Delhi HC examines GST pre-deposit rule for companies under liquidation

The Delhi High Court has sought the Centre’s assistance in examining whether companies undergoing liquidation under the Insolvency and Bankruptcy Code (IBC) can be exempted from the mandatory pre-deposit requirement for filing appeals against GST demands.

The court is examining whether a liquidator should be required to deposit part of a disputed tax demand to pursue an appeal under Section 107(6) of the Central GST Act, when the company’s assets must be distributed among creditors according to the priority rules under Section 53 of the IBC.

The issue has come up in a petition filed by Moser Baer India Ltd, which is undergoing liquidation, through its liquidator, Anil Kohli.

In an order dated October 9, a bench of Justices Anil Kshetarpal and Bharat Pashar sought the assistance of Additional Solicitor General Raghavendra Shankar to examine the interaction between the GST law and the IBC. The matter is listed for October 28.

Moser Baer has challenged a September 23, 2025, order confirming a substantial GST demand, along with a penalty. The company told the court that tax authorities had declined to entertain its statutory appeal unless it made the mandatory pre-deposit. Notices issued in March and April this year warned that the appeal would be treated as not filed if the payment was not made.

The company argued that its assets have been realised during liquidation and the proceeds must be distributed in accordance with the waterfall mechanism under Section 53 of the IBC. Requiring the liquidator to make a pre-deposit from these funds, it said, would divert money towards a disputed claim by a statutory creditor before the tax liability is finally decided in appeal.

Such a requirement could also give the tax authorities preferential treatment over other creditors, contrary to the IBC’s distribution framework, the company contended.

The High Court observed that the petition raises a substantial legal question on the interaction between the GST appellate process and a liquidator’s obligations under the IBC. It said the issue merits consideration because the pre-deposit would involve using liquidation funds even before the disputed tax liability attains finality in appellate proceedings.

The court has not yet ruled on whether companies under liquidation should be exempt from the pre-deposit requirement. The matter will be considered further after the Centre’s legal assistance.

Also See: Information utility record of default is enough to admit insolvency plea, says SC