2024 (11) TMI 1331 - HC - GST

Revenue authorities cannot issue notices against non-existent entities after company amalgamation under Section 87 CGST Act

The Delhi HC quashed a show cause notice and assessment order issued against a non-existent entity following company amalgamation. The court held that ... Assessment framed in the name of a dissolved/amalgamating company is void and a nullity - Doctrine that amalgamating company ceases to exist on an approved scheme of amalgamation - Section 160 of the CGST Act is pari materia to Section 292B of the Income tax Act and cannot validate proceedings against a non existent entity - Section 87 of the CGST Act preserves transactions between amalgamating companies but does not permit issuance of notices or assessment orders against a company that has ceased to exist - Successor/transferee entity bears the tax liabilities of the amalgamating companyAssessment framed in the name of a dissolved/amalgamating company is void and a nullity - Doctrine that amalgamating company ceases to exist on an approved scheme of amalgamation - Validity of the show cause notices and final order framed in the name of the Amalgamating Company after approval of the Scheme of Arrangement and its dissolution - HELD THAT: - The Court applied the principle in Maruti Suzuki that once a scheme of amalgamation approved by the competent authority becomes effective the amalgamating company ceases to exist in law and proceedings initiated or continued in its name are void ab initio. The factual matrix showed that the Scheme had been approved by the NCLT with appointed date 01 April 2022 and that the Amalgamating Company had sought cancellation of registration and the petitioner had applied for transfer of ITC; despite these disclosures the respondents issued SCNs and a final order in the name of the Amalgamating Company. The Court held that proceedings in the name of a non existent entity could not be sustained and therefore quashed the impugned SCN dated 03 December 2023 and the final order dated 27 April 2024 which were in the name of the Amalgamating Company.SCN dated 03 December 2023 and final order dated 27 April 2024 framed in the name of the Amalgamating Company are quashed as void.Section 160 of the CGST Act is pari materia to Section 292B of the Income tax Act and cannot validate proceedings against a non existent entity - Whether the deeming/curative provision in Section 160 of the CGST Act could validate notices/orders issued in the name of a company which had ceased to exist - HELD THAT: - The Court compared Section 160 of the CGST Act with Section 292B of the Income tax Act and held them to be pari materia. Relying on the Supreme Court authority that a notice or assessment in the name of a non existent entity is not a mere curable procedural defect, the Court held that the powers under Section 160 could not rescue or validate notices and orders issued against an entity that had ceased to exist upon an approved scheme of amalgamation.Section 160 cannot be invoked to validate the impugned proceedings issued in the name of the dissolved Amalgamating Company.Section 87 of the CGST Act preserves transactions between amalgamating companies but does not permit issuance of notices or assessment orders against a company that has ceased to exist - Successor/transferee entity bears the tax liabilities of the amalgamating company - Whether Section 87 permits the respondents to continue proceedings or pass assessment orders against the Amalgamating Company which had ceased to exist, or otherwise justifies the impugned action - HELD THAT: - Section 87 was held to be a legislative provision to preserve and identify inter company transactions for the relevant period and to ensure tax liabilities are not lost by reason of amalgamation; it treats the two entities as distinct for specified purposes up to the date of the relevant order but does not authorize issuing notices or framing assessments in the name of an entity that has ceased to exist. The Court observed that liabilities would stand transposed to the amalgamated entity, so the Revenue's remedy is not to proceed against a non existent company but to take such proceedings as are permissible in law against the appropriate successor entity.Section 87 does not validate or justify issuance of notices/orders against the dissolved Amalgamating Company; liabilities may be enforced against the successor in accordance with law.Final Conclusion: Writ petition allowed. The SCN dated 03 December 2023 and the final order dated 27 April 2024 issued in the name of the Amalgamating Company are quashed; respondents remain free to initiate or pursue such proceedings as are otherwise permissible in law against the appropriate successor entity. Issues Involved:1. Validity of Show Cause Notice (SCN) and final order issued against a non-existent entity.2. Applicability of Section 160 of the CGST Act, 2017, in rectifying procedural defects.3. Interpretation and application of Section 87 of the CGST Act, 2017, concerning amalgamated companies.Detailed Analysis:1. Validity of SCN and Final Order Issued Against a Non-Existent Entity:The primary issue concerns the validity of the SCN dated 03 December 2023 and the final order dated 27 April 2024 issued under Section 73 of the CGST Act, 2017, against the Amalgamating Company, which had ceased to exist following its amalgamation with the petitioner. The court noted that the Scheme of Arrangement between the Amalgamating Company and the petitioner was approved by the National Company Law Tribunal (NCLT) on 10 August 2022, with an appointed date of 01 April 2022. Consequently, the Amalgamating Company ceased to exist in law. Despite this, the respondents issued notices and framed orders in the name of the dissolved entity. Drawing parallels with the Supreme Court's judgment in Maruti Suzuki, the court held that proceedings initiated against a non-existent company are void and a nullity. The court emphasized that an assessment or notice issued in the name of a dissolved entity cannot be salvaged by procedural provisions such as Section 292B of the Income Tax Act, which has a parallel in Section 160 of the CGST Act.2. Applicability of Section 160 of the CGST Act, 2017:The court examined whether Section 160 of the CGST Act could rectify the procedural defect of issuing notices and orders against a non-existent entity. Section 160, akin to Section 292B of the Income Tax Act, provides that proceedings should not be invalidated due to procedural mistakes if they conform to the intent and purpose of the Act. However, the court concluded that the issuance of a notice or order against a non-existent entity constitutes a substantive illegality, not merely a procedural defect. Therefore, Section 160 could not be invoked to validate the impugned SCN and final order.3. Interpretation and Application of Section 87 of the CGST Act, 2017:The respondents contended that Section 87 of the CGST Act allowed them to issue notices to the Amalgamating Company. Section 87 addresses the liability of companies involved in amalgamation or merger for transactions occurring before the effective date of the merger. The court clarified that Section 87 ensures that transactions between merging companies are taxed appropriately, treating them as distinct entities until the merger's effective date. However, it does not authorize issuing notices or orders against a non-existent entity post-merger. The court emphasized that liabilities of the dissolved entity would automatically transfer to the amalgamated entity, ensuring the Revenue's interests are protected without necessitating actions against the defunct company.Conclusion:The court allowed the writ petition, quashing the SCN dated 03 December 2023 and the final order dated 27 April 2024. It underscored that proceedings against a non-existent entity are void, and the Revenue must direct its actions against the amalgamated entity. The court left it open for the respondents to initiate proceedings permissible under the law against the petitioner.