PROCEEDINGS AGAINST A NON-EXISTENT ENTITY UNDER GST LAW: An Analysis of Union of India v. Vodafone Idea Ltd.

PROCEEDINGS AGAINST A NON-EXISTENT ENTITY UNDER GST LAW:

An Analysis of Union of India v. Vodafone Idea Ltd.

You Can't Serve Notice on a Ghost: GST Can't Chase a Company That No Longer Exists

[Supreme Court, 2026 (9) TMI 537 - dismissing SLP against Bombay High Court's decision in 2026 (5) TMI 162]

I. Introduction

The Bombay High Court's decision in Vodafone Idea Ltd. v. Union of India, affirmed by the Supreme Court on dismissal of the Revenue's Special Leave Petition, settles a key jurisdictional question under the Central Goods and Services Tax Act, 2017 ("CGST Act"): can a show-cause notice and order be issued against a company that has ceased to exist under a sanctioned scheme of amalgamation? The Court held such proceedings void ab initio, and that Section 87 of the CGST Act does not confer jurisdiction to proceed against a non-existent entity. This article summarises the facts, contentions, ratio, and practical implications.

II. Case Citation and Coram

III. Facts

• Vodafone Mobile Services Ltd. ("VMSL") merged into Idea Cellular Limited pursuant to an NCLT order dated 30 August 2018 (resultant entity: Vodafone Idea Ltd., the Petitioner). The merger was duly intimated to the GST authorities.
• Pre-merger, on 13 November 2017, VMSL had transferred its tower business to ATC Telecom Infrastructure as a going-concern slump sale - treated by the Petitioner as outside the scope of "supply" and not reported in GST returns.
• Following DGGI enquiries (2022-2024), a show-cause notice dated 1 August 2024 was issued under Section 74 of the CGST Act demanding INR 363 crore, alleging the transfer was an exempt supply disentitling ITC.
• Despite detailed replies addressing the merger's legal effect, the order dated 29 January 2025 confirmed the demand without considering non-existence of the noticee, prompting a writ petition under Article 226.

IV. Rival Contentions

V. Statutory Provision Considered - Section 87, CGST Act, 2017

"87. Liability in case of amalgamation or merger of companies.- (1) When two or more companies are amalgamated or merged in pursuance of an order of court or of Tribunal or otherwise and the order is to take effect from a date earlier to the date of the order and any two or more of such companies have supplied or received any goods or services or both to or from each other during the period commencing on the date from which the order takes effect till the date of the order, then such transactions of supply and receipt shall be included in the turnover of supply or receipt of the respective companies and they shall be liable to pay tax accordingly.

(2) Notwithstanding anything contained in the said order, for the purposes of this Act, the said two or more companies shall be treated as distinct companies for the period up to the date of the said order and the registration certificates of the said companies shall be cancelled with effect from the date of the said order.

VI. Findings of the Bombay High Court

A. Scope of Section 87

The Court held that Section 87 operates only in respect of the intervening period between the date on which the merger order takes effect and the date on which the order is actually passed, for the limited purpose of fixing turnover on inter se transactions during that window and deeming the entities distinct for that period. The provision does not authorise the Department to issue a show-cause notice, or to continue or conclude proceedings, against the amalgamating entity after it has ceased to exist in law. The Delhi High Court's reasoning in HCL Infosystems Ltd. v. Commissioner of State Tax was cited with approval on this point: Section 87 preserves the pre-merger transactions for taxability, and correspondingly transposes the resulting liability onto the amalgamated entity - it does not permit notice upon, or assessment of, the non-existent company itself.

B. Applicability of Income-tax Act precedents to GST

Rejecting the Revenue's distinction, the Court held that the principle in Pr. CIT v. Maruti Suzuki India Ltd. (supra) - namely, that participation by the amalgamated entity in proceedings issued in the name of a non-existent amalgamating company cannot operate as an estoppel against law, and that such proceedings are void ab initio - applies equally under the CGST Act. The Court relied on its own coordinate Bench decision in Reliance Industries Ltd. v. P. L. Roongta (supra), where the same principle was applied notwithstanding actual knowledge of the amalgamation on the Revenue's part.

C. Effect of Section 29 (registration cancellation)

The High Court did not accept the Revenue's contention that continued registration until 7 November 2024 preserved jurisdiction over VMSL. The ratio proceeds on the distinct and more fundamental ground that the amalgamating company ceases to exist in law upon sanction of the scheme under Section 230/232 of the Companies Act, 2013, irrespective of the date of GST registration cancellation; existence (or its cessation) as a juristic person, and not the administrative status of registration, is determinative of jurisdiction to issue notice under Section 74.

D. Conclusion of the High Court

The show-cause notice dated 1 August 2024 having been issued to a non-existent entity, the foundational jurisdiction to proceed was absent; consequently the entire proceedings, including the impugned order dated 29 January 2025, were held void ab initio and were set aside, the petition being allowed in terms of prayer clause (a).

VII. Supreme Court Order

On the Revenue's Special Leave Petition, the Supreme Court, after hearing counsel for both parties and perusing the record, declined to interfere with the impugned order of the Bombay High Court and dismissed the Special Leave Petition. As is usual in such orders, the Supreme Court did not record independent reasons; the dismissal leaves the ratio of the Bombay High Court undisturbed and operative inter partes, and persuasive in nature for other High Courts and adjudicating authorities.

VIII. Precedents Relied Upon

IX. Analysis and Practice Points

The judgment extends to GST a principle settled under the Income-tax Act - corporate existence is a jurisdictional fact that knowledge, participation, or a machinery provision cannot cure unless expressly so worded. Key takeaways:

• Section 87 is a narrow deeming provision for taxing inter se transactions during the transitional window; it is not a general saving clause for proceedings against a dissolved entity.
• Registration cancellation timing under Section 29 does not determine the entity's survival for notice purposes - the effective date of amalgamation governs.
• Taxpayers should promptly intimate amalgamation to jurisdictional officers, plead non-existence explicitly in every reply, and raise the jurisdictional objection at the threshold rather than only on merits.

X. Limitations

• The Supreme Court's order is a non-speaking dismissal; it leaves the High Court's ratio undisturbed and persuasive but does not independently expound the law under Article 141.
• The ruling invalidates notice to the non-existent entity but does not extinguish the Revenue's substantive claim; the Department may, subject to limitation, proceed afresh against the correct successor entity.
• The decision presupposes due intimation of merger to GST authorities; absent such intimation, the position may require separate examination.

XI. Conclusion

Union of India v. Vodafone Idea Ltd. reaffirms, in the GST context, the settled principle that proceedings against a company that has ceased to exist by operation of a sanctioned amalgamation are void ab initio, and clarifies that Section 87 of the CGST Act does not confer jurisdiction to the contrary. For practitioners, the decision underscores the importance of prompt and well-documented intimation of corporate restructuring to tax authorities, and of raising jurisdictional objections at the earliest stage of proceedings rather than on merits alone.

This article is intended for general professional information and does not constitute legal or tax advice. Readers should refer to the full text of the judgments and applicable statutory provisions before relying on the propositions herein.