During a company’s corporate insolvency resolution process (CIRP), the Income Tax Department generally cannot use a refund owed to the company to recover pre-CIRP tax dues by unilateral adjustment. The department may determine the company’s tax liability and issue a refund, but it must pursue an eligible pre-CIRP claim through the insolvency process rather than collect it outside that process during the Section 14 moratorium. The result can depend on timing and whether the company is in CIRP, liquidation or a later stage.
What Section 14 prevents during CIRP
Under the Insolvency and Bankruptcy Code, 2016, the Section 14 moratorium begins on the insolvency commencement date. It restricts specified proceedings and recovery actions against the corporate debtor while CIRP is underway. The precise prohibition depends on the Code’s text and the stage of the insolvency process.
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The Supreme Court’s decision in Sundaresh Bhatt v. Central Board of Indirect Taxes and Customs draws an important distinction: a statutory authority may determine what is owed, but it cannot use that determination to enforce recovery in a way the moratorium bars. The case concerned customs dues, not an income-tax refund, so its principle should not be misrepresented as a direct ruling on tax-refund set-off. Read the Supreme Court judgment.
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Can the Income Tax Department adjust a refund against tax dues?
The refund-specific tribunal decisions apply that distinction to income tax: assessing a liability or issuing a refund is different from using the refund to collect an existing demand. During the moratorium, unilateral adjustment of a refund against pre-CIRP dues has been held impermissible.
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NCLT Hyderabad: assessment and refund are distinct from recovery
In an order dated 9 February 2024, NCLT Hyderabad held that the department could finalize the assessment and issue a refund, but could not adjust that refund against its demand during the moratorium. The tribunal directed the adjusted amount to be returned and said the department should submit its operational-debt claim in the CIRP. Read the NCLT Hyderabad order.
NCLAT: adjustment during moratorium was impermissible
In Devarajan Raman v. Principal Commissioner Income Tax (Mumbai-1) & Ors., NCLAT held that adjustment of a tax refund during the moratorium was impermissible under Section 14(1)(a), (b) and (c). The IBBI digest identifies the matter as Company Appeal (AT) (Insolvency) No. 977 of 2023, decided on 24 May 2024. This is appellate support for the refund-adjustment position; the cited material is an IBBI digest entry, not the full decision. Read the IBBI legal-framework digest.
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Later NCLT application
A 10 February 2025 NCLT Hyderabad order also discusses the distinction between assessing income-tax dues and enforcing recovery during the moratorium, including unilateral refund adjustment. It is a tribunal application of the principles, not a new Supreme Court ruling or a change to the Code. Read the NCLT Hyderabad order.
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The tribunal rulings treat tax dues as operational debt and direct the authority to lodge its claim with the resolution professional. A government department does not gain a recovery priority by setting off a refund on its own during the moratorium; its claim must be handled through the IBC process and the applicable distribution rules.
- For the corporate debtor: identify when CIRP began, when the refund became payable and when any adjustment occurred; preserve the assessment, refund and demand records.
- For the tax authority: determine the liability where permitted, but submit any claim for pre-CIRP dues through the resolution professional rather than using a refund to collect during the moratorium.
- For either side: check the insolvency stage and the specific orders in the case before treating a disputed adjustment as resolved.
How the answer changes with timing and process stage
| Situation | What the cited material supports | Important qualification |
|---|---|---|
| Liability assessment during CIRP | The tax authority may determine the liability; assessment is distinct from recovery. | This does not itself authorize collection in a manner barred by the moratorium. |
| Refund adjusted against pre-CIRP tax dues during the Section 14 moratorium | NCLT Hyderabad and NCLAT rulings say this is impermissible; NCLT Hyderabad ordered repayment of the adjusted sum in the case before it. | The outcome in an individual dispute depends on its facts and procedural posture. |
| Claim for pre-CIRP tax dues | The authority should submit its operational-debt claim through the CIRP. | Entitlement and treatment are governed by the insolvency process, not assured by filing alone. |
| Liquidation or a later stage | The general enforcement principle remains relevant, but the cited materials do not settle every timing variant. | Section 14 applies to CIRP; liquidation and events after CIRP require separate analysis under the applicable Code provisions and orders. |
Do other government dues follow the same rule?
Sundaresh Bhatt establishes a general enforcement principle in a customs case: quantifying a statutory liability does not, by itself, allow the authority to recover it in disregard of the IBC moratorium. The income-tax refund decisions apply similar reasoning to set-off. For other public dues, do not assume every kind of claim is treated identically. The governing statute, the nature and timing of the liability, and relevant Supreme Court or appellate precedent all matter.
The Supreme Court stated in Sundaresh Bhatt: “We are of the clear opinion that the demand notices to seek enforcement of custom dues during the moratorium period would clearly violate the provisions of Sections 14 or 33(5) of the IBC, as the case may be.” That statement concerns customs dues; it should not be recast as a quotation about income tax.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.What remains fact-dependent
The cited decisions support the general position during the Section 14 moratorium, but they do not settle every procedural variation. In particular, they do not establish the complete later appellate history of Devarajan Raman or resolve every question about the interval between the end of the CIRP timeline and a liquidation order. Where timing or the insolvency stage differs, the relevant orders and applicable Code provisions should be checked before drawing a conclusion.
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