The Supreme Court has refused to interfere with a Bombay High Court judgment quashing a GST demand of approximately ₹363 crore raised against Vodafone Idea Limited in proceedings initiated in the name of an entity that had ceased to exist following amalgamation.
A Bench comprising Justice J.B. Pardiwala and Justice K. Vinod Chandran dismissed the Special Leave Petition filed by the Union of India and another authority against the High Court’s decision.
“Having heard the learned counsel appearing for the parties and having gone through the materials on record, we are not inclined to interfere with the impugned order passed by the High Court,” the Supreme Court stated.
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The Court condoned the delay in filing the petition but declined to examine the matter further on its merits. Consequently, the Special Leave Petition was dismissed and all pending applications were disposed of.
The Union of India had challenged the Bombay High Court’s judgment passed in a writ petition filed by Vodafone Idea Limited. The High Court had quashed GST proceedings on the ground that the show cause notice and subsequent adjudication order were issued against a non-existent entity and were therefore without jurisdiction.
The controversy originated from the amalgamation of Vodafone Mobile Services Limited with Vodafone India Limited and Idea Cellular Limited. The restructuring was approved by the National Company Law Tribunal through an order dated August 30, 2018.
As a result of the approved amalgamation, Vodafone Mobile Services Limited ceased to exist as a separate legal entity.
Before the merger, the company had transferred its telecom tower business to ATC Telecom Infrastructure through a slump sale agreement dated November 13, 2017. Vodafone Idea maintained that the transfer amounted to the transfer of a going concern and did not constitute a taxable “supply” under the GST framework.
Accordingly, the transaction was reportedly not disclosed as a supply in the company’s GST returns.
The Directorate General of GST Intelligence subsequently investigated the transaction. A show cause notice dated August 1, 2024, was issued under Section 74 of the Central Goods and Services Tax Act, 2017.
The department treated the transfer as an exempt supply and proposed the disallowance or reversal of input tax credit. The proceedings culminated in an adjudication order dated January 29, 2025, confirming a demand of approximately ₹363 crore.
Vodafone Idea challenged the proceedings before the Bombay High Court under Article 226 of the Constitution.
The company argued that the notice and adjudication order were legally unsustainable because the proceedings had been initiated in the name of Vodafone Mobile Services Limited even though that company had ceased to exist after the NCLT-approved amalgamation.
It was also contended that the GST authorities were aware of the merger but nevertheless proceeded against the erstwhile entity.
The Bombay High Court accepted Vodafone Idea’s jurisdictional objection and held that proceedings initiated against a non-existent entity following amalgamation could not be sustained.
The Division Bench of Justice G.S. Kulkarni and Justice Aarti Sathe relied on the Supreme Court’s decision in Principal Commissioner of Income Tax v. Maruti Suzuki India Limited. In that case, the Supreme Court had held that proceedings initiated against an amalgamating company after it had ceased to exist were void from inception.
The High Court observed that once a scheme of amalgamation becomes effective, the amalgamating company loses its separate legal existence. A statutory notice addressed to such an entity suffers from an inherent jurisdictional defect.
It further held that the participation of the amalgamated company in the proceedings could not validate an otherwise invalid notice. A jurisdictional defect could not be cured through participation, waiver or acquiescence because there could be no estoppel against law.
The department sought to rely on Section 87 of the CGST Act to defend the continuation of proceedings relating to the period before the merger.
The High Court, however, rejected the department’s interpretation. It clarified that the provision did not authorise tax authorities to initiate adjudication proceedings in the name of an entity that had already ceased to exist.
According to the High Court, Section 87 deals with the treatment of transactions between amalgamating or merging companies during the prescribed interim period. It could not be invoked to overcome the fundamental requirement that statutory proceedings must be initiated against a legally existing person.
The Court nevertheless recognised the distinction between the survival of a tax liability and the validity of the procedure adopted to enforce it. While a liability relating to the pre-amalgamation period may survive and may be recoverable from the successor or amalgamated company in accordance with law, the notice must be issued in the name of the legally existing entity.
Since the show cause notice itself was issued without jurisdiction, the High Court held that the adjudication proceedings and the consequential demand order stood vitiated. It consequently quashed the adjudication order dated January 29, 2025.
With the Supreme Court now declining to interfere, the Bombay High Court judgment quashing the ₹363 crore GST demand remains undisturbed.
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