Bombay HC Quashes Tax Recovery Action Against Company That Ceased to Exist 8 Years Before the Demand Notice

Bombay High Court: While considering a challenge to assessment orders, recovery proceedings and attachment notices issued under the Maharashtra Value Added Tax Act, 2002 (MVAT Act) and the Central Sales Tax Act, 1956 (CST Act), the Division Bench of Suman Shyam and Advait M. Sethna, JJ., held that tax proceedings against non-existent amalgamated company are without jurisdiction and liable to be set aside.

Also Read: SC explains taxability of share substitution in amalgamation

Background

The petitioner company was registered as a dealer under the MVAT Act and the CST Act. The petitioner stated that as per the Court’s order dated 11 May 2012, a transferor company amalgamated with the petitioner. Consequently, the transferor company ceased to exist with effect from 18 May 2012.

The present petition was filed by the petitioner assailing the following:

1. assessment orders dated 20 March 2020 issued under Section 9(2), CST Act and Section 23, MVAT Act;

2. show-cause notice dated 26 March 2025 issued by Respondent 4; and

3. the 2 attachment notices dated 13 March 2025 issued under Section 33(1), MVAT Act.

The respondents stated that the initial demand notices under MVAT Act and CST Act were issued to the transferor company, which had already amalgamated with the petitioner and had ceased to exist. However, it was submitted that the respondents must be left at liberty to pursue action in accordance with law for recovery of any unpaid tax dues along with the interest and penalty from the petitioner, if the same is otherwise legally permissible.

Also Read: Patna HC imposes cost of Rs 5000 on GST Assessing Officer for imposing tax ‘coercively’ in absence of Appellate Tribunal

Issue

Whether any proceeding for recovery of outstanding tax dues, including issuance of the demand notices under MVAT and CST Act to a non-existent entity, i.e. the transferor company, pursuant to its amalgamation, would be sustainable in law.

Analysis and Decision

The Court recorded that both parties were ad idem that the issue stood covered by Kanakia Spaces Realty (P) Ltd. v. Union of India¹. The Court noted that the initial demand notices dated 20 March 2020 formed the basis on which the respondents initiated further proceedings for the recovery of outstanding tax dues of a non-existent entity culminating in the issuance of the impugned show-cause notice or the attachment notices, which were assailed in the petition.

The Court relied on Kanakia Spaces Realty (P) Ltd. and held that any notice demanding outstanding tax amount from a non-existent entity would be wholly without jurisdiction.

Accordingly, the Court set aside the impugned show-cause notice, the assessment orders and the attachment notices, to the extent of recovery proceedings against the non-existent transferor company of its outstanding tax dues. The Court clarified that the petitioner was granted the relief because the demand notices issued to a non-existent company are non est in the eye of the law. The Court highlighted that it was not expressing any opinion on the merits of the parties’ respective claims and counterclaims, and that this order would not prevent the respondents from initiating any proceeding for recovery of any unpaid tax dues, along with interest and penalty.

[Akzo Nobel India Ltd. v. State of Maharashtra, Writ Petition No. 4885 of 2025, decided on 6-7-2026]

Advocates who appeared in this case:

For the Petitioner: Kartik Vig, Advocate.

For the Respondents: Shruti D. Vyas, Addl. GP a/w A.R. Deolekar, AGP.