Allahabad High Court Protects Insolvent Companies from GST Proceedings

New Delhi, Aug 7 (KNN) In a significant ruling, the Allahabad High Court has determined that proceedings under Section 73 of the Goods and Service Tax (GST) Act, 2017 cannot be initiated against a company undergoing the Corporate Insolvency Resolution Process (CIRP) as per the Insolvency and Bankruptcy Code, 2016.

The court's decision highlights the intersection of tax law and insolvency proceedings, providing clarity on the limitations of tax authorities during a company's insolvency process.

According to court observations, a show cause notice under Section 73 was issued to the petitioner on April 10, 2024. The petitioner promptly replied on April 12, 2024, informing the authority of its ongoing CIRP and requesting time to consult with the Interim Resolution Professional.

However, the authority proceeded to pass an order without granting further opportunity for hearing.

The court noted that while the insolvency process was set aside by the National Company Law Appellate Tribunal (NCLAT), Chennai on April 15, 2024, this information could not be communicated to the assessing authority in time.

In their ruling, the judges stated, "Clearly once the petitioner was undergoing resolution before the Interim Resolution Professional and the fact of IRP appointment was communicated to the adjudicating authority, it may not have passed the impugned order during pendency of that CIRP. The umbrella of the Insolvency and Bankruptcy Code was lifted only on 15.04.2024."

Based on these findings, the High Court set aside the order passed under Section 73 and directed the petitioner to file a fresh reply to the show cause notice.

This judgment underscores the importance of respecting the moratorium period provided under the Insolvency and Bankruptcy Code and ensures that companies undergoing insolvency proceedings are protected from certain tax enforcement actions during this critical period.

The case, titled "M/S Bgr Energy Systems Ltd v. State of U.P. and Another," was heard by a division bench comprising Justice Saumitra Dayal Singh and Justice Donadi Ramesh.

The petitioner, M/S Bgr Energy Systems Ltd, approached the High Court challenging an order passed by the respondent authority under Section 73 of the GST Act.

This section empowers tax officers to initiate proceedings for unpaid, short-paid, or erroneously refunded taxes, as well as wrongly availed or utilised input tax credits.

The case was argued by Shubham Agrawal, counsel for the petitioner, and sets a precedent for similar cases involving the interplay between tax proceedings and insolvency resolution processes.

(KNN Bureau)