GST Filing Defaults Don’t Create Operational Debt, NCLT Mumbai Declares
Introduction
The National Company Law Tribunal, Mumbai, has held that denial of Input Tax Credit (ITC) arising from a corporate debtor’s failure to file GST returns does not constitute an operational debt under the Insolvency and Bankruptcy Code. The Tribunal rejected Instakart Services Pvt. Ltd. ‘s claim in the liquidation of TopsGroup Services and Solutions Ltd., holding that once the GST Department has filed its claim, no separate or parallel claim can be entertained by an operational creditor.
Factual background
Instakart had availed security and guarding services from the corporate debtor under a long-standing contractual arrangement. It alleged that between July 2017 and August 2019, the corporate debtor failed to file or incorrectly filed its GSTR-1 returns, resulting in denial of over ₹80 lakh of ITC. Instakart argued that this tax loss was a direct consequence of the debtor’s statutory default.
Procedural background
After the corporate debtor entered liquidation, the GST Department lodged its statutory claim of ₹17.69 crore, which was admitted. Instakart submitted its own claim late by 11 days, asserting that it learned of the liquidation belatedly. The liquidator rejected the claim as delayed, incomplete, and duplicative. Instakart appealed the rejection before the NCLT.
Issues for determination
Whether loss of ITC arising from the debtor’s non-filing of returns can be treated as operational debt under Section 5(21) of the IBC; whether Instakart could raise such a claim when the GST Department had already filed its own claim; and whether the liquidator acted correctly in rejecting the delayed and unsupported claim.
Contentions of the parties
Instakart submitted that the GST default resulted in a quantifiable financial loss and therefore should qualify as operational debt. It argued that its delay was minimal and justified, and that the liquidator had ignored repeated follow-ups. The liquidator contended that GST obligations are statutory in nature and any defaults are enforceable exclusively by the tax authorities. It also emphasized that the GST Department had already filed its claim, and that Instakart’s filing was late, incomplete, and unsupported by required documents. The liquidator also pointed out Instakart’s email acknowledgment of ₹41 lakh dues payable to the debtor.
Reasoning and analysis
The coram of Judicial Member Mohan Prasad Tiwari and Technical Member Charanjeet Singh Gulati held that the loss of ITC does not arise from the provision of goods or services and therefore does not qualify as operational debt. Instead, it is a statutory consequence arising under GST law, and only the GST Department is empowered to enforce such obligations. Since the GST Department had already lodged its claim in the liquidation, Instakart could not file a separate claim for the same liability. The NCLT observed that the statutory duty to file correct GST returns lies entirely on the supplier, and any default must be addressed under GST mechanisms, not through the IBC. The Tribunal also agreed with the liquidator’s rejection of the late and incomplete claim, noting that stakeholders’ lists had already been finalized and Instakart failed to furnish the mandatory documents. Instakart’s own acknowledgment of dues further undermined its credibility. The Tribunal concluded that tax disputes cannot be transformed into operational debts to gain priority in insolvency.
Implications
The decision clarifies that GST-related grievances—such as loss of ITC due to incorrect return filing—fall solely within the GST framework and cannot be pursued as operational debts in insolvency. This prevents misuse of IBC proceedings for recovery of tax-related losses and upholds the primacy of statutory authorities in tax matters. The ruling also strengthens procedural discipline in liquidation by reinforcing that delayed, unsupported, or duplicative claims cannot be entertained, and that liquidators must adhere to statutory timelines. Overall, the judgment helps maintain the integrity of the insolvency process and prevents tax disputes from interfering with liquidation priorities.
Decision
The NCLT Mumbai dismissed Instakart’s appeal, maintaining that loss of ITC does not constitute operational debt and that such claims cannot be entertained once the GST Department has filed its statutory demand. The Tribunal upheld the liquidator’s approach as legally correct and clarified that remedies for GST defaults must be pursued exclusively under GST law. as legally sound and procedurally correct.
In this case the appellant was represented Mr. Aditya Mehta and Mr. Vrigil Breganza, Advocates. Meanwhile the respondent was represented by Mr. Prakash Shinde and Ms. Niyati Merchant, Advocates.