• Dated 15^th December, 2025

High Court Declares That Tax Authorities Cannot Revive Past GST Claims Once Corporate Debtor Is Sold as a Going Concern Under IBC

Brief Facts

The petitioner company underwent CIRP against the petitioner-company under Section 7 of the IBC, which was admitted by NCLT on 07.03.2019. As the CIRP failed, the company was placed into liquidation on 05.03.2020, and during liquidation it was sold as a going concern. The NCLT, by order dated 11.12.2023, confirmed the sale and applied the principles of Ghanashyam Mishra & Sons Pvt. Ltd. v. Edelweiss ARC (2021) 9 SCC 657 and Lalit Kumar Jain v. Union of India (2021) 9 SCC 321, holding that past dues stand extinguished. Despite this, CGST authorities issued a show cause notice and later passed a tax demand order dated 31.08.2024 for FY 2019–20. The demand related to a period prior to the going-concern sale, prompting the petitioner to challenge the order.

Assessee's Contention

The petitioner argued that once the company was sold as a going concern during liquidation, the "clean slate" doctrine mandated by Ghanashyam Mishra (supra) applied, extinguishing all pre-sale statutory dues. They relied on the NCLT's observation that sale as a going concern is equivalent to a "de-facto CIRP," invoking Section 31 of IBC protections. The petitioner further submitted that the CGST department itself had dropped proceedings for FY 2017–18 on the basis of the same NCLT order. They contended that both FY 2017–18 and FY 2019–20 fall before the sale confirmation, and thus identical legal treatment must apply. The petitioner also referred to Kashvi Power & Steel Pvt. Ltd. (2022 SCC OnLine Cal 4617) to assert that past dues must be dealt with only under the Section 53 of IBC.

Department's Contention

The respondents defended the issuance of the show-cause notice and the order under Section 73 of the CGST Act, stating that the demand pertained to tax obligations that arose when the company was operational. They highlighted the petitioner's failure to respond to the SCN and argued that extinguishment principles under IBC should not automatically nullify statutory tax dues. They maintained that the tax liability survived and was adjudicated as per the statutory mandate. The respondents did not accept the petitioner's reliance on Ghanashyam Mishra, Lalit Kumar Jain, or the NCLT's reasoning equating liquidation sale with CIRP. They urged that GST officers were empowered to assess and recover dues irrespective of IBC outcomes.

Decision

The Hon'ble High Court held that when a corporate debtor is sold as a going concern in liquidation, all past dues - including GST dues - stand extinguished, in line with the Supreme Court's rulings in Ghanashyam Mishra and Lalit Kumar Jain. Relying on its own earlier decision in Kashvi Power & Steel Pvt. Ltd., the Hon'ble High Court reiterated that all past claims must be routed strictly through the Section 53 of IBC waterfall mechanism and cannot be revived through independent tax proceedings. It confirmed that a purchaser of a going concern receives a "clean slate," and cannot be saddled with pre-liquidation liabilities. The Hon'ble High Court also observed that the department's earlier action of dropping FY 2017–18 proceedings supported the petitioner's case. Consequently, the GST demand order dated 31.08.2024 was quashed in its entirety.

BTA's Comment

In this present case, clearly establishes that once a corporate debtor is sold as a going concern during liquidation, all past statutory dues - including GST liabilities - stand extinguished, and cannot be revived by the tax authorities. The High Court has reaffirmed the "clean slate" principle, holding that buyers of such entities cannot be burdened with pre-liquidation liabilities, which must instead be dealt with strictly under the Section 53. The Hon'ble High Court also noted the inconsistency in the department's approach, since similar proceedings for an earlier year were already dropped on identical grounds. Therefore, the GST demand issued for the pre-sale period was rightly quashed as being without jurisdiction. In essence, the judgment reinforces that post-IBC going-concern sales grant complete immunity from past dues not forming part of the liquidation process.

Case Reference: M/s. Rabirun Vinimay Pvt. Ltd. & Anr. Vs Union of India & Ors. - WPA 27722 of 2024 decided by Hon'ble High Court at Calcutta on 12-11-2025.

Author: Harsh Kr Gupta

Edited By: Saket Shaw