Going-concern sale of corporate debtor bars separate recovery of pre-sale tax dues; insolvency waterfall prevails.

A corporate debtor sold in liquidation as a going concern is treated on a clean-state basis, so pre-sale statutory dues that do not survive the insolvency process cannot be enforced separately outside the insolvency framework. The Court held that the buyer cannot be saddled with such liabilities independently of the waterfall distribution under Section 53 of the Insolvency and Bankruptcy Code, 2016, and followed its earlier view that a going-concern sale operates akin to a de facto corporate insolvency resolution process for this purpose. On that basis, a tax demand under Section 73 of the CGST Act for the relevant period could not be initiated against the corporate debtor after the sale, and the impugned order was set aside.

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Issues: Whether a tax demand under Section 73 of the Central Goods and Services Tax Act, 2017 could be sustained against a corporate debtor after it had been sold in liquidation as a going concern and confirmed by the National Company Law Tribunal.

Analysis: A corporate debtor sold in liquidation as a going concern is treated on a clean-state basis. Past dues that do not survive the insolvency process cannot be recovered independently of the insolvency regime. The distribution of liabilities is governed by the waterfall mechanism under Section 53 of the Insolvency and Bankruptcy Code, 2016, and the buyer of the corporate debtor cannot be saddled with pre-sale dues outside that framework. The Court followed its earlier view that sale as a going concern is akin to a de-facto corporate insolvency resolution process for this purpose.

Conclusion: The tax proceeding for the relevant period could not have been initiated against the corporate debtor after the going-concern sale, and the demand order was liable to be quashed.

Final Conclusion: The writ petition succeeded and the impugned tax order was set aside on the ground that pre-sale liabilities stood of the recoverable claims after sale of the corporate debtor as a going concern.

Ratio Decidendi: Where a corporate debtor is sold in liquidation as a going concern on a clean-state basis, pre-sale statutory dues cannot be separately enforced against it and must yield to the insolvency distribution framework.

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