-44 of the appeal paperbook) is as follows:-
“7.The corporate debtor vide reply dated 16.08.2018, raised the dispute with respect to quality of goods and also stated that the said issues of quality was informed to the applicant. The corporate debtor further stated that due to the said dispute they had raised various debit notes and the same were sent to the applicant vide email dated 02.07.2018, 05.09.2018 and 05.12.2018, including one to the advocate for the applicant company.”
In oral arguments the Learned Counsel of Appellant has stated that while the Impugned Order mentions that the fact about existence of dispute and various debit notes were sent to the Applicant (Appellant) vide e-mail dated 2.7.2018, 5.9.2018 and 5.12.2018, this claim is not supported by any document placed on record by the respondent before the Adjudicating Authority. The only documents presented by the respondent in the form of copies of e-mails dated 2.7.2018, 5.9.2015 and 5.12.2018 are actually emails which have been sent by Mr. Nitin Batra of K.B. Polychem (India) Ltd. with email ID nbatra@kbgroupindia.com. There is only one e-mail dated 22.5.2018 (attached at page 182 of the appeal paperbook, from Prince Jagota representing the corporate debtor (raptindustries@gmail.com) to Nitra Batra (email ID nbatra@kbgroupindia.com.) which has the debit note attached with it. As has already been pointed out earlier in this judgment, this debit note does not have the necessary ingredients of ‘debit note’ as required under section 34 of the Central Goods and Services Act, 2017 and Rule 53(1)(a) of the Central Goods and Services Rules, 2017. Therefore, it does not appear to be a debit note which inspires confidence and which can be taken to indicate pre-existence of dispute regarding the quality of supplied goods. Moreover the three emails sent on dates 2.7.2018, 5.9.2015 and 5.12.2018 are actually internal emails of the corporate debtor and not sent to the operational creditor raising any dispute about the quality of goods supplied by the operational creditor. We are, therefore, not inclined to accept the inference of the Adjudicating Authority in para 7 of the Impugned Order that various debit notes were issued vide certain emails and said dispute has been raised.
The Hon’ble Supreme Court in the case of Mobilox Innovative Private Limited vs. Kirusa Software Private Limited (2018) 1 SCC 353 held that the dispute should actually exist, and it should not be spurious, hypothetical or illusory, for the rejection of the application on the basis of pre-existing dispute. In this case, the dispute, as discussed in detail above, is spurious, fabricated and hypothetical. Therefore, the conclusion of the Adjudicating Authority is that the dispute existed before the issue of demand notice under section 8 and thereafter section 7 application is erroneous.
On the basis of aforesaid discussion, we are of the clear opinion that the Impugned Order is erroneous. It is therefore set aside. Since the section 9 application was rejected only on the ground of ‘pre-existing dispute’ we admit it for initiation of Corporate Insolvency Resolution Process against the corporate debtor. The matter is sent to the Adjudicating Authority for issuing the necessary orders consequent to admission of section 9 application within 15 days of this judgment.
There is no order as to costs.
(Justice Rakesh Kumar Jain)
Member (Judicial)
(Dr. Alok Srivastava)
Member (Technical)
(Mr. Naresh Salecha)
Member (Technical)
New Delhi 13th July, 2022 /aks/