GST Dept cannot issue Tax Demand Against Corporate Debtor: Bombay HC sets aside GST Demand [Read Order]

In a recent case, the  Bombay High Court has held that the the Goods and Service Tax (GST) department cannot issue tax demand against corporate debtor and set aside the demand order without relegating the Petitioner to avail of the alternate remedy given in the peculiar facts and the breach of natural justice.

Prestige Mulund Realty Private Limited, the petitioner is a successor. The petitioner challenged the show-cause notice issued by the 4th Respondent. During the pendency of this Petition, the show-cause notice was disposed of by the 4th Respondent by making an order dated 28th December 2023.

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The Resolution Professional (RP) was appointed and the adjudicating authority passed an order approving the COC report. The petitioner company acquired the wound up entity. A GST audit was sought to be conducted on the company which did not exist.

The Petitioner has now filed an Interim Application to amend the Petition to challenge the order dated 28th December, 2023, disposing of the impugned show-cause notice dated 21st September, 2023.

The Supreme Court in the case of Ghanashyam Mishra And Sons Private Limited Vs Edelweiss Asset Reconstruction Company Limited has held that all the dues including the statutory dues owed to the Central Government, any State Government or any local authority, if not part of the resolution plan, shall stand extinguished and no proceedings in respect of such dues for the period prior to the date on which the adjudicating authority grants its approval under Section 31 could be continued.

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The Bombay High Court in the case of Murli Industries versus vs. Assistant Commissioner of Income Tax & ors. the Income Tax Department is not entitled to issue notice against the Corporate Debtor for unpaid tax claims after the approval of the resolution plan by the adjudicating authority.

The court viewed that the order is not entirely clear whether the Petitioner filed no reply or whether the reply filed was not found to be satisfactory. In any event, stating that the reply was unsatisfactory does not make a reasoned order. To that extent, there is a violation of natural justice because the duty to give reasons is also one of the facets of natural justice.

Since  the officer has failed to consider the applicability of the judgment of the Supreme Court in Ghanshyam Mishras case and Bombay High Court in Murli Industries case, the division bench of Justice M.S. Sonak and Justice Jitendra Jainhe set aside the order without relegating the Petitioner to avail of the alternate remedy given in the peculiar facts and the breach of natural justice.

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The matter was remanded to the Respondent department. The Petitioner, if so wishes, should file a detailed response within two weeks from today, raising all permissible contentions and furnishing copies of all relevant documents and decisions.

To Read the full text of the Order CLICK HERE

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