FACTS OF THE CASE

  • The Petitioner company was undergoing Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code (IBC).
  • A Resolution Plan was approved, which attained finality under law.
  • Post approval, the GST Department:
    • Issued demands/initiated proceedings under Section 73 CGST Act for the pre-CIRP period.
  • The Petitioner challenged such demands on the ground that:
    • All past liabilities stood extinguished upon approval of the resolution plan.

ISSUES INVOLVED

  1. Whether GST authorities can raise demands for the pre-CIRP period after approval of a Resolution Plan.
  2. Whether Section 31 of the IBC overrides tax demands under CGST Act.
  3. Whether continuation of proceedings violates the binding nature of resolution plans.

PETITIONER’S ARGUMENTS

  • The Petitioner contended:
    • Once the Resolution Plan is approved, it is binding on all stakeholders including government authorities.
    • All past claims not part of the plan stand extinguished.
  • It was argued that:
    • GST authorities cannot initiate or continue proceedings for:
      • Pre-CIRP dues,
      • As it defeats the purpose of insolvency resolution. 

RESPONDENT’S ARGUMENTS

  • The Department submitted:
    • GST dues are statutory liabilities and recoverable under CGST Act.
    • Proceedings under Section 73 were validly initiated.
  • It was argued that:
    • Tax authorities are not completely barred from determining liability. 

COURT’S FINDINGS / ORDER

  • The Delhi High Court held:
    • Section 31 of the IBC gives overriding effect to an approved Resolution Plan.
    • Once approved:
      • All claims, including statutory dues, stand frozen and are binding.
  • The Court observed:
    • Authorities cannot raise fresh or continue existing demands for:
      • Period prior to CIRP, if not included in the plan.
  • Accordingly:
    • The GST demands and proceedings for pre-CIRP period were set aside/quashed. 

IMPORTANT CLARIFICATION BY COURT

  • The Court clarified:
    • Government authorities are bound by the Resolution Plan.
    • Allowing fresh demands would:
      • Undermine finality of insolvency proceedings, and
      • Defeat the objective of IBC revival mechanism.
  • Reinforced principle:
    • IBC overrides inconsistent provisions of tax laws.

SECTIONS / LEGAL PROVISIONS INVOLVED

  • Section 31 – Insolvency and Bankruptcy Code, 2016 (Binding nature of Resolution Plan)
  • Section 238 – IBC (Overriding effect)
  • Section 73 – CGST Act, 2017 (Tax demand proceedings)
  • Articles 226 & 227 – Constitution of India

 Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/75415122025CW22812025_154656.pdf

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