GST Liabilities and penalties cannot be imposed against Corporate Debtor during Moratorium period

The National Company Law Tribunal held that GST authorities cannot continue assessment or adjudication proceedings during the IBC moratorium. As a result, the tribunal set aside the order passed against the corporate debtor.

The present appeal has been filed by Maligi Madhusudhana Reddy, a resolution professional of M/s Naoline Infrastructure Private Limited vs GST, seeking to set aside the Order-in-Order dated 03/02/2025 passed by the GST authorities.

Background of the case

The company was admitted into the Corporate Insolvency Resolution Process (CIRP) on June 4, 2024. After this, a moratorium under Section 14 of the Insolvency and Bankruptcy Code (IBC) came into effect.

Before the insolvency started, the GST department had issued a show-cause notice in August 2023. Later, in September 2024, the department continued adjudication proceedings, issued multiple hearing notices, and eventually passed a final order in February 2025. The order alleged wrongful availment of Input Tax Credit (ITC) amounting to Rs 8,53,86,361 and imposed heavy penalties exceeding Rs 14 crore.

The Resolution Professional repeatedly informed the GST department that the company was under CIRP and that the moratorium was in force. Despite these communications, the department proceeded with the assessment and passed the order.

The Tribunal noted that once the moratorium begins, no assessment or adjudication proceedings can continue against the corporate debtor. It relied on earlier judgements of NCLAT, which clearly held that any assessment conducted during the moratorium period is not legally enforceable.

As a result, the Tribunal set aside the Order-in-Original, passed by the GST authorities.