GST Demands for Pre‑Resolution Periods Extinguished Once Plan Approved: Delhi HC [Read Order]

The Delhi High Court has quashed demand‑cum‑show cause notices and consequential orders issued by the Goods and Services Tax (GST) Department against the petitioner, holding that statutory dues for periods before the approval of a resolution plan under the Insolvency and Bankruptcy Code (IBC) stand extinguished.

The Court noted that once a resolution plan is approved by the National Company LawTribunal (NCLT), no fresh demands can be raised for pre‑resolution periods, as creditors, including government authorities, are bound by the plan.

ERA Infra Engineering Limited, a construction company, had faced financial distress and entered insolvency proceedings before the NCLT in 2017 on an application filed by Union Bank of India.

An Interim Resolution Professional was appointed, later confirmed as Resolution Professional, and claims were invited from creditors. The GST Department filed claims amounting to ₹4.02 crore, which were crystallised to ₹1.94 crore during the Corporate Insolvency Resolution Process (CIRP).

On June 11, 2024, the NCLT approved the resolution plan submitted by S.A. Infrastructure Consultants Pvt. Ltd., which took over management of ERA Infra. The plan was binding on all stakeholders, including government authorities.

Despite this, the GST Department issued orders in November 2024 demanding sums exceeding ₹8–9 crore for FY 2017‑18, 2018‑19, and 2019‑20.

ERA Infra challenged these demands before the High Court, arguing that they were untenable since the GST Department had already participated in the insolvency process and its claims were accounted for in the resolution plan.

The GST Department contended that the impugned orders merely crystallised amounts and no recovery steps had been taken. It argued that authorities retain limited jurisdiction to assess dues even after insolvency proceedings.

The Division Bench of Justice Prathiba M. Singh and Justice Shail Jain rejected this contention. Referring to Sundaresh Bhatt v. CBIC (2023), the Court held that statutory dues not forming part of the resolution plan cannot be pursued after plan approval. It noted that the GST Department, having filed claims during CIRP, was bound by the plan and could not raise fresh demands for earlier periods.

The court on Supreme Court ruling in Ghanashyam Mishra & Sons v. Edelweiss Asset Reconstruction Co. (2021), which held that once a resolution plan is approved, all prior claims not included in the plan are extinguished.

The Court observed that insolvency proceedings must reach finality, and new management cannot be burdened with liabilities extinguished under the IBC framework. It clarified that while authorities may determine the quantum of operational debt for staking claims in insolvency, they cannot initiate recovery beyond the scope of Section 53 of the IBC.

Accordingly, the Court set aside the impugned orders dated November 14 and 25, 2024, and quashed the demands raised therein. It emphasized that the merits of the demands were not examined, but the legal principle was clear: once a resolution plan is approved, all prior claims stand frozen, and government departments are bound by its terms.

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