Delhi High Court Quashes GST Demand Order For Failing To Consider IBC Moratorium Plea

The Delhi High Court has set aside a GST demand order passed against a Finance company, holding that the tax authorities failed to consider the company's specific plea that proceedings were barred due to a moratorium under the Insolvency and Bankruptcy Code, 2016 (IBC).

A Division Bench of Justices Nitin Wasudeo Sambre and Ajay Digpaul quashed the order passed by the Assistant Commissioner of CGST, which had confirmed a demand of Rs. 67.5 lakh towards alleged ineligible input tax credit (ITC), along with interest and penalty.

The dispute arose from an investigation into alleged wrongful availment of ITC on the basis of alleged fake invoices.

Before the High Court, Petitioner contended that it was undergoing corporate insolvency resolution proceedings (CIRP) pursuant to an order of the National Company Law Tribunal, Kolkata Bench, and that a moratorium had been declared.

It was argued that once such a moratorium is in force, the GST authorities could only lodge their claims before the resolution professional and could not proceed with adjudication.

The Court noted that this objection was specifically raised by the petitioner in its reply to the show cause notice. However, the adjudicating authority failed to deal with the issue at all in the final order.

“The least that was expected of the respondents was to deal with the said issue,” the Bench observed, holding that the failure to address a statutory defence based on the IBC amounted to a denial of opportunity of hearing and reflected non-application of mind.

Rejecting the objection that Petitioner had an alternate statutory remedy, the Court held that the writ petition was maintainable in view of the violation of principles of natural justice. Consequently, the impugned order was quashed.

“A specific ground was raised in defence by the present petitioner regarding the very maintainability of the Show Cause Notice, that too on the basis of statutory protection. 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 said and allowed the petition.

For Petitioner: Advocates Anirban Bhattacharya, Priyanka Bhatt and Rajeev Chowdhary

For Respondent: Advocates Monica Benjamin SSC with Nancy Jain