No GST Demand Can be Raised After IBC Resolution Plan Approval: Rules High Court:

No GST Demand Can be Raised After IBC Resolution Plan Approval: Rules High Court The Delhi High Court rules that no demand can be raised on a company or individual after the resolution plan has been approved. The current three writ petitions have been filed by a company named Era Infra Engineering Limited, against the Joint Commissioner CGST Delhi South Commissionerate & Ors. in the Delhi High Court. The company challenged the GST demand and show cause notices issued for earlier financial years (2017-18, 2018-19 and 2019-20). The company is engaged in the construction industry. Due to serious financial problems, the company entered insolvency proceedings before the National Company Law Tribunal (NCLT), New Delhi.

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During insolvency, a Resolution Professional was appointed. All creditors, including the GST Department, were asked to submit their claims. The GST Department filed its claim during this process. Finally, on June 11, 2024, NCLT approved the resolution plan of one M/s S. A. Infrastructure Consultants Private Limited. A new management took over the company after this approval. As per the law, the approved plan became binding on all stakeholders, including government departments. Despite the approval of the resolution plan, the GST Department issued demand orders dated November 14, 2024, and November 25, 2024, imposing demands of Rs. 9.99 crore and Rs. 2.22 crore, respectively, for tax periods prior to the insolvency resolution. The company argued that once the resolution plan is approved, all past claims are settled. No fresh tax demands can be raised for periods before the approval date. However, on this argument, the  GST department stated that the orders were only to determine the amount, and no recovery action had been taken.

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The court analysed the arguments of both sides and cited earlier judgements of the Supreme Court, which all rule that once a resolution plan is approved, all earlier claims not included in the plan stand extinguished. Further stated, government dues, including GST, cannot be recovered for periods before the resolution plan if they were already part of the insolvency process. In the final decision, the High Court quashed the impugned orders dated November 14, 2024, and November 25, 2024.