Facts of the Case

The petitioner, M/s Avasarala Technologies Ltd., a GST-registered company, was subjected to a moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 declared by the NCLT on 04.07.2023. During pendency of appeals filed against GST assessment orders for FY 2020-21, 2022-23 and 2023-24, the Revenue appropriated various sums from the petitioner's Electronic Credit Ledger (ECL) on the ground that the mandatory pre-deposit under Section 107(6) had not been made. On 07.07.2025, the first appellate authority dismissed the petitioner's appeals solely on the ground that pre-deposit had not been made, without addressing that the moratorium had, by then, prevented the petitioner from making any payment. The moratorium was lifted only on 23.06.2025 when CIRP proceedings terminated. The petitioner approached the Karnataka High Court challenging the appellate dismissal, the garnishee notices, and seeking reversal of the debited amounts.

Issues Involved

  1. Whether the Revenue is entitled to recover or appropriate GST dues, including by debiting the Electronic Credit Ledger, from a company during the pendency of an NCLT-declared moratorium under Section 14 IBC.
  2. Whether an appeal can be dismissed solely for non-payment of pre-deposit where the moratorium made such payment legally impossible.

Petitioner's Arguments

  • Once a moratorium is declared under Section 14 IBC, all existing proceedings against the corporate debtor, including recovery of statutory dues, stand prohibited.
  • The appellate authority summarily dismissed the appeals solely on the ground of non-payment of pre-deposit without considering that payment during moratorium was legally impossible.
  • The amounts debited from the ECL during the moratorium period ought to be reversed/refunded.

Respondent's Arguments

  • There is no merit in the petition and the same is liable to be dismissed.
  • The petitioner did not inform the Revenue about the declaration of moratorium by the NCLT.

Court Order / Findings

  • The Court relied extensively on the Supreme Court's decision in Shekhar Resorts Ltd. v. Union of India (2023 SCC OnLine SC 11), which held that a party cannot be denied relief for failing to do something rendered legally impossible by an operation of law such as an IBC moratorium.
  • Once a moratorium is imposed, the Revenue is not entitled to appropriate, debit or recover any amount from the assessee; by operation of law it becomes statutorily impermissible to do so.
  • The appellate orders dismissing the appeals solely on the ground of non-deposit, and the consequential garnishee notices, were quashed.
  • The Revenue was directed to reverse/refund the suo-moto ECL and cash-ledger debits (retaining only 10% as mandatory pre-deposit) within six weeks, and the matter was remitted to the appellate authority for fresh consideration on merits with liberty to the petitioner to file replies/documents.

Important Clarification

  • An IBC moratorium under Section 14 operates as a statutory bar on recovery of GST dues, including debits from the Electronic Credit Ledger, and this bar cannot be circumvented by treating non-payment of the mandatory pre-deposit (which the moratorium itself prevented) as a ground to dismiss the taxpayer's appeal.
  • Courts will grant remedial relief – refund of wrongly appropriated amounts and remand for fresh adjudication – where a party was rendered unable to comply with a procedural requirement due to an intervening legal impossibility, rather than leaving the party remediless.

Sections Involved

  • Section 14, Insolvency and Bankruptcy Code, 2016 – moratorium on proceedings against the corporate debtor.
  • Section 107(6), CGST Act, 2017 – mandatory pre-deposit for filing a first appeal.
  • Electronic Credit Ledger & Electronic Cash Ledger – ledgers from which the disputed sums were appropriated.

Decision – In Favour of

Disposed of in favour of the Assessee; the appropriated amounts (net of 10% pre-deposit) were ordered to be refunded and the appeals remitted for fresh consideration on merits.

Case Details

High Court of Karnataka at Bengaluru; WP No. 21926 of 2025 (T-RES); Coram: Hon'ble Mr. Justice S.R. Krishna Kumar; Order dated 19.11.2025.

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