GST compliance of companies under Insolvency and Bankruptcy Code, 2016 (IBC)

As per the Insolvency and Bankruptcy Code, 2016 (IBC), as soon as a Company/LLP fails to make a payment above Rs 1 lakh, the financial/operating creditors can initiate the Corporate Insolvency Resolution Process (CIRP). The limit has been recently raised to Rs 1 crore, due to the COVID-19 pandemic.

Those company and LLP whose gone in Insolvency and bankruptcy can be termed as defaulting “corporate debtors”. Accordingly, the right of Management of such company/LLP transfer to the Interim Resolution Professional (IRP) or Resolution Professional (RP). From the date of Appointment of IRP/RP all responsibility and Liability of such company/LLP delegate to IRP/RP.

In the same manner responsibility and Liability of GST compliance (GST returns, make payment of tax and meet all other compliance as per the GST law) delegate to IRP/RP during the CIRP period. The IRP/RP must follow a prescribed procedure for compliance. Further, he must take a new registration under the GST Act within 30 days of the appointment of the IRP/RP.

The CBIC issued a CGST notification no. 11/2020 on 21rd March 2020 for the procedure. Also, a CGST circular no. 134/04/2020-GST clarified some frequently asked questions.

Procedure for GST compliance of companies under insolvency and Bankruptcy code 2016 (IBC).

Registration

♦ Such company/LLP shall, with effect from the date of appointment of IRP/RP be treated as a distinct person of corporate debtors, and shall be Liable to take a new registration in each states or union territories where the corporate debtor was registered earlier, within 30 days from the date of appointment of IRP/RP.

Provided that in cases where the IRP/RP has been appointed prior to the date of this notification, he shall take registration within thirty days from the commencement of this notification, with effect from date of his appointment as IRP/RP.

Returns

♦ such company/LLP shall, after obtaining registration file the first return under section 40 of CGST Act, from the date on which he becomes liable to registration till the date on which registration has been granted.

Section 40 of CGST “Every registered person who has made outward supplies in the period between the date on which he became liable to registration till the date on which registration has been granted shall declare the same in the first return furnished by him after grant of registration”.

Input tax credit

♦ Such company/LLP 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 his appointment as IRP/RP but bearing the GSTIN of the such company/llp prior to CIRP period, subject to the conditions of Chapter V of the CGST Act and the rules 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, 2017.

♦ Registered persons who are receiving supplies from the said class of persons shall, for the period from the date of appointment of IRP / RP till the date of registration as required in notification no. 11/2020 or thirty days from the date of notification no. 11/2020, whichever is earlier, be eligible to avail input tax credit on invoices issued using the GSTIN of the such company/llp prior to CIRP period, subject to the conditions of Chapter V of the CGST Act and the rules made thereunder, except the provisions of sub-rule (4) of rule 36 of the CGST rules.

Section 16(4)A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier”.

Rule 36(4) “It stipulates a cap of 10% provisional ITC. Even a registered person receiving goods from such companies can claim ITC on invoices bearing the earlier GSTIN in compliance with the conditions specified under Chapter V of the GST Act”.

Applying for Refund of Amount deposited in cash Ledger

♦ Any amount deposited in the cash ledger of the earlier GSTIN by the IRP/RP is available for a refund from the date of appointment of IRP till the date of notification specifying a special procedure for corporate debtors undergoing insolvency. Such refund is available even if GSTR-3B/GSTR-1 returns are not filed for the said period.

FAQs on the Special Procedure for Corporate Debtors Undergoing CIRP

Q.1 How are dues under GST for pre-CIRP period be dealt?

Any GST dues in respect of the period prior to commencement to CIRP period 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.

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.

Q.2 Should the GST registration of corporate debtor be cancelled?

An entity undergoing CIRP is required to obtain a new registration. However, it is not required to cancel the previous registration. If required, the proper officer may suspend the registration.

Q.3 Is IRP/RP liable to file returns of pre-CIRP period?

An IRP/RP is only liable to returns after commencement the CIRP period. Thus, they are not liable to file returns of pre-CIRP period.

Q.4 Should a new registration be taken by the corporate debtor during the CIRP period?

The corporate debtor who is in CIRP period 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.

Q.5 How to avail ITC of invoices issued to the erstwhile registered person in case IRP/RP has been appointed before issuance of the notification?

Such company/llp are required to file their first return as per Section 40 of CGST Act. They can claim ITC on such supplies subject to the conditions specified under Chapter V of the CGST Act and rules made thereunder.

Q.6 How to avail ITC for invoices by persons who are availing supplies from the corporate debtors undergoing CIRP, in cases where the IRP/RP was appointed before the issuance of the notification No. 11/2020 – Central Tax, dated 21.03.2020?

A registered person receiving supplies from such corporate debtors is eligible to claim ITC on invoices bearing GSTIN of pre-CIRP as per the conditions specified under Chapter V of the CGST Act. They can claim for the period from the date of appointment of IRP/RP till the date of a new registration or within 30 days of issuance of the notification, whichever is earlier.

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Name: Kapil
Qualification: Student - CA/CS/CMA
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Location: Narnaul, Haryana, IN
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