The Calcutta High Court has quashed an IGST demand and penalty totalling approximately ₹1.86 crore against the assessee holding that tax dues relating to a period before approval of its insolvency resolution plan stood extinguished when the GST authorities failed to lodge a claim during the resolution process.
The bench of Justice Aryak Dutt has observed that the department could neither initiate nor continue proceedings concerning the extinguished dues. The Court also set aside a separate notice demanding interest for alleged delay in filing GSTR-3B returns for July and August 2021.
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The petitioner/assessee, a non-banking financial company, challenged a show cause-cum-demand notice dated September 26, 2025, and an adjudication order dated December 29, 2025.
The GST department had alleged excess availment of IGST input tax credit on imported goods during financial year 2021-22. The adjudication order confirmed IGST of ₹1,68,78,057, along with interest under Section 50 of the CGST Act and a penalty of ₹16,87,806. The tax and penalty together amounted to ₹1,85,65,863, excluding interest.
The company also challenged a notice dated January 13, 2026, seeking interest for alleged delayed filing of returns for July and August 2021.
On an application by the Reserve Bank of India, the National Company Law Tribunal, Kolkata Bench, had admitted the company and its holding company into the corporate insolvency resolution process on October 8, 2021. Public announcements inviting claims followed on October 11, 2021.
However, neither the respondent authorities nor any other GST authority lodged a claim concerning the dues subsequently demanded for financial year 2021-22.
The resolution plan submitted by National Asset Reconstruction Company Limited was approved by the NCLT on August 11, 2023. A challenge to the approval was rejected by the National Company Law Appellate Tribunal on January 5, 2024.
The company argued that Section 31(1) of the IBC made the approved resolution plan binding on government authorities and that statutory dues outside the plan could not subsequently be pursued.
The Court accepted this submission, relying on Supreme Court decisions including Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta, and Vaibhav Goel v. Deputy Commissioner of Income Tax.
It explained that the resolution framework enables a successful resolution applicant to take over a business with certainty about its liabilities. Subsequent demands concerning claims that were never brought into the resolution process would undermine that certainty.
The Court also examined Clause 3.2.9 of the approved plan, which addressed government claims relating to periods before August 11, 2023. Subject to the provisions of the plan, those claims stood extinguished regardless of whether they were known, assessed, crystallised or contingent.
Since the entire disputed financial year preceded the plan’s approval and no claim had been lodged, the Court held that the authorities had no surviving claim to adjudicate.
The adjudicating authority had proceeded on the basis that the cause of action arose after the moratorium. The High Court rejected that reasoning.
It held that the relevant consideration was the period to which the alleged liability related. An audit query or show cause notice issued after approval of the plan could not revive dues concerning financial year 2021-22.
The Court specifically addressed the portion of that financial year falling after the commencement of insolvency proceedings on October 8, 2021. It observed that those alleged liabilities arose during the resolution process and were also required to be brought to the Administrator or Resolution Professional’s notice for treatment under the plan.
The Revenue relied on Sundaresh Bhatt, Liquidator of ABG Shipyard v. Central Board of Indirect Taxes and Customs, arguing that tax authorities retained the power to determine liabilities even where recovery was restricted by insolvency law.
The Court distinguished that decision, explaining that it concerned assessment during a moratorium in circumstances where liabilities remained subsisting. The present dispute concerned claims already extinguished by an approved resolution plan.
The prohibition therefore extended beyond recovery to the initiation or continuation of proceedings concerning those claims.
The Court further observed that the challenged order was not merely an academic calculation of tax. It confirmed a demand under Section 73(9), imposed interest and penalty, and was accompanied by Form GST DRC-07 reflecting a recoverable demand.
The Court also rejected reliance on Section 88 of the CGST Act, which concerns liabilities of companies in liquidation and their directors.
The assessee had not been ordered to be wound up. Its insolvency process had culminated in an approved resolution plan, and it continued as a going concern under new management.
In any event, the Court held that Section 88 presupposed an existing tax liability and could not revive one extinguished under Section 31(1) of the IBC. It also referred to the overriding effect of Section 238 of the IBC and the express recognition of the Code in Section 82 of the CGST Act.
The judgment additionally noted CBIC circulars and instructions addressing the submission of departmental claims during insolvency proceedings. Departmental adjudicating officers could not ignore Board instructions issued for uniform administration of the law.
The High Court held that the availability of an appeal under Section 107 of the CGST Act did not prevent it from exercising writ jurisdiction.
The material facts were admitted, and the dispute concerned the authorities’ jurisdiction to initiate proceedings over extinguished claims. The Court found that requiring the company to pursue an appeal, with the associated pre-deposit, would serve no purpose.
Allowing the petition, the Court quashed the September 26, 2025 show cause-cum-demand notice, its Form GST DRC-01 summary, the December 29, 2025 adjudication order, the corresponding Form GST DRC-07, and all proceedings arising from them.
It also quashed the January 13, 2026 interest notice relating to July and August 2021.
The Court clarified that its judgment expressed no opinion on any subsequent liability of the company.
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