Past GST Dues Extinguished on Sale of Corporate Debtor as Going Concern: Calcutta HC Quashes ₹4.28 Cr Demand [Read Order]
The Court held that past statutory dues stand extinguished once a company is sold on a going concern basis, and creditors can only recover through the waterfall mechanism under Section 53 of the Insolvency and Bankruptcy Code.
The Calcutta High Court has quashed a ₹4.28 crore Goods and Services Tax (GST) demand raised for the financial year 2019–20 against a corporate debtor (CD) sold in liquidation as a going concern, reaffirming the IBC’s “clean slate” principle.
The company, M/s Rabirun Vinimay Pvt. Ltd., after failing to achieve resolution under the Corporate Insolvency Resolution Process (CIRP), was admitted into liquidation in March 2020. Subsequently, it was sold as a going concern, with the sale confirmed by the National Company Law Tribunal (NCLT) in December 2023.
The NCLT order had explicitly applied the Supreme Court’s ruling in Ghanashyam Mishra and Sons v. Edelweiss Asset Reconstruction Co. Ltd. (2021), which held that once a resolution plan is approved, all claims not forming part of the plan stand extinguished.
Extending this principle to liquidation sales, the NCLT observed that the sale of a corporate debtor as a going concern is akin to a de facto resolution process, thereby entitling the buyer to a “clean slate” free from past liabilities.
Despite this, the CGST authorities issued a show‑cause notice in May 2024 and passed an order in August 2024 demanding tax, interest, and penalty for FY 2019–20. The petitioner challenged the order, pointing out that the department itself had earlier dropped proceedings for FY 2017–18 on the same basis, acknowledging the extinguishment of past dues following the NCLT’s confirmation of sale.
The bench of Justice Om Naryan Rai, after hearing both sides, reiterated that once a corporate debtor is sold as a going concern, past dues cannot be enforced against it. The court opined that creditors, including tax authorities, are confined to the structured recovery mechanism under Section 53 of the IBC.
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Section 53 lays down a strict waterfall priority for distribution of liquidation proceeds, placing government dues below secured creditors, workmen’s dues, and employees’ wages. Operational creditors, including tax departments, fall under Section 53(1)(f) “any remaining debts and dues” and cannot bypass this statutory order by initiating fresh proceedings.
The Court relied on its earlier decision in Kashvi Power and Steel Pvt. Ltd. v. WBSEDCL (2022), where it had held that operational creditors cannot jump the queue in contravention of Section 53.
In quashing the August 2024 demand order, the Court underscored that saddling buyers of corporate debtors with past liabilities would defeat the IBC’s purpose of promoting corporate revival.
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