In a recent ruling, the Delhi High Court quashed the Goods and Service Tax (GST) proceedings against HCL Infosystems’ amalgamated company due to issuance in the name of the non-existent entity after the merger.
HCL Infosystems Limited, the petitioner filed a writ petition against a show cause notice (SCN) and an order issued under Section 73 of the Central Goods and Services Tax (CGST) Act, 2017.
The main issue arose due to the merger of Digilife Distribution and Marketing Services Limited (Amalgamating Company) with HCL Infosystems Limited (Amalgamated Company) through a Scheme of Arrangement approved by the National Company Law Tribunal (NCLT) on August 10, 2022.
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The appointed date for the merger was set as April 1, 2022, and both companies informed the Registrar of Companies about the merger. The Amalgamating Company applied for the cancellation of its GST registration in October 2022 stating the transfer of business due to amalgamation.
GST authorities (Respondents) suspended the GST registration of the Amalgamating Company effective October 12, 2022, but issued an SCN against the Amalgamating Company for the financial year 2017-2018 on September 29, 2023. The petitioner replied to the SCN informing the respondents about the merger and the non-existence of the Amalgamating Company.
Despite the disclosure, a second SCN was issued on December 3, 2023, for the financial year 2018-2019 in the name of the Amalgamating Company. A final order was issued on April 27, 2024, against the non-existent Amalgamating Company. Aggrieved, the petitioner approached the Delhi High Court.
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The petitioner’s counsel argued that proceedings initiated and orders issued against a non-existent entity are void and referred to Supreme Court judgments in similar cases including Maruti Suzuki v. CIT.
The respondents countered that procedural provisions under Section 160 of the CGST Act which is similar to Section 292B of the IT Act could validate the notices.
The Bench comprising Justice Yashwant Varma and Justice Dharmesh Sharma reviewed the judicial precedents such as Maruti Suzuki and Mahagun Realtors which held that proceedings against a dissolved company are invalid.
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The court also clarified that Section 87 of the CGST Act which deals with liabilities during mergers does not permit proceedings against a non-existent entity. The court held that Section 160 of the CGST Act cannot cure the jurisdictional defect of issuing notices/orders to a non-existent company. The court rejected the department’s argument.
The court quashed the SCN dated December 3, 2023, and the final order dated April 27, 2024. The court allowed the department to initiate fresh proceedings against the amalgamated entity if permissible by law.
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