Facts of the Case

  • The petitioner entered into a lease agreement dated 01.04.2015 with Bhushan Steel Limited (now Tata Steel BSL Ltd.) for leasing immovable property.
  • CIRP proceedings were initiated against Bhushan Steel under the IBC.
  • The petitioner was treated as a related party, and the lease transaction was alleged to be a preferential transaction under Section 43 IBC.
  • The resolution plan approved by NCLT terminated agreements with related parties.
  • Due to non-payment of lease rentals, the petitioner sold the property.
  • The petitioner filed a GST refund claim of ₹4.24 crore under Section 54 CGST Act for GST paid on lease rentals (01.07.2017–30.07.2018).
  • The refund was rejected by the adjudicating authority and subsequently by the appellate authority.

Issues Involved

  1. Whether GST paid on lease rentals is refundable when such rentals were not realized.
  2. Whether termination of lease under an approved IBC resolution plan nullifies GST liability.
  3. Whether the transaction qualifies as “supply of services” after being declared void/preferential.
  4. Whether rejection of refund violated principles of natural justice.

Petitioner’s Arguments

  • The lease transaction stood nullified under the resolution plan, hence no supply of services existed.
  • GST liability cannot survive when the underlying transaction is extinguished.
  • The refund was not merely for bad debts but due to complete termination of the transaction.
  • The appellate authority failed to properly consider this crucial aspect.
  • Principles of natural justice were violated.

Respondent’s Arguments

  • Lease of property constitutes a taxable supply under Section 7 CGST Act.
  • GST liability arises irrespective of actual receipt of consideration.
  • No provision under Section 15 CGST Act allows exclusion for non-recovery of consideration.
  • Adequate opportunity of hearing was provided; hence no violation of natural justice. 

Court Findings / Order

  • The Court held that adequate opportunity of hearing was given, hence no violation of natural justice.
  • However, the core issue—effect of resolution plan terminating the lease—was not properly considered.
  • The appellate authority wrongly proceeded on the assumption that this was merely a case of non-recovery of lease rentals.
  • The Court set aside the impugned order and remanded the matter for fresh consideration.

Important Clarification

  • GST liability depends on existence of supply, not merely on invoicing or payment.
  • If a transaction is legally extinguished under an IBC resolution plan, its tax implications must be independently evaluated.
  • Non-recovery of consideration alone does not entitle refund, but extinguishment of the transaction may alter tax liability.
  • Authorities must pass a reasoned (speaking) order considering all legal aspects.

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/VIB17022023CW20832023_132302.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.