Tax Dept Cannot Issue Order Against Corporate Debtor: Bombay HC Cancels GST Demand Order

The Bombay High Court in a case ruled that the Goods and Service Tax (GST) department could not furnish the tax demand against the corporate debtor and set aside the demand order without the applicant claiming the other remedy provided in the odd facts and the violation of natural justice.

The applicant Prestige Mulund Realty Private Limited, is a successor. The applicant has contested the issued show cause notice via the 4th Respondent. At the time of the petition pendency, the SCN was disposed of by the 4th Respondent by making an order on 28th December 2023.

The Resolution Professional (RP) was hired and the adjudicating authority has passed an order approving the COC report. The applicant’s company has acquired the wound-up entity. A GST audit was asked to be performed on the company which does not exist.

An Interim Application has been furnished by the applicant to revise the petition to contest the order on 28th December 2023, disposing of the impugned SCN on 21st September 2023.

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In the case of Ghanashyam Mishra And Sons Private Limited Vs Edelweiss Asset Reconstruction Company Limited the Apex court ruled that all the obligations comprising the legal dues owed to the Central Government, any State Government, or any local authority, if not part of the resolution plan will stand extinguished and no proceedings for these dues for the duration before the date on which the adjudicating authority allots its approval u/s 31 can be carried on.

The Bombay High Court in the matter of Murli Industries versus vs Assistant Commissioner of Income Tax & Ors. The income tax department is not qualified to provide the notice against the Corporate Debtor for unpaid tax claims post approval of the resolution plan by the adjudicating authority.

Court marked that the order is not clear whether the applicant furnished no reply or whether the reply furnished was not discovered adequate. In any case, citing the reply was not adequate does not make a reasoned order. Up to that mark, there is a breach of natural justice as the obligation to provide the reasons is one of the facets of natural justice.

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The division bench of Justice M.S. Sonak and Justice Jitendra Jainhe set aside the order without relegating the applicant for claiming the alternate remedy provided in the peculiar facts and the breach of natural justice, as the officer is unable to regard the applicability of the judgment of the Supreme Court in Ghanshyam Mishras case and Bombay High Court in Murli Industries case.

The case was remanded to the respondent department. The applicant if so must file a detailed response 2 weeks from today asking all the allowable contentions and providing copies of all related documents and decisions.