Tax Vista Your weekly tax recap Edn. 263 - 24th November 2025 Kasi Viswanathan V

 

 

Clean Slate in Liquidation GC Sale

No resolution plan was received for revival. Accordingly, the NCLT passed an order for liquidation of the Petitioner on 05.03.2020. In liquidation, the corporate debtor was sold as a Going Concern (GC) on 11.12.2023. Subsequently, a SCN dated 31.05.2024 was issued under section 73 for FY 2019-20. No reply was filed, and an order came to be passed on 31.08.2024. The Petitioner filed a writ petition contending that it could not be saddled with past dues and placed reliance on the NCLT's observation that "the sale of a corporate debtor as a Going Concern is akin to a de-facto CIRP." It argued that the clean slate principle, applicable to corporate debtors that have undergone a successful CIRP, would equally apply to a GC sale under liquidation.

 

The Court held that it is now well settled that, upon successful completion of CIRP or upon a corporate debtor being sold in liquidation as a going concern on a "clean slate" basis, all past dues stand frozen and extinguished, and creditors can recover only in accordance with the waterfall mechanism under section 53 of the IBC, 2016. Relying on its earlier decision in Kashvi Power & Steel Pvt. Ltd., and noting that the IBC's objective is revival, the Court held that no proceedings could have been initiated for FY 2019-20 and accordingly quashed the impugned order.

 

The broader issue in a GC sale is that the term "going concern" and phrases such as "as is where is basis" used in sale documents generally suggests that it includes transfer of liabilities. This creates ambiguity regarding extinguishment of past dues. This ambiguity increases in GC sales under liquidation, as they are governed by Regulation 32 and 32A. Regulation 32A(3) also contemplates identification of liabilities by the CoC or the liquidator.

 

In Kashvi, electricity authorities had refused a fresh connection on the ground of past dues. The Court in Kashvi clarified that Regulations framed under the IBC cannot override the Code itself. Therefore, no interpretation contrary to section 53, which carries a non obstante clause, can be attributed to the expression "going concern sale" in Regulation 32 of the Liquidation Process Regulations, 2016. Accordingly, extinguishment of past dues was held to apply even to a sale on a GC basis under liquidation and is not limited to CIRP resolution plans.

 

In the present case, the NCLT had observed that the sale of a corporate debtor as a going concern is akin to a de-facto CIRP, and therefore the jurisprudence applicable to CIRP applies equally in liquidation GC sales. Keeping this in view and the avowed objective of revival, the Court held that the clean slate principle applies to GC sales under liquidation.

 

In October 2025, the Liquidation Process Regulations were amended to omit Regulations 32(e), 32(f), and 32A, thereby removing the framework for GC sale under liquidation. The objective appears to ensure that revival actions are done under IRP stage.

 

Under GST, Section 85 deals with liability in case of transfer of business and Section 88 deals with liability in case of winding up. It is generally held that section 238 of IBC overrides other laws. AS there is no non obstante clause in the GST, the question of which statute is later in time does not arise. In any event, the IBC, being a special law, will prevail. Though the issue pertained to resolution, the Revenue nevertheless relied on section 88, which deals with liability in liquidation. The Court, in 2024-VIL-1013-AP rejected this contention relying upon section 238 of IBC [2025-VIL-1178-CAL]

 

'Same' or 'Exact' subject matter

The Petitioner was issued a show cause notice dated 28.09.2023 under Section 73, followed by an order dated 04.12.2023 by the State tax authorities confirming demand towards disallowance of ITC in respect of supplies from cancelled dealers, including M/s RCI Industries and Technologies. Thereafter, the Petitioner received a second show cause notice dated 04.08.2024 under Section 74, followed by an order-in-original dated 27.01.2025 issued by the Central authorities, again confirming demand towards disallowance of ITC on the allegation of fraudulent availment in respect of inward supplies from the same supplier, M/s RCI. The Petitioner contended that the second proceedings were barred by section 6(2)(b) of the CGST Act.

 

The Revenue argued that the nature of demand differed, placing reliance on the Supreme Court's decision in Armour [2025-VIL-63-SC], especially paragraphs 96(vii), 96(ix) and 96(x), and further submitted that penalties under sections 73 and 74 differ even for the same transactions. The High Court noted that the Petitioner had already filed an appeal against the State GST order with pre-deposit and permitted the Petitioner to file an appeal against the Central order without a second pre-deposit, since that would amount to duplicate payment. Although the Court did not expressly concur with the Revenue's submissions, its direction permitting appeal impliedly held that the second proceedings are not barred by section 6(2)(b).

 

With respect, several critical aspects remain overlooked. The Armour decision relates to the stage prior to issuance of show cause notice, whereas in the present case proceedings have culminated into orders. Moreover, the subject matter in both proceedings is indisputably identical, namely the alleged wrong availment of ITC on inward supplies from one supplier, M/s RCI. The reason for such wrong availment is due to 'fraud, wilful misstatement or suppression of facts to evade tax'  or otherwise, does not alter the fact that the tax liability pertains to the same input tax credit.

 

In this context, paragraph 96(viii) of Armour, which was not relied upon by the Revenue, directly supports the Petitioner. It states that 'Where any two proceedings initiated by the Department seek to assess or recover an identical or a partial overlap in the tax liability, deficiency or obligation arising from any particular contravention, the bar of Section 6(2)(b) would be immediately attracted'. Here, the contravention is the same in both matters i.e. wrong availment of ITC. For the tax and interest components, the second proceedings are therefore clearly barred.

 

The High Court's own observation that a second pre-deposit would constitute a duplicate payment underscores that the subject matter is the same. Independently of section 6(2)(b), it is a well-established principle that the Department cannot raise a second demand on the same cause of action merely by relying on a different statutory provision. Only the question of penalty could arguably remain open, since no penalty under section 74 had been adjudicated earlier. Even this requires appreciation of the fact that, in terms of section 6(2)(a), the order of the SGST authorities is also an order under the CGST Act, and that the earlier adjudication has already determined that the availment was not due to fraud or suppression. Therefore, fresh proceedings under section 74 without challenge to earlier adjudication under section 107 itself is questionable. The view that the contravention must be identical in every respect, including the precise allegation, can arise only in cases of duplicate demand, which is impermissible even in the absence of any specific statutory prohibition under section 6(2)(b) [2025-VIL-1185-DEL].

 

(The views expressed are personal. The author can be reached for feedback or queries on v.k.vishwa@gmail.com)