Company Sold As Going Concern During Liquidation Cannot Automatically Escape GST Liabilities: Madras High Court

The Madurai Bench of the Madras High Court has held that a company sold as a going concern during liquidation cannot claim that its liabilities are automatically extinguished under the clean-slate principle of insolvency law.

Justice C. Saravanan observed that a buyer acquiring a corporate debtor as a going concern takes over its assets and liabilities as a package, and cannot avoid liabilities merely because the company has undergone liquidation.

The Court made the observations while hearing a petition filed by EMC Limited, a wholly owned subsidiary of Salasar Techno Engineering Limited, challenging a GST demand for the financial year 2021–22.

The impugned order dated December 30, 2025, confirmed a total demand of approximately ₹87.68 lakh, comprising tax of ₹49.60 lakh, interest, late fees and penalty under Section 73 of the applicable GST enactments.

EMC Limited had undergone CIRP proceedings before the National Company Law Tribunal (NCLT), Kolkata, which admitted the proceedings in November 2018. After the resolution process failed, the NCLT ordered liquidation on November 21, 2023.

The company was subsequently sold as a going concern to Salasar Techno Engineering Limited, with the sale approved by the NCLT on October 22, 2024.

The company argued that the GST Department had failed to submit its claim before the liquidator despite being informed of the liquidation proceedings.

It contended that the tax liability stood extinguished under the Insolvency and Bankruptcy Code, 2016, relying on the Supreme Court's decision in Ghanshyam Mishra & Sons v. Edelweiss Asset Reconstruction Company Limited.

The company also challenged the GST order on the ground that it had been passed in violation of the principles of natural justice and that the Department had not properly considered its submissions.

Opposing the petition, the State argued that the clean-slate principle did not apply to GST dues arising after the commencement of CIRP.

It submitted that the company continued to have statutory obligations under the GST laws and that tax liabilities arising during the insolvency process could not simply be written off.

Accepting the Department's contention on the applicability of the clean-slate principle, the Court distinguished between the liquidation of a corporate debtor through the distribution of its assets and the sale of the corporate debtor as a going concern.

"There the Liquidation would have culminated in the dissolution of the Corporate Entity itself under Section 54 of the Code. There, possibly the “Clean Slate Rule” as enunciated in Ghanashyam Case may apply as the Corporate Debtor is liquidated", the Court said.

The Court observed that, in a going-concern sale under Regulations 32(e) and 32A of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, the corporate entity survives and continues its business under new ownership.

It held that the legal framework governing such a sale differs from a process in which the corporate entity is dissolved following liquidation.

The Court further observed that the buyer of a corporate debtor sold as a going concern acquires the business with the assets and liabilities associated with the transaction.

It held that the Supreme Court's ruling in Ghanshyam Mishra did not deal with the specific situation of a going-concern sale under the relevant liquidation regulations.

"The amount recovered from such sale under Regulation 32(a) to (d) of the Insolvency & Bankruptcy Board of India (Liquidation Process) Regulations, 2016 has to be distributed only in such manner as is contemplated under Section 53 of the Code and in such order as has been recognized by the Hon'ble Supreme Court in Ghanashyam's case as in the case of successful CIRP", the Court said.

Rejecting the company's reliance on certain Calcutta High Court decisions extending the clean-slate principle to going-concern sales, the Court held that those decisions did not correctly reflect the statutory scheme governing such transactions.

It also distinguished an earlier Madras High Court ruling in Agniti Industrial Parks Pvt. Ltd. v. Superintendent of CGST & Central, observing that the claims in that case related to the period before liquidation commenced.

The Court also referred to Section 85 of the applicable GST enactments, which provides for joint and several liability of the transferor and transferee in respect of tax, interest and penalties due up to the transfer of a business, to the extent of the transfer.

However, considering that EMC Limited had not filed an effective reply before the Department and might have a case under Section 85, the Court directed fresh adjudication of the matter.

It ordered the company to deposit 25% of the disputed tax liability within 30 days.

The Court further directed EMC Limited to file a detailed reply to the show cause notice, treating the impugned order as an addendum to the notice.

The Department was directed to decide the matter on merits within three months thereafter.

The writ petition was disposed of with these directions, and the connected miscellaneous petitions were closed. No costs were imposed.

For Petitioner: Advocate Dipankar Majumdar

For Respondent: R. Parthiban, Special Government Pleader