GST Notices Issued to a Dissolved Amalgamating Company Post-Merger Are Void Ab Initio
Issue
Whether the Revenue department can validly initiate or continue recovery proceedings under Section 74 of the CGST Act by issuing a Show Cause Notice and a consequential demand order in the name of an amalgamating company that has legally ceased to exist following an NCLT-approved merger.
Facts
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The petitioner is an amalgamated telecommunications company formed through an NCLT-approved merger of Vodafone Mobile Services Limited (VMSL) and Vodafone India with Idea Cellular.
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The GST authorities were formally intimated about the structural amalgamation and the subsequent corporate transition.
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Post-merger, the Revenue department issued a Show Cause Notice under Section 74 and passed a consequential demand order in the name of VMSL, the pre-merger entity.
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The petitioner challenged the jurisdiction of the Revenue, arguing that proceedings cannot be maintained against a non-existent corporate entity.
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The Revenue department relied on Section 87 of the CGST Act to defend and sustain its action against the dissolved company.
Decision
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Held, that amalgamating corporate entities legally dissolve and cease to exist in the eyes of the law upon the formal approval of a merger scheme by the NCLT.
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Held, that the statutory provisions of Section 87 apply strictly to the intervening period up to the date of the merger approval and envisage the cancellation of old registrations thereafter.
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Held, that Section 87 does not permit the Revenue to initiate fresh tax proceedings or continue old ones in the name of a non-existent entity after the merger is finalized.
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Held, that the Revenue’s reliance on Section 87 to validate its action against a dissolved company is legally unsustainable and must be rejected.
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Held, that the impugned Show Cause Notice and all consequential demand orders are entirely void ab initio and without jurisdiction.
Key Takeaways
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Corporate Death Extinguishes Action: A company that has been dissolved by operation of law under an NCLT amalgamation scheme cannot be sued or penalized. Any tax notice sent to a dead corporate entity is fundamentally invalid.
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Limited Scope of Section 87: Section 87 is a transitional provision meant to secure tax liabilities accrued prior to a merger order; it cannot be used as a tool to bypass corporate law principles to issue post-merger demands to non-existent entities.
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Jurisdictional Fatality: Serving a statutory notice to the correct, surviving legal entity is a non-negotiable jurisdictional requirement. A failure to identify the live legal person invalidates the entire assessment process.