₹67.5 Lakh Penalty Imposed without Considering Insolvency Moratorium: Delhi HC Directs Fresh Hearing [Read Order]

In a recent ruling The Delhi High Court has set aside a tax penalty of ₹67.5 lakh after finding that the order was passed without considering the statutory protection of an insolvency moratorium under the Insolvency and Bankruptcy Code (IBC).

The matter arises from a demand of ₹67.5 lakh for ineligible Input Tax Credit (ITC), along with interest and an equal penalty, which was confirmed by the GST authority in December 2025. The demand was based on allegations that invoices were issued without an underlying supply of goods or services.

The petitioner, SREI Equipment Finance Limited, argued that the penalty order of ₹67.5 lakh was invalid because the company had already been admitted to the Corporate Insolvency Resolution Process (CIRP) by the NCLT, Kolkata Bench, in October 2021, and a statutory moratorium was in place.

It is also added that the Reserve Bank of India (RBI) had superseded its board and appointed an Administrator to oversee its affairs, further reinforcing that independent proceedings were not maintainable.

They also added that it had specifically raised this defense in its reply to the show cause notice, but the tax authority failed to address the insolvency moratorium issue, amounting to a denial of fair hearing and rendering the penalty order unsustainable.

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On the other hand respondent contended that there was no sufficient notice with regard to the proceedings initiated under the IBC, as the public notice was issued only at Kolkata, and the Delhi tax authorities could not reasonably be expected to know about the moratorium.

Respondent also argued that the petitioner had an alternate remedy available under law, and because of that, the writ petition before the High Court was not maintainable.

After hearing both sides, the High Court observed that the petitioner had specifically raised this defense in its reply to the show cause notice, but the tax authority failed to address the insolvency moratorium issue in its order and held that such omission amounted to a denial of fair hearing and reflected non‑application of mind.

The bench of Justice Nitin Wasudeo Sambre, Justice Ajay Digpaul quashed the penalty order dated 23 December 2025 and remanded the matter back to the authority, directing that a fresh hearing be held on 16 March 2026 with its written notes of arguments, if any, along with documents.

Accordingly, the writ petition was allowed, and any pending applications were disposed of. It is also clarified that it shall be open for the petitioner to take recourse to such remedy as shall be advisable in accordance with law in case the order is adverse to its interest.

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