Clarification in respect of issues under GST Law for companies under Insolvency and Bankruptcy code, 2016 (IBC, 2016)

As per IBC, once an entity defaults of payment to creditors, CIRP gets triggered and management of such entity removed by the NCLT. NCLT appointed IRP or RP and all management power assigned to the IRP and RP. IRP and RP run the business and operations of the said entity as a going concern till the insolvency proceeding is over and an order passed by NCLT.

As per IBC, 2016, after the commencement of corporate insolvency resolution, a moratorium period is declared during which all suits and legal proceedings etc. against the company are held in abeyance to give time to the entity to resolve its status. RP or IRP is not liable to complete the compliance pertains to before the insolvency period. However, he needs to comply with all compliances pertains to the insolvency period.

In GST, if previous returns not filed by the company then co. is not allowed to file next period return i.e. if co. defaults before the insolvency period in GST then it needs to comply with previous compliances before complying with compliances related to the insolvency period. So, in some cases, RP or IRP does not allow to comply with previous default then they are not able to comply with the compliances pertains to the insolvency period.

For clarification, various representations received by the department from the trade and industry on issues being faced by entities covered under IBC, 2016 and department issued a circular no. 134/04/2020- GST dated: 23rd March 2020 and Notification no. 11/2020-Central tax dated: 21st March 2020.

Clarification on GST issued by CBIC where issues pertains to pre-CIRP period:

Issues Clarification
1. How are dues under GST for pre-CIRP period be dealt? In accordance with the provisions of the IBC and various legal pronouncements on the issue, no coercive action can be taken against the corporate debtor with respect to the dues for period prior to insolvency commencement date. The dues of the period prior to the commencement of CIRP will be treated as ‘operational debt’ and claims may be filed by the proper officer before the NCLT in accordance with the provisions of the IBC. The tax officers shall seek the details of supplies made / received and total tax dues pending from the corporate debtor to file the claim before the NCLT.

Moreover, section 14 of the IBC mandates the imposition of a moratorium period, wherein the institution of suits or continuation of pending suits or proceedings against the corporate debtor is prohibited.

2. Should the GST registration of corporate debtor be cancelled? It is clarified that the GST registration of an entity for which CIRP has been initiated should not be cancelled under the provisions of section 29 of the CGST Act, 2017. The proper officer may, if need be, suspend the registration. In case the registration of an entity undergoing CIRP has already been cancelled and it is within the period of revocation of cancellation of registration, it is advised that such cancellation may be revoked by taking appropriate steps in this regard.
3. Is IRP/RP liable to file returns of pre-CIRP period? No. In accordance with the provisions of IBC, 2016, the IRP/RP is under obligation to comply with all legal requirements for period after the Insolvency Commencement Date. Accordingly, it is clarified that IRP/RP are not under an obligation to file returns of pre-CIRP period.

Clarification on GST issued by CBIC where issues pertains to CIRP period:

Issues Clarification
1.  Should a new registration be taken by the corporate debtor during the CIRP period? The corporate debtor who is undergoing CIRP is to be treated as a distinct person of the corporate debtor and shall be liable to take a new registration in each State or Union territory where the corporate debtor was registered earlier, within thirty days of the appointment of the IRP/RP. Further, in cases where the IRP/RP has been appointed prior to the issuance of notification No.11/2020- Central Tax, dated 21.03.2020, he shall take registration within thirty days of issuance of the said notification, with effect from date of his appointment as IRP/RP.
2. How to file First Return after obtaining new registration? The IRP/RP will be liable to furnish returns, make payment of tax and comply with all the provisions of the GST law during CIRP period. The IRP/RP is required to ensure that the first return is filed under section 40 of the CGST Act, for the period beginning the date on which it became liable to take registration till the date on which registration has been granted.
3. How to avail ITC for invoices issued to the erstwhile registered person in case the IRP/RP has been appointed before issuance of notification No.11/2020- Central Tax, dated 21.03.2020 and no return has been filed by the IRP during the CIRP ? The special procedure issued under section 148 of the CGST Act has provided the manner of availment of ITC while furnishing the first return under section 40.

The said class of persons shall, in his first return, be eligible to avail input tax credit on invoices covering the supplies of goods or services or both, received since appointment as IRP/RP and during the CIRP period but bearing the GSTIN of the erstwhile registered person, subject to the conditions of Chapter V of the CGST Act and rule made thereunder, except the provisions of sub-section (4) of section 16 of the CGST Act and sub-rule (4) of rule 36 of the CGST Rules. In terms of the special procedure under section 148 of the CGST Act issued vide notification No.11/2020- Central Tax, dated 21.03.2020. This exception is made only for the first return filed under section 40 of the CGST Act.

4.  Some of the IRP/RPs have made deposit in the cash ledger of erstwhile registration of the corporate debtor. How to claim refund for amount deposited in the cash ledger by the IRP/RP? Any amount deposited in the cash ledger by the IRP/RP, in the existing registration, from the date of appointment of IRP / RP to the date of notification specifying the special procedure for corporate debtors undergoing CIRP, shall be available for refund to the erstwhile registration under the head refund of cash ledger, even though the relevant FORM GSTR-3B/GSTR-1 are not filed for the said period.

CA Shubham Kumar | Chartered Accountant | GST Salahkar

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