The Gujarat High Court, in the case of Pratik Surendrakumar Shah vs. State of Gujarat & Anr, Special Civil Application No. 2496 of 2024, decided on 02.05.2025, held GST proceedings initiated against a dissolved company do not survive under the established Principle of Law.
FACTS
Pratik Surendra Kumar Shah (hereinafter “Petitioner”), was a former Director of M/s Zeb IT Service Limited, a company engaged in providing a platform for purchase and sale of virtual currencies. The company was registered under the Central/State Good Service Tax Act, 2017 (hereinafter as “GST”) but decided to close its business and proceed with voluntary liquidation before National Company Law Tribunal (hereinafter as “NCLT”).
Before initiating liquidation, the company informed the GST authority (hereinafter referred to as “the Respondent”) through a letter dated 01.10.2020 that it intended to undergo voluntary liquidation. On 27.10.2020, the liquidator again wrote to the department requesting submission of any pending claims. No claim was filed by the department.
An online application for cancellation of GST registration was filed before the Respondnent and registration was cancelled on 09.02.2021 (effective from 13.11.2020). Thereafter, the NCLT, Ahmedabad, passed an order on 30.09.2022 dissolving the company, with dissolution formally intimated to the Registrar of Companies on 07.10.2022.
Despite the dissolution, Respondent issued show cause notices under Section 73 of the GST Act on 28.09.2023 for FY 2017–18 and FY 2018–19. The petitioner received intimation of these notices in his capacity as a former director and filed an online reply on 28.10.2023, pointing out that the company had been dissolved and no proceedings could continue against a non-existent entity.
However, the Respondent passed orders dated 28.12.2023 (for FY 2017–18) and 16.04.2024 (for FY 2018–19), confirming GST demands against the dissolved company. They also issued a recovery notice dated 28.10.2024 for FY 2017–18.
Aggrieved by initiation of proceedings and passing of demand orders against a dissolved company, the Petitioner filed Special Civil Applications 2496/2024 before the Gujarat High Court seeking quashing of the Section 73 orders and recovery proceedings.
ISSUES
- Can the tax department issue GST show-cause notices and pass demand orders against a company that legally no longer exists?
- Does cancellation of GST registration prevent the department from raising past tax liabilities, or does dissolution completely bar such action?
CONTENTIONS OF THE PARTIES
The Petitioner argued that the GST proceedings were entirely without jurisdiction because the company, Zeb IT Service Ltd., had already been dissolved by the NCLT, and a non-existent entity cannot be issued notices or demand orders. The Petitioner submitted that the department had been informed about liquidation well in advance, the GST registration had been cancelled, and yet show-cause notices were issued a year after dissolution.
The Petitioner further contended that the authorities mechanically confirmed the demand despite acknowledging in their own orders that the company no longer existed.
On the other hand, the Respondent contended that cancellation of GST registration does not wipe out past tax liabilities, relying on Section 29(3) of the GST Act. Further argued that the notices under Section 73 were valid and issued within limitation and the petitioner failed to provide documents addressing discrepancies in returns and ITC claims. The department also asserted that liquidation details were not properly communicated to the Respondent.
DECISION AND FINDINGS
The Gujarat High Court held that the Respondent could not issue notices or pass demand orders against a company that had already been dissolved by the NCLT. The Court noted that the Respondent itself acknowledged in the orders that the company stood dissolved, yet proceeded mechanically without applying its proper mind. Court Relied on the Supreme Court’s ruling in Principal Commissioner of Income Tax, New Delhi v Maruti Suzuki (India) Limited (2020) 18 SCC 331 and reaffirmed that once a company ceases to exist, any assessment or recovery proceedings in its name can’t survive. Hence, quashed both the orders passed under the Section 73 of CGST.
AMLEGALS REMARKS
This decision assures a critical principle in tax jurisprudence mainly proceeding initiated after dissolution of Company by NCLT as Company loses its artificial personality created with the purview of Law. The Gujarat High Court’s reliance on Maruti Suzuki highlights the judiciary’s consistent stance that tax authorities must exercise jurisdiction with due regard to the legal existence of the assessee. While preserving past tax liabilities despite cancellation of registration cannot override the fundamental requirement that proceedings must be initiated only against a legally existing entity.
The order underscores the importance of proper inter-departmental communication between Respondents authorities, particularly during liquidation processes. Failure to lodge claims before the liquidator cannot justify attempts to revive demands post-dissolution. The ruling serves as a timely reminder to tax officers to ensure application of mind, procedural fairness, and adherence to jurisdictional limits, especially in matters involving dissolved or amalgamated companies.
For any query, please feel free to reach out to shreya.verma@amlegals.com