GST Department Not Empowered To Issue Notices In Name Of Non-Existent Entity Post Amalgamation: Delhi High Court
The Delhi High Court has made it clear that neither Section 160 nor Section 87 of the Central Goods and Services Tax Act, 2017 enable the Department to issue notice in the name of an entity which ceased to exist post amalgamation. Section 160 is pari materia to Section 292-B of the Income Tax Act, 1961 which provides that no notice or assessment or any proceedings can be deemed to...
The Delhi High Court has made it clear that neither Section 160 nor Section 87 of the Central Goods and Services Tax Act, 2017 enable the Department to issue notice in the name of an entity which ceased to exist post amalgamation.
Section 160 is pari materia to Section 292-B of the Income Tax Act, 1961 which provides that no notice or assessment or any proceedings can be deemed to be invalid merely for the reason of any mistake, defect or omission in such notice, assessment or other proceedings.
However, a plethora of precedents have laid down that notice issued in the name of non-existent company, despite the Department being aware of amalgamation, is not a defect curable under Section 292B.
In the case hand, despite the Petitioner (HCL Infosystems Limited) having informed the Department that Digilife Distribution and Marketing Services Limited (Amalgamating Company) could no longer be viewed as existing in law, the Department proceeded to frame a final order raising a demand in the name of the Amalgamating Company.
A division bench of Justices Yashwant Varma and Dharmesh Sharma thus held,
“Even the powers conferred by Section 160 upon the respondents under the CGST Act would not come to their rescue or enable them to salvage the notice as well as the final order which has come to be passed.”
So far as Section 87 is concerned, it provides that notwithstanding an order of amalgamation coming to be approved, for the purposes of the CGST Act, the two entities would be treated as a distinct companies for the period up to the date of the order of the competent court or tribunal approving the scheme and the registration certificate of the companies being cancelled.
The High Court said the provision only seeks to preserve and identify the transactions which may have occurred between two or more companies which ultimately amalgamate and merge.
“We thus find ourselves unable to read Section 87 as enabling the respondents to either continue to place a non-existent entity on notice or for that matter to pass an order of assessment referable to Section 73 against such an entity. In fact, in terms of Section 87, the liabilities of the non-existent company would in any case stand transposed to be borne by the amalgamated entity,” Court said.
Digilife Distribution amalgamated with HCL Infosystems Limited and both the companies had informed the Registrar of Companies of this factum. The Department had even issued an acknowledgement of the same and suspended the GST registration of the Amalgamating Company with effect from 12 October 2022. Yet, on 29 September 2023, a Show Cause Notice and consequent final order came to be passed in the name of the Amalgamating Company.
The High Court cited Principal Commissioner of Income Tax, New Delhi v. Maruti Suzuki (India) Limited (2020) where the Supreme Court held that all proceedings taken against a company which had come to merge with another are rendered void and a nullity; and a notice or order framed in respect of a non-existent entity would not be rectifiable in terms of Section 292B Income Tax Act.
In this light, the petition was allowed and the final order against the Amalgamating Company was set aside.
Appearance: Advocates Puneet Agrawal, Yuvraj Singh, Prem Kandpal, Yash Bhardwaj and Chetan Kumar Shukla for Petitioner; ASC Rajeev Aggarwal with Advocates Shubham Goel, Ankit Gupta and Mayank Kamra for Department
Case title: HCL Infosystems Ltd. v. Commissioner Of State Tax & Anr.
Case no.: W.P.(C) 7391/2024