The Delhi High Court has ruled that no GST demand can be raised for the period prior to the approval of a resolution plan, as the takeover of the corporate debtor was on a “clean slate” basis. A Division Bench of Justice Prathiba M. Singh and Justice ShailJain has held that held that the date of final approval of the resolution plan in respect of the erstwhile Ruchi Soya Industries Ltd. was September 4, 2019, and not July 24.
The case arose from insolvency proceedings initiated against Ruchi Soya Industries Ltd. before the NCLT, Mumbai. A resolution plan submitted by a consortium led by Patanjali Foods Limited was approved, following which the company was taken over as a going concern on a clean slate basis and renamed Patanjali Foods Limited. Subsequently, GST authorities issued show cause notices and passed adjudication orders raising tax demands for the financial years 2017–18 onwards.
Patanjali Foods challenged these demands, contending that all liabilities for periods prior to the approval of the resolution plan stood frozen and extinguished in terms of Section 31 of the IBC, as interpreted by the Supreme Court in Ghanashyam Mishra & Sons v. Edelweiss ARC, (2021) 9 SCC 657. A key issue before the Court was whether the effective date of approval of the resolution plan was July 24, 2019 or September 4, 2019.
After examining the NCLT’s orders, the High Court held that although the resolution plan was initially approved on July 24, 2019, it was subject to conditions and further compliance. The final and effective approval was granted only on September 4, 2019, when the plan stood fully crystallised and implemented.
The Court ruled that GST demands relating to periods prior to September 4, 2019 were unsustainable and liable to be quashed. However, it clarified that tax authorities were free to issue fresh notices and assess dues for periods subsequent to the resolution plan’s approval, in accordance with law. The writ petition was accordingly allowed, with limitation protections granted to the department for issuing fresh notices, provided such notice is issued on or before February 15, 2026.
Appearances
Petitioner – Advocate Anurag Bhatt, Lokesh Pathak, Ashwarya Sharma, Vaibhav Vijayvargiya, Adarsh Gupta, Kinjal Srivastava, and Yash Shahi.
Respondents- Advocate Piyush Beriwal and Ruchita Srivastava
