Initiation of CGST assessment against a company dissolved under IBC section 59(8) is jurisdictionally impermissible and quashed

Initiation of CGST assessment proceedings against a corporate entity that has ceased to exist under Section 59(8) of the IBC is jurisdictionally impermissible, because dissolution extinguishes the corporate person and any post-dissolution show cause notice or adjudication lacks authority and is liable to be quashed. Where liquidation commenced and dissolution under Section 59(8) has occurred, the corporate person remains only for limited winding-up purposes and cannot be subjected to fresh tax determination; consequently, invoking derivative liability against directors under the CGST framework does not arise where no company existed at the time of issuance or adjudication.

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Issues Involved:
1. Legality of the show cause notice and adjudication order issued against a dissolved company.
2. Constitutionality of Clause (iii) to Section 140 (1) of the CGST Act.
3. Validity of various notifications issued by the respondents.
4. Applicability of Section 88 of the CGST Act to the directors of the dissolved company.

Summary:

Issue 1: Legality of the Show Cause Notice and Adjudication Order
The petitioner contended that the impugned show cause notice dated 29.09.2023 and the adjudication order dated 27.12.2023 were illegal, arbitrary, and without jurisdiction as they were issued against a dissolved company. The company was dissolved by the NCLT on 15.02.2023 u/s 59 (8) of the Insolvency and Bankruptcy Code, 2016, and its GST registration was cancelled w.e.f. 30.09.2020. The court referred to the Delhi High Court judgment in Spice Entertainment v. Commissioner of Service Tax and the Supreme Court judgment in Pr. Commissioner of Income Tax, New Delhi Vs. Maruti Suzuki India Ltd, which held that initiating assessment against a non-existent entity is a jurisdictional defect. Consequently, the court quashed the show cause notice and adjudication order as they were issued after the company had ceased to exist.

Issue 2: Constitutionality of Clause (iii) to Section 140 (1) of the CGST Act
The petitioner sought a declaration that Clause (iii) to Section 140 (1) of the CGST Act is unconstitutional. However, the court did not delve into this issue as the primary relief was granted by quashing the show cause notice and adjudication order.

Issue 3: Validity of Various Notifications
The petitioner challenged several notifications issued by the respondents as ultra-vires Section 168A of the CGST Act, 2017. The court did not address these challenges explicitly, as the primary relief was granted.

Issue 4: Applicability of Section 88 of the CGST Act
The respondents argued that they could proceed against the directors of the dissolved company u/s 88 (3) of the CGST Act. The court examined Section 88 (1) and (2) and found no evidence of compliance with these provisions. The court held that without a valid determination of tax liability against the company before its dissolution, the respondents could not invoke Section 88 (3) against the directors.

Order:
(i) Petition is hereby allowed.
(ii) The impugned show cause notice at Annexure-A dated 29.09.2023 and adjudication order at Annexure-AA6 dated 27.12.2023 are hereby quashed.

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