The has ruled that a corporate debtor sold as a " " during cannot automatically invoke the " " principle to evade Goods and Services Tax (GST) liabilities. Justice C. Saravanan, presiding over the filed by , emphasized that such sales involve the transfer of both assets and liabilities as a singular package, meaning the new management remains accountable for past and current tax obligations despite the company having undergone proceedings.
The court's decision settles a contentious issue regarding the interplay between the , and the tax enforcement mechanisms under the state GST enactments. By dismissing the petitioner’s plea to treat all tax proceedings as extinguished, the court clarified that the regulatory framework for selling a company as a does not mirror the of a corporate entity, where the rule might otherwise apply.
Distinguishing and Sales
The dispute arose after , a subsidiary of , challenged an order issued by the , which confirmed a GST demand totaling approximately ₹87.68 lakh. This sum included tax, interest, late fees, and penalties for the financial year 2021–22. The petitioner argued that the (NCLT) Kolkata, which had ordered the company’s in , effectively wiped the slate clean of all liabilities pursuant to the Supreme Court’s ruling in .
Justice Saravanan, however, drew a sharp distinction between the
of a company via the distribution of assets and a sale as a
. While the former often results in the
of the corporate entity and the potential extinguishment of prior debts, the latter enables the business to survive under new ownership. The court observed,
"When a Corporate Debtor is sold as a
, the buyer not only purchases the assets but also the liabilities of the Corporate Debtor as a package and not merely the assets sans the liabilities of the said Corporate Debtor."
Regulatory Framework and Statutory Obligations
The court’s reasoning was anchored in a careful reading of Regulations 32 and 32A of the ( Process) Regulations, 2016, read alongside Regulation 39C. These provisions establish a specific methodology for identifying groups of assets and liabilities to be transferred during a going-concern sale. Justice Saravanan noted that the NCLT’s order, which approved the sale of to , was intended to preserve the business, and consequently, its associated liabilities, rather than simply disposing of assets in a vacuum.
Furthermore, the court explicitly disagreed with certain views held by other high courts that suggested
liabilities are automatically extinguished in going-concern sales.
"The decisions of the
cited above, as also, the decisions of the Calcutta Bench of the
are not correct, in view of the Scheme under Regulation 32 (e) & (f) and Regulation 32A of the
(
Process) Regulations, 2016,"
the order stated.
Conditional Remittance for Fresh Adjudication
Despite rejecting the petitioner’s claim that its tax liabilities had been entirely extinguished, the court provided a path for the company to contest the demand on its merits. Recognizing that the petitioner had failed to file an effective reply before the tax department and citing the provisions under , the court remitted the matter for adjudication.
This relief, however, is subject to specific procedural conditions. The court directed to deposit 25% of the disputed tax liability within 30 days of receiving the order. Upon making this payment, the petitioner is required to file a detailed reply to the issued in , which the tax authority must then adjudicate within three months. This approach ensures that while the company cannot bypass its tax obligations under the guise of , it remains entitled to a fair hearing regarding the specific calculation and applicability of the disputed charges. The was disposed of with these directions, with no orders as to costs.
Corporate Insolvency Resolution - Tax Liability Adjudication
