Invalidity of Notices and Orders Issued in the Name of the 'Amalgamation Company
The Hon’ble Delhi High Court, in its recent judgment in HCL Infosystems Ltd. v. Commissioner of State Tax & Anr., W.P.(C) 7391/2024, reiterated the legal principle established in International Hospital Limited v. DCIT Circle 12, 2024 SCC OnLine Del 6730. Both cases dealt with the validity of Show Cause Notices (SCNs) and orders under the Central Goods and Services Tax Act, 2017 (CGST Act) issued to an “Amalgamating Company” after the date of its amalgamation. The court held that such notices and orders are void ab initio since the amalgamating company ceases to exist post-amalgamation.
Background
In the present case, a Scheme of Arrangement/Amalgamation was approved by the National Company Law Tribunal (NCLT) on August 10, 2022, between Digilife Distribution and Marketing Services Limited (the “Amalgamating Company”) and HCL Infosystems Limited (the “Amalgamated Company”). Subsequently, the Registrar of Companies was informed, and the Amalgamating Company applied for cancellation of its GST registration, citing the transfer of business due to amalgamation. It also filed Form GST ITC-02 with a Chartered Accountant’s certificate, seeking the transfer of Input Tax Credit (ITC) to the amalgamated company.
Despite this, the Department of Trade and Taxes, Delhi, issued SCNs for FY 2017-18 and FY 2018-19 in the name of the amalgamating company. While these notices were contested and represented by the amalgamated company, the department passed an order confirming the demand for FY 2018-19, which was challenged by the amalgamated company.
The core issue was whether SCNs and orders issued in the name of an amalgamating company, post-amalgamation, were valid or void ab initio.
Findings
The petitioner (amalgamated company) relied on precedents, including:
In these cases, the courts held that assessments or notices issued in the name of a transferor company post-amalgamation are void ab initio. They emphasized that such defects cannot be cured under Section 292B of the Income Tax Act, and similar principles apply under Section 160 of the CGST Act.
The respondent department relied on Principal Commissioner of Income Tax (Central)-2 v. Mahagun Realtors (P) Ltd., 2022 SCC OnLine SC 407, where the Hon’ble Supreme Court took a different view, stating that assessments may not necessarily be void ab initio.
Decision
The Hon’ble Delhi High Court, relying on International Hospital Limited, quashed the SCN and order issued by the Department of Trade and Taxes. The court ruled that Section 160 of the CGST Act, which parallels Section 292B of the Income Tax Act, does not apply in this case as the error is not procedural but fundamental. The court also rejected the department’s reliance on Section 87 of the CGST Act, which deals with preserving and identifying transactions between amalgamating and amalgamated entities, holding that it did not validate SCNs issued to a non-existent entity.
Conclusion
The judgment reaffirms that notices or orders issued in the name of an amalgamating company post-amalgamation are legally unsustainable, emphasizing the need for procedural accuracy and adherence to statutory provisions in such cases.