Intro Paragraph:
This blog explains what the ruling means for operational creditors, GST departments, and insolvency professionals.
What Is Section 9 of IBC?
Section 9 of the Insolvency and Bankruptcy Code, 2016 allows an operational creditor to initiate insolvency proceedings against a debtor company if dues remain unpaid after a demand notice.
Key features:
- Applies to unpaid operational debts (like taxes, utilities, supply of goods/services)
- Requires proof of default and delivery of demand notice
- Adjudicated by the National Company Law Tribunal (NCLT)
Allegation of Fake GST Invoices: What Happened in This Case?
In this case before NCLT Allahabad, the operational creditor filed a Section 9 application. However, the corporate debtor raised a defence: the invoices submitted were fake or bogus, and GST authorities were investigating.
To counter this, the operational creditor tried to implead (add) the GST department as a party, arguing that the input tax credit was denied based on GST investigations, not due to fault on their part.
NCLT’s Key Observations
Here’s what the NCLT held:
| Point | Observation |
|---|---|
| Legal scope | Section 9 is limited to adjudicating operational debt defaults between two parties. |
| Role of GST Dept | GST authorities are not party to the contract or transaction between creditor and debtor. |
| On impleadment | Merely alleging bogus invoices doesn’t justify impleading GST authorities. |
| Proper remedy | If invoices are disputed, civil suit or GST proceedings are the appropriate forums. |
Why This Matters
This ruling is significant for multiple reasons:
- GST disputes can’t derail IBC timelines
Creditors cannot delay proceedings by dragging tax departments into insolvency claims. - Clear separation of jurisdiction
- Operational creditors must verify invoices
Before filing Section 9 applications, ensure that the GST input credit trail is clean and not under scrutiny.
Legal References Used
- IBC, Section 9 – Application for initiation of CIRP by operational creditor
- NCLT Allahabad Bench Order – 2025 (exact case title redacted for privacy)
Expert View from Efiletax
“This judgment reiterates the principle that IBC is not a platform for resolving tax disputes. Creditors must conduct due diligence before initiating insolvency, especially when invoices involve ITC claims. Impleading statutory authorities without contractual privity weakens the case.”
— Efiletax Legal Panel
Practical Takeaways for Businesses
- Validate GST invoices before relying on them for recovery actions
- Maintain communication trail to show delivery and acceptance of services
- Don’t misuse IBC as a tool for pressure where tax-related issues are still open
- Use GST appellate forums for input tax credit denials
Can GST Disputes Impact IBC?
While indirect tax dues are operational debts, any pending litigation, fake invoice claim, or denial of ITC may weaken the creditor’s position unless backed by uncontested evidence.
FAQs
Q1. Can a taxpayer implead GST officer in IBC proceedings?
No. Unless there is direct privity of contract, tax authorities cannot be added as respondents in IBC cases.
Q2. What happens if GST ITC is denied in a Section 9 case?
It weakens the claim unless alternate proof of supply or liability is submitted. NCLT may reject the petition.
Q3. Are tax dues considered operational debt?
Yes. But only the defaulting entity (not the tax department) is answerable under IBC.
Summary
NCLT Allahabad ruled that GST officers cannot be added to IBC proceedings under Section 9 simply because invoices are alleged to be bogus. The ruling reinforces jurisdictional limits between IBC and GST law.
Internal Link Suggestion:
Want to understand how GST affects insolvency proceedings? Read our guide on GST claims under IBC
External Source:
Read the IBC Code on MCA
Closing CTA:
Stay ahead with Efiletax – your trusted partner for GST compliance, dispute resolution, and legal updates. Need help with Section 9 filings or GST litigation?