Delhi HC: GST Demands Prior to Insolvency Resolution Stand Extinguished After Plan Approval

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In a significant judgment impacting insolvency proceedings and tax administration under the GST regime, the Delhi High Court has held that GST-related demands pertaining to the period prior to the approval of a resolution plan under the Insolvency and Bankruptcy Code (IBC) cannot be enforced once the plan has been duly approved by the Adjudicating Authority. This judgment reiterates the legal principle that all dues, including statutory liabilities owed to government departments, get extinguished after a resolution plan attains finality and becomes binding on stakeholders.

The ruling brings much-needed clarity for resolution applicants and distressed companies facing pre-resolution indirect tax liabilities. The Court emphasized that once a resolution plan is approved under Section 31 of the IBC, it becomes binding on the Central Government, State Governments, GST authorities, creditors, stakeholders and the corporate debtor itself. Therefore, any attempt to raise or enforce pre-resolution GST dues would violate the intent of the IBC and undermine the revival mechanism envisaged under the law.

Background of the Case

The matter reached the Delhi High Court after GST authorities attempted to recover outstanding dues from periods preceding the company’s insolvency resolution. Despite the resolution plan being approved and implemented, the authorities continued to demand pending GST payments, treating them as enforceable liabilities.

The corporate debtor contended that all outstanding dues—including tax liabilities—stood settled and extinguished upon approval of the plan, and therefore, no fresh recovery demand could be initiated. The petitioners argued that such post-approval tax recovery attempts were contrary to the IBC framework, which provides a clean slate to companies undergoing resolution.

The Court examined the facts, reviewed the approved resolution plan, and analysed the legal position laid down by the Supreme Court and other High Courts in similar matters.

What the Delhi High Court Held

The Court categorically ruled that:

• Once a resolution plan is approved under Section 31 of the IBC, pre-resolution GST dues become non-recoverable.

• GST authorities cannot reopen settled liabilities, nor issue fresh demand notices for periods covered under the resolution plan.

• Recovery actions after plan approval would defeat the purpose of corporate revival and rehabilitation under the IBC.

The Court observed that the IBC is a complete code designed to balance the interests of all stakeholders while ensuring revival of viable businesses. Therefore, tax departments must respect the finality of the resolution process.

Legal Reasoning & Key References

The Court emphasised the following points in its order:

1️⃣ Section 31 of the IBC:
Once approved, a resolution plan is binding on the Central & State Governments, GST Departments, and Local Authorities.

2️⃣ Supreme Court Judgments:
The Delhi HC relied on landmark rulings such as:

• Ghanashyam Mishra and Sons v. Edelweiss ARC

• Committee of Creditors of Essar Steel v. Satish Gupta

Both judgments reaffirm that statutory dues prior to the resolution must be treated as operational debt and stand extinguished once the resolution plan is implemented.

3️⃣ Clean Slate Theory:
Corporate debtors emerge from the resolution process with a fresh slate, enabling revival without past liabilities dragging them down.

4️⃣ IBC vs. GST Hierarchy:
IBC prevails over indirect tax laws in case of conflict because it is a special law dealing with insolvency restructuring.

Impact of the Judgment

The order brings relief to:

▪ Resolution Applicants

They can take over distressed companies without fear of unknown past tax liabilities resurfacing.

▪ Insolvency Professionals

The ruling supports smoother implementation of rehabilitation plans.

▪ Corporate Debtors

Companies emerging from insolvency will not face additional burdens or litigation.

▪ GST Authorities

The judgment guides them to avoid issuing recovery orders contrary to approved resolution plans.

The ruling strengthens the objective of the IBC—to revive businesses rather than liquidate them—and prevents tax departments from making claims that threaten the viability of resolved companies.

Why This Judgment Matters

For businesses in India undergoing insolvency:

• It ensures greater certainty and confidence for bidders and investors.

• It protects companies from repetitive tax demands.

• It reduces litigation risks involving government departments.

• It reinforces the supremacy of IBC over conflicting tax demands.

The Delhi HC’s interpretation promotes stability and predictability in restructuring transactions.

Conclusion

The Delhi High Court’s ruling is a major step in harmonizing India’s tax and insolvency framework. By holding that GST demands arising from pre-resolution periods stand extinguished after resolution plan approval, the Court has reaffirmed the foundation of the IBC system—finality, certainty, and revival of distressed enterprises.

This judgment will significantly reduce tax litigation, promote investor confidence, and ensure that companies emerging from insolvency can operate without the cloud of past tax liabilities. Going forward, it will act as an important precedent for similar disputes involving tax dues and approved resolution plans across India.