2025 (5) TMI 1729 - HC - GST

Demerger Tax Dispute Resolved: Resulting Company Recognized as Proper Party in GST Proceedings with Procedural Flexibility

SC ruled in favor of the petitioner (resulting company) in a GST dispute involving demerger and procedural filing. The court held that post-demerger tax ... Levy and collection of GST - Show-cause notice issued under the provisions of Section 73 - demerger - provisions of Rule 108 of the WBGST/CGST Rules, 2017 - HELD THAT:- The petitioner upon receipt of the show-cause had duly responded to the show-cause by communication in writing dated October 13, 2023. The aforesaid show-cause ultimately culminated in the adjudication order under Section 73 (9) of the said Act dated December 15, 2023. Admittedly, the said order was passed in the name of Century Textiles and was not uploaded on the petitioner’s portal. This compelled the petitioner to file a manual appeal along with the pre-deposit as is required for maintaining the appeal. Unfortunately, the Appellate Authority by keeping its eyes shut to the practical difficulties faced by the petitioner and by ignoring the legal consequences of an order of demerger, inter alia, including the fact that the order impugned which forms subject matter of challenge before the Appellate Authority was not uploaded on the website of the petitioner, had proceeded to reject the appeal on the ground that the same had been filed manually de hors the provisions of Rule 108 of the WBGST/CGST Rules, 2017 (“said Rules”). Having heard the learned advocates for the respective parties and noting that the petitioner was all along aware with regard to the developments as aforesaid and had participated in the proceedings, I am of the view that the matter be remanded back to the Appellate Authority, however, the appeal shall not be decided by the officer who had decided the same. To avoid all future complications, it is, however, directed that all orders passed in connection with the aforesaid appeal must be uploaded on the petitioner’s portal in the name of the petitioner. It is made clear that the show-cause and the order in original should be treated as a show-cause and an order in original issued against the petitioner. With the aforesaid observations, the instant writ petition being WPA 137 of 2025 is disposed of. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court in this matter are:Whether the show-cause notice and subsequent adjudication order issued under Section 73 of the WBGST/CGST Act, 2017, for the tax periods prior to the demerger, ought to have been issued in the name of the petitioner (the resulting company) rather than the demerged company, given the sanctioned Scheme of Demerger and transfer of business effective from October 1, 2019.Whether the appeal filed by the petitioner against the adjudication order could be rejected solely on the ground that it was filed manually, contrary to the electronic filing requirements under Rule 108 of the WBGST/CGST Rules, 2017, especially considering the practical difficulties faced by the petitioner due to the order not being uploaded on the petitioner's GST portal.Whether the Appellate Authority's dismissal of the appeal on procedural grounds, ignoring the legal consequences of the demerger and the petitioner's inability to file electronically, was justified.Whether the matter requires remand for fresh adjudication and appropriate uploading of orders in the correct name to avoid future complications.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Proper Party for Show-Cause Notice and Adjudication Order Post-DemergerRelevant legal framework and precedents: The WBGST/CGST Act, 2017, governs the levy and collection of GST, with Section 73 providing for recovery of tax not paid or short paid. The Scheme of Demerger sanctioned by the National Company Law Tribunal (NCLT) under company law principles transfers the business, assets, and liabilities from the demerged company to the resulting company with effect from a specified date (October 1, 2019).Court's interpretation and reasoning: The Court recognized that the petitioner had acquired the cement business of the demerged company pursuant to a valid and sanctioned Scheme of Demerger. Consequently, all proceedings relating to the tax periods after the effective date of demerger ought to be initiated and continued against the petitioner as the successor entity. The issuance of the show-cause notice and adjudication order in the name of the demerged company for periods after the demerger was legally incorrect.Key evidence and findings: The petitioner produced the Scheme of Demerger sanctioned by the NCLT and the GST registration details showing the petitioner's registration with a date of liability as July 1, 2017, reflecting continuity. The respondents acknowledged the demerger but attributed the issuance of notices in the demerged company's name to technical difficulties.Application of law to facts: The Court applied the principle that a demerged company ceases to carry on business from the effective date and the resulting company assumes all rights and liabilities. Therefore, tax notices and orders post-demerger must be issued in the name of the resulting company to maintain legal correctness and procedural propriety.Treatment of competing arguments: While the respondents admitted inadvertence and technical difficulties, they contended the petitioner was kept informed. The Court found this insufficient to justify continuing proceedings against the demerged company post-demerger.Conclusions: The show-cause notice and adjudication order should be treated as issued against the petitioner, the resulting company, and not the demerged company.Issue 2: Validity of Appeal Rejection on Grounds of Manual Filing Contrary to Rule 108Relevant legal framework and precedents: Rule 108 of the WBGST/CGST Rules, 2017, mandates electronic filing of appeals before the Appellate Authority. However, procedural rules must be applied reasonably, especially when technical or practical difficulties impede compliance.Court's interpretation and reasoning: The Court noted that the petitioner was compelled to file the appeal manually because the adjudication order was not uploaded on the petitioner's GST portal, making electronic filing impossible. The Appellate Authority's strict adherence to procedural requirements, without considering the petitioner's practical difficulties and the legal consequences of the demerger, was unjustified.Key evidence and findings: The appeal was manually filed along with the requisite pre-deposit. The order impugned was not uploaded on the petitioner's portal, which the petitioner contended prevented electronic filing. The Appellate Authority rejected the appeal solely on this procedural ground.Application of law to facts: The Court emphasized that procedural rules, including electronic filing requirements, should not be applied rigidly to defeat substantive rights, especially when the petitioner acted in good faith and faced genuine difficulties.Treatment of competing arguments: The respondents acknowledged the inadvertent dismissal and suggested remand for fresh adjudication. The Court accepted this view, emphasizing fairness and justice.Conclusions: The rejection of the appeal on the ground of manual filing was improper, and the appeal deserves to be heard on merits.Issue 3: Remand and Directions for Future ProceedingsRelevant legal framework and precedents: The Court has inherent power to remand matters for fresh adjudication to ensure justice and proper compliance with legal requirements.Court's interpretation and reasoning: Considering the admitted inadvertence and the petitioner's participation in proceedings, the Court directed remand of the appeal to the Appellate Authority for fresh adjudication by an officer other than the one who dismissed the appeal. To avoid recurrence of procedural difficulties, the Court mandated that all orders must be uploaded on the petitioner's GST portal in the petitioner's name.Key evidence and findings: The factual matrix established that the petitioner was aware of developments and had responded to notices. The absence of uploading on the petitioner's portal was a critical factor leading to procedural complications.Application of law to facts: The Court applied principles of natural justice and procedural fairness, ensuring the petitioner's rights are protected and that future proceedings are conducted correctly.Treatment of competing arguments: The respondents' request for remand was accepted, balancing the interests of both parties.Conclusions: The matter is remanded for fresh adjudication, with directions for proper uploading and correct party identification in all orders.3. SIGNIFICANT HOLDINGSThe Court held that:'The show-cause and the order in original should be treated as a show-cause and an order in original issued against the petitioner.''The appeal shall not be decided by the officer who had decided the same.''All orders passed in connection with the aforesaid appeal must be uploaded on the petitioner's portal in the name of the petitioner.'These pronouncements establish the principle that post-demerger, all GST proceedings must be conducted against the resulting company, not the demerged company, to reflect the legal transfer of business and liabilities. Procedural requirements such as electronic filing must be applied reasonably, considering practical impediments, to safeguard substantive rights. The Court's directions for remand and uploading of orders aim to ensure procedural correctness and prevent future disputes.In conclusion, the Court disposed of the writ petition by remanding the appeal for fresh adjudication on merits, emphasizing adherence to legal principles governing demerger, procedural fairness, and proper identification of parties in GST proceedings.