Goods & Services Tax (GST) in IndiaLegal Recognition of GST Payments in Liquidation Despite Non-Filing of Returns

In Satyadevi Alamuri (Liquidator of M/s. G.B. Engineering Enterprises Pvt. Ltd.) v. Assistant Commissioner of GST & Central Excise, W.P.(MD) No. 28930 of 2024, decided on 28.07.2025, the Hon’ble Madras High Court dismissed the Department’s demand for tax, interest, and penalties, ruling that deposits made in the Electronic Cash Ledger during liquidation constitute a legitimate discharge of GST debt.

Facts

M/s. G.B. Engineering Enterprises Private Limited (hereinafter referred to as the “Petitioner”) had entered into voluntary liquidation proceedings pursuant to an order of the National Company Law Tribunal (hereinafter referred to as the “NCLT”) dated 06.08.2018. Ms. Satyadevi Alamuri (hereinafter referred to as the “Liquidator”) was appointed to manage the winding-up process of the Petitioner.

The Petitioner’s Goods and Services Tax (hereinafter referred to as “GST”) registration was cancelled on 30.12.2019. In order to continue compliances and facilitate tax-related processes, a fresh GST registration was later obtained on 14.08.2020.

The present dispute arose from demands raised by the GST Department (hereinafter referred to as the “Respondent”) in respect of alleged short-paid GST dues for the period between April 2019 and December 2019. The proceedings were initiated through a notice pointing out discrepancies in returns after scrutiny. This was followed by another notice, and later by a Show Cause Notice. The Petitioner, through the Liquidator, responded to each of these notices respectively, clarifying that substantial payments had already been made towards GST dues.

In support of this contention, the Liquidator placed on record details of such payments. Between February 2019 and April 2020, the Petitioner had deposited significant sums into its Electronic Cash Ledger by generating challans on the GST portal. The deposits included ₹4,04,337 on 28.02.2019, ₹88,29,628 on 08.05.2019, ₹4,86,870 on 18.10.2019, ₹11,130 on 05.11.2019, ₹18,000 on 17.02.2020, and ₹11,57,788 on 04.04.2020. According to the Petitioner, these deposits were actual payments into the Government account and should have been appropriated against the GST liability of the company.

Despite this, the Respondent, by Order-in-Original, confirmed a demand of ₹1,02,57,338 towards short-paid GST, imposed interest at the applicable rate under Section 50 of the CGST Act, and levied a penalty of ₹10,35,518 under Section 73(9) read with Section 122. The rationale used was that until the relevant forms in Form GSTR-3B were filed and the ledger debited, the amounts in the Electronic Cash Ledger could not be regarded as a discharge of tax due. Since the Petitioner could not file such returns owing to cancellation of registration, the Department treated the liability as outstanding.

The Petitioner, however, contended that the inability to file returns was not due to any omission or default on its part but was the direct result of the cancellation of registration and technical limitations in the GST system. It was further emphasised that once amounts are deposited into the Electronic Cash Ledger through challans, they are transferred to the Government’s account, and such deposits must be treated as valid discharge of liability.

The Petitioner also highlighted that the NCLT had already dealt with similar claims of the Department in earlier proceedings, directing that claims be filed as on the date of liquidation, and therefore the Respondent could not seek to revive the very same demands independently outside the insolvency framework.

On the other hand, the Respondent maintained that there was no provision under GST law permitting automatic appropriation of deposits from the Electronic Cash Ledger towards outstanding liabilities without filing of returns. It was contended that such deposits could not be equated with actual payment of tax for the relevant period.

On this basis, the impugned order stood confirmed, compelling the Petitioner to approach the High Court under Article 226 of the Constitution of India.

Issues

1. Whether funds entered into the Electronic Cash Ledger during liquidation be considered GST payments and applied to tax obligations for the applicable period if they are not debited through GSTR-3B because of registration cancellation or technical limitations?

Contentions of the Parties

On behalf of the Petitioner, it was argued that the impugned demand failed to take into account that substantial payments had already been made into the Electronic Cash Ledger during the relevant period. The Liquidator submitted that these amounts were duly deposited into the Government’s account through challans, and under Section 49 of the CGST Act, such deposits constituted valid payment of tax.

The only reason the corresponding returns in Form GSTR-1 and GSTR-3B could not be filed was because the Petitioner’s GST registration had been cancelled in December 2019, rendering the filing process technically impossible.

It was further argued that the Central Board of Indirect Taxes and Customs (hereinafter referred to as “CBIC”), in its Circular No. 134/04/2020 dated 23.03.2020, had clarified that insolvency professionals and liquidators were not responsible for furnishing returns of the pre-CIRP period. The circular also recognised that amounts deposited in the cash ledger during such circumstances could either be appropriated or refunded, even if returns were not filed. Relying on this clarification, the Petitioner contended that the deposits made in the Electronic Cash Ledger during liquidation must be recognised as valid discharge of GST liability.

Additionally, the petitioner cited court rulings, such as the ruling in Vishnu Aroma Pouching Pvt. Ltd. v. Union of India by the Gujarat High Court and the Madras High Court’s ruling in Eicher Motors Ltd., to argue that substantive payments cannot be invalidated due to procedural or technical lapses.

In addition, the Liquidator submitted that the Department had already raised similar claims before the NCLT, which were rejected, and since that order had attained finality, the Respondent was barred from reviving the same claims independently. The impugned order, it was argued, was contrary to law, to binding precedents, and to the insolvency framework itself.

The Respondent, on the other hand, maintained that deposits made in the Electronic Cash Ledger could not, by themselves, be treated as discharge of tax liability. According to the Department, under GST law, liability is considered discharged only when the amounts in the cash ledger are debited through the filing of returns. Since the Petitioner had not filed GSTR-1 and GSTR-3B for the relevant period, the deposits remained mere balances and could not be appropriated towards tax dues.

The Respondent further contended that there was no statutory provision empowering the Department to directly adjust or appropriate sums lying in the Electronic Cash Ledger against outstanding liabilities in the absence of return filing. On this reasoning, the Respondent justified the confirmation of tax, interest, and penalty in the impugned order and maintained that the writ petition was liable to be dismissed.

Decision and Findings

The Madras High Court observed at the outset that there was no dispute regarding the fact that the Petitioner had deposited significant amounts into the Electronic Cash Ledger on various dates between 2019 and 2020. These deposits were duly made through challans and credited as per Section 49 of the CGST Act, 2017. The only difficulty arose because the Petitioner, being under liquidation, could not file GSTR-1 and GSTR-3B returns after cancellation of its earlier registration, which in turn prevented the system from allowing debit of the Electronic Cash Ledger against the tax liability.

The Madras High Court emphasised that once amounts are deposited through challans, they stand credited to the Government’s account, and to that extent, the liability of the taxpayer is discharged. It would be wholly incorrect to treat such deposits as incomplete payments merely because the procedural step of return filing could not be carried out.

The Madras High Court found support for this interpretation in CBIC Circular No. 134/04/2020 dated 23.03.2020, which expressly clarified that insolvency professionals and liquidators are not responsible for pre-CIRP returns and that deposits in the cash ledger during such periods are to be recognised, either through appropriation or refund, even without returns being filed.

The Madras High Court further noted that the Circular itself was a trade facilitation measure aimed at mitigating the rigours of strict statutory procedure and reflected a recognition of the practical challenges faced by entities under insolvency or liquidation. In such circumstances, the Madras High Court held, there could be no legal impediment to appropriating the amounts already deposited by the Petitioner towards its GST liability.

The Madras High Court came to the conclusion that the Respondent’s contested order, which disregarded the payments made but upheld a demand for tax, interest, and penalty, was unsupportable. The entire order was overturned, and the petitioner received consequential relief. The related miscellaneous petition was closed after the writ petition was granted.

AMLEGALS Remarks

This ruling emphasizes the need for substance to take precedence over strict procedure in tax law. The Madras High Court has clarified that once amounts are deposited into the Government’s account through the Electronic Cash Ledger, they constitute payment of tax, even if returns cannot be filed due to cancellation of registration or technical limitations. Treating such deposits as ineffective would unfairly penalise companies already under liquidation.

The Madras High Court’s reaffirmation of the IBC’s insolvency framework’s supremacy is equally important. By noting that the GST Department had already pursued its claims before the NCLT, the Madras High Court made it clear that parallel demands outside the insolvency process are impermissible. This promotes certainty for stakeholders and prevents duplication of proceedings.

For businesses and insolvency professionals, the decision provides much-needed clarity that genuine payments into the Electronic Cash Ledger will be recognised as valid discharge of liability, regardless of procedural hurdles. For the tax administration, it serves as a reminder to adopt a facilitative approach and not use procedural lapses to reopen settled liabilities.

In essence, this case stands for the principle that law should adapt to commercial realities and not trap taxpayers in technical rigidities.

– Team AMLEGALS 

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