GST Search and Seizure during Insolvency proceedings and summons to Resolution Professional, NCLT imposes compensatory cost on GST Department

GST Search and Seizure during CIRP and summons to Resolution Professional

Case Name: K. Easwara Pillai RP Vs. Goods and Services Tax Department
Case Citation: (2023) 393 NCLT
Date: 26-Jul-23
Bench: Shri P. Mohan Raj and Shri Satya Ranjan Prasad, NCLT Kochi Bench

I. Facts of the case

In this case, CIRP was initiated against Corporate Debtor, Mangomeadows Agricultural Pleasure Land Pvt. Ltd., on 25.01.2023 and moratorium under section 14 of IBC 2016 is came into operation/effect.

GST Department after submitted its claim, all of a sudden on 10.03.2023, raided the premises of the Corporate Debtor after issued summon dated 10.03.2023 to Suspended Managing Director of the Corporate Debtor in his presence and obtained his statement. The raid was conducted and seized all the account documents and also sent a summon dated 13.03.2023 to the Resolution Professional to appear for an inquiry.

The Resolution Professional filed an application u/s 60(5) of IBC for direction directing the GST Department to release the assets (documents) which were seized on 10.03.2023 and to initiate proceedings against the GST Department under section 70(2) of IBC, 2016.

II. Submission of the GTS Department and Resolution Professional

In this case GST Department taken shelter that the raid conducted by GST Department on 10.03.2023 is only part of proceeding to determine the tax due and it was not a proceeding to recover the dues.

On the Resolution Professional side prayed in the application to initiate proceeding against GST Department for violation of moratorium order under section 74(2) of IBC, 2016. This section is criminal in nature fall under Chapter VII under the heading Offences and Penalties, hence under section 236(1) of IBC, 2016 special court alone have jurisdiction. Further under section 236 (2) of IBC, 2016 cognizance of the offence can be taken only on the compliant of IBBI or Central Government.

III. Question before the Adjudicating Authority

The NCLT Kochi Bench framed the issue “Whether the search and seizure of records of the corporate debtor and issuance of summons to applicant/resolution professional are violative of mortarium order passed under section 14 of IBC, 2016?”

IV. Decision of the Adjudicating Authority

The Adjudicating Authority held that:

It is made clear GST Department as an “Authority” under the Kerala State Goods and Services Tax Act 2017, initiated proceeding against the corporate debtor during the period of mortarium. This is prohibited under section 14(1)(a) of IBC 2016.

The Karnataka High Court in Associate Décor Ltd. Vs. Deputy Commissioner of Commercial Taxes (2021) 311 HC, after referring Apex court citations held that the notice issued under section 65 the State Goods and Services Tax Act 2017, R/w Rule 101(4) of KGST Rule, informing the discrepancies found in audit and asked the registered person to submit reply, is hit by mortarium order passed under section 14 of IBC 2016 and stayed/kept in abeyance, the proceedings pursuant to the said impugned notice till the lifting of moratorium.

The Government of India, Ministry of Finance, finance Department also issued Circular No. 134/04/2020-GST under section 168(1) CGST Act, Annexure A1 of the petition explaining that no coercive action to be taken in respect of dues of GST pertaining to corporate debtor, under the CIRP. GST Department despite the supra guidance taken the coercive action.

The acts of GST Department undermined the authority of Resolution professional and because of seizure of Books of accounts of the corporate debtor causes much inconvenience and paralyzed the Resolution process, the same shall be completed in time bound manner.

In the circumstances it is concluded that the search and seizure of records of the corporate debtor and issuance summons to applicant/resolution professional are violative of mortarium order passed under section 14 of IBC, 2016.

In view of the above discussion we inclined to concede the prayer of the Resolution Professional and order the GST Department to return all the records seized from the premises of the corporate debtor and set aside the summon dated 13.03.2023 issued by GST Department and also impose a compensatory cost of Rs.50,000/- payable by the respondent to applicant towards CIRP cost, and respondent is granted liberty after paid the compensatory cost, to recover the said amount from the erred official(s).

Read here complete summary and Order of the NCLT.





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