GST Authorities Cannot Enforce IGST Demand Against SREI Finance During Moratorium: Delhi High Court

The Delhi High Court on 12 February held that Goods and Services Tax (GST) authorities cannot pursue coercive recovery of tax dues against a corporate debtor during the moratorium under the Insolvency and Bankruptcy Code (IBC).

A Bench of Justice Nitin Wasudeo Sambre and Justice Ajay Digpaul, set aside a demand of Rs. 67.5 lakh of Integrated Goods and Services Tax (IGST), including a penalty of 100% of the tax demand, raised on SREI Equipment Finance Limited (SEFL), observing that the GST Department had failed to consider the statutory protection available to SEFL under the IBC during its Corporate Insolvency Resolution Process (CIRP). The judges held that this amounted to non-application of mind and denial of opportunity of hearing.

Overruling the Department's objection that the writ petition was not maintainable, the Bench clarified:

“In such an eventuality, not only the objection raised by the respondents that the petitioner has an alternate remedy and that, as such, the writ petition is not maintainable, is liable to be overruled, but we also have to hold that the impugned order suffers from non-application of mind.”

The dispute arose when SEFL, a non-banking financial company engaged in equipment financing, was issued show cause notices for allegedly claiming ineligible Input Tax Credit (ITC) for the year 2018–19. The Department alleged mismatches between auto-generated ITC data of Rs. 53.46 lakh and self-disclosed ITC of Rs. 67.5 lakh and claimed that SEFL failed to provide valid supporting documents such as contracts and payment proofs.

On 23 December 2025, the Assistant Commissioner, GST South Commissionerate, issued an order under Section 74(1) of the Central Goods and Services Tax Act, 2017 (CGST Act) read with Section 20 of the IGST Act, 2017, relating to alleged involvement of SEFL in “good-less invoicing” (issuance of invoices without corresponding supply of goods or services) and imposed a penalty equal to 100% of the IGST demand. The order invoked the extended period of limitation for excess or wrongful availment of ITC.

At the relevant time, SEFL was undergoing CIRP initiated under the IBC, with a statutory moratorium declared by the National Company Law Tribunal (NCLT), Kolkata, in 2023. The process was unique because it had been initiated by the Reserve Bank of India (RBI), which superseded SEFL's Board of Directors on 4 October 2021 and appointed an Administrator to oversee the company before the formal CIRP admission by the NCLT.

The moratorium prohibits coercive actions, including GST recovery, against the corporate debtor. SEFL had specifically raised this defence in its reply to the show cause notice, submitting that tax authorities must submit claims before the Resolution Professional and that proceedings should be kept in abeyance during the moratorium.

The Delhi High Court noted that the GST authorities had failed to address the moratorium, stating:

“The respondent, in our opinion, was duty-bound to deal with the same and the failure to do so, amounts to a denial of the opportunity of hearing.”

The Court also noted prior partial payments made by SEFL toward the dispute. On 30 September 2020, the company had deposited Rs. 6,53,400 toward the tax demand and Rs. 2,10,715 toward interest via Form DRC-03. The Assistant Commissioner had ordered these amounts to be appropriated against the total demand.

IGST is collected by the Government on interstate supplies, with revenue split between the Centre and the destination state. For instance, goods moving from Maharashtra to Uttar Pradesh attract IGST rather than separate Central GST (CGST) and State GST (SGST).

Accordingly, the Delhi High Court set aside the Rs. 67.5 lakh IGST demand and the corresponding penalty. It directed SEFL to appear before the Authority on 16 March 2026 with written arguments and necessary documents for fresh consideration.