2026 (2) TMI 826 - HC - GST

Moratorium under Insolvency and Bankruptcy Code prevents enforcement without adjudication of its effect; matter remitted for fresh hearing.

Proceedings under CGST/IGST assessing demand, interest and penalty were found procedurally infirm because the adjudicating order failed to address the ... Moratorium under the Insolvency and Bankruptcy Code - maintainability of proceedings during moratorium - claim submission before the Resolution Professional - denial of opportunity of hearing - non-application of mind - remand for fresh hearing - extended period of limitation under proviso to Section 74(1) of the CGST Act - HELD THAT:- As regards the reply dated 23rd July 2025 submitted in response to the Show Cause Notice dated 24th June 2025, a specific ground has been raised qua the declaration of the moratorium and the maintainability of the proceedings against the petitioner, in view of the statutory protection provided under the provisions of the IBC. The least that was expected of the respondents was to deal with the said issue in its order impugned. A specific ground was raised in defence by the present petitioner regarding the very maintainability of the Show Cause Notice, that too on the basis of statutory protection. The respondent, in our opinion, was duty-bound to deal with the same and the failure to do so, amounts to a denial of the opportunity of hearing. In such an eventuality, not only the objection raised by the respondents that the petitioner has an alternate remedy and that, as such, the writ petition is not maintainable, is liable to be overruled, but we also have to hold that the impugned order suffers from non-application of mind. That being so, we deem it appropriate to quash and set-aside the impugned order dated 23rd December, 2025 passed by the respondents. Issues: Whether the impugned order confirming demand, interest and penalty under the CGST/IGST provisions is maintainable in view of the moratorium arising under the Insolvency and Bankruptcy Code, 2016; and whether failure to deal with the moratorium contention in the adjudicating order amounts to denial of opportunity and non-application of mind.Analysis: The proceedings involve demand under Section 74(1) and interest/penalty under Section 50 of the Central Goods and Services Tax Act, 2017 read with Section 20 of the Integrated Goods and Services Tax Act, 2017, initiated after a Show Cause Notice issued under Section 70 of the Central Goods and Services Tax Act, 2017. The petitioner invoked statutory protection arising from an approved moratorium pursuant to proceedings under Section 227 and Section 239(2) of the Insolvency and Bankruptcy Code, 2016, and specifically raised maintainability of the Show Cause Notice in its written response. The adjudicating authority's order did not address the petitioner's statutory plea regarding the effect of the moratorium and thus did not consider a central defence pleaded in response to the Show Cause Notice. The omission to adjudicate that contention led to procedural infirmity by denying the petitioner an effective opportunity to have that defence decided before confirming the demand, interest and penalty. In these circumstances, remanding the matter for fresh consideration with an opportunity to be heard is appropriate to enable the authority to deal with the moratorium issue and other contentions raised by the petitioner.Conclusion: The impugned order confirming demand, interest and penalty is set aside and the matter is remitted for fresh decision. The petitioner is permitted to place written submissions and documents before the authority and shall be granted an opportunity of hearing; the authority must consider and decide the moratorium and maintainability issues along with other contentions expeditiously.