Introduction: Circular No. 1 (2022)/2024 issued by the Government of Tamil Nadu, Commercial Taxes Department, provides crucial clarifications regarding the treatment of statutory dues under the Goods and Services Tax (GST) law concerning taxpayers for whom proceedings have been finalized under the Insolvency and Bankruptcy Code (IBC), 2016. This article explores the implications and modalities outlined in the circular for the benefit of taxpayers and tax authorities.
Detailed Analysis:
1. Background and Legal Framework: The circular refers to Circular No. 187/19/2022-GST issued by the Ministry of Finance, Government of India, providing a basis for the clarifications. It highlights that no coercive action can be taken against corporate debtors for dues prior to the commencement of Corporate Insolvency Resolution Process (CIRP). Such dues are categorized as ‘operational debt’ and must be addressed through the appropriate legal channels.
2. Clarifications and Representations: The circular addresses representations received from trade and tax authorities seeking clarity on the implementation of adjudicating authority orders under the IBC concerning demand for recovery against corporate debtors. It emphasizes the treatment of statutory dues under the Tamil Nadu Goods and Services Tax Act, 2017 (TNGST Act), and existing laws after the finalization of proceedings under the IBC.
3. Interpretation of TNGST Act: The circular refers to Section 84 of the TNGST Act, which deals with the continuation and validation of recovery proceedings. It explains that if government dues are reduced as a result of any appeal or proceedings, an intimation of such reduction must be given, and recovery proceedings can be continued for the reduced amount.
4. Application to IBC Proceedings: The circular interprets the term ‘other proceedings’ in Section 84 to include proceedings conducted under the IBC. As the adjudicating authorities under the IBC also adjudicate government dues pending under the TNGST Act, these proceedings fall under the purview of ‘other proceedings.’
5. Implementation Modalities: Rule 161 of the Tamil Nadu Goods and Services Tax Rules, 2017 prescribes FORM GST DRC-25 for issuing intimation of reduction of demand under Section 84. The circular mandates the issuance of such intimation in cases where proceedings under the IBC result in a reduction of statutory dues payable by corporate debtors.
Conclusion: The circular provides essential clarity on the treatment of GST dues for taxpayers whose proceedings have been finalized under the IBC. By aligning with the legal framework and interpreting relevant provisions, it ensures uniformity in implementation across field formations. Tax authorities are instructed to issue intimation of reduction of demand in cases where IBC proceedings result in a reduction of statutory dues, thereby facilitating compliance and procedural adherence.
In conclusion, the circular serves as a guiding document for taxpayers, tax authorities, and adjudicating bodies, fostering transparency and consistency in addressing GST dues in the context of insolvency proceedings. It underscores the importance of legal interpretation and procedural adherence in ensuring effective governance and compliance within the taxation framework.
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GOVERNMENT OF TAMIL NADU
COMMERCIAL TAXES DEPARTMENT
OFFICE OF THE COMMISSIONER OF COMMERCIAL TAXES
EZHILAGAM, CHENNAI- 600 005
PRESENT: Dr. D. JAGANNATHAN, I.A.S ,
COMMISSIONER OF STATE TAX
Circular No. 1 (2022)/2024 — TNGST
(PP6/GST/145/2022)
Date:24.04.2024
Sub: Clarification regarding the treatment of statutory dues under GST law in respect of the taxpayers for whom the proceedings have been finalised under Insolvency and Bankruptcy Code, 2016- reg.
Ref: Circular No. 187/19/2022-GST, dated 27.12.2022 issued by Ministry of Finance, Department of Revenue, Government of India, Central Board of Indirect Taxes and Customs, New Delhi.
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In the reference cited, the CBIC, Department of Revenue, Ministry of Finance, Government of India, New Delhi, has issued Circular No. 187/19/2022-GST, dated 27.12.2022 on the recommendations of the GST Council. Hence, following pari materia circular is issued:-
Attention is invited to Circular No.5/2020-TNGST dated 23rd May, 2020, wherein it was clarified that no coercive action can be taken against the corporate debtor with respect to the dues of the period prior to the commencement of Corporate Insolvency Resolution Process (CIRP). Such dues will be treated as ‘operational debt’ and the claims may be filed by the proper officer before the NCLT in accordance with the provisions of the IBC.
2. Representations have been received from the trade as well as tax authorities, seeking clarification regarding the modalities for implementation of the order of the adjudicating authority under Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the “IBC”) with respect to demand for recovery against such corporate debtor under Tamil Nadu Goods and Services Tax Act, 2017 (hereinafter referred to as “TNGST Act”) as well under the existing laws and the treatment of such statutory dues under TNGST Act and existing laws, after finalization of the proceedings under IBC.
3. In order to ensure uniformity in the implementation of the provisions of the law across the field formations, the Commissioner, in exercise of powers conferred under section 168 of the TNGST Act, hereby clarifies as follows.
4.1 Section 84 of TNGST Act reads as follows:
“Section 84 – Continuation and validation of certain recovery proceedings.-
Where any notice of demand in respect of any tax, penalty, interest or any other amount payable under this Act, (hereafter in this section referred to as “Government dues”), is served upon any taxable person or any other person and any appeal or revision application is filed or any other proceedings is initiated in respect of such Government dues, then-
(b) where such Government dues are reduced in such appeal, revision or in other proceedings-
(i) it shall not be necessary for the Commissioner to serve upon the taxable person a fresh notice of demand;
(ii) the Commissioner shall give intimation of such reduction to him and to the appropriate authority with whom recovery proceedings is pending;
(iii) any recovery proceedings initiated on the basis of the demand served upon him prior to the disposal of such appeal, revision or other proceedings may be continued in relation to the amount so reduced from the stage at which such proceedings stood immediately before such disposal.”
4.2 As per Section 84 of TNGST Act, if the government dues against any person under TNGST Act are reduced as a result of any appeal, revision or other proceedings in respect of such government dues, then an intimation for such reduction of government dues has to be given by the Commissioner to such person and to the appropriate authority with whom the recovery proceedings are pending. Further, recovery proceedings can be continued in relation to such reduced amount of government dues.
4.3 The word ‘other proceedings’ is not defined in TNGST Act. It is to be mentioned that the adjudicating authorities and appellate authorities under IBC are quasi-judicial authorities constituted to deal with civil disputes pertaining to insolvency and bankruptcy. For instance, under IBC, NCLT serves as an adjudicating authority for insolvency proceedings which are initiated on application from any stakeholder of the entity like the firm, creditors, debtors, employees etc. and passes an order approving the resolution plan. As the proceedings conducted under IBC also adjudicate the government dues pending under the TNGST Act or under existing laws against the corporate debtor, the same appear to be covered under the term ‘other proceedings’ in Section 84 of TNGST Act.
5. Rule 161 of Tamil Nadu Goods and Services Tax Rules, 2017 prescribes FORM GST DRC-25 for issuing intimation for such reduction of demand specified under section 84 of TNGST Act. Accordingly, in cases where a confirmed demand for recovery has been issued by the tax authorities for which a summary has been issued in FORM GST DRC-07/DRC 07A against the corporate debtor, and where the proceedings have been finalised against the corporate debtor under IBC reducing the amount of statutory dues payable by the corporate debtor to the government under TNGST Act or under existing laws, the jurisdictional Commissioner shall issue an intimation in FORM GST DRC-25 reducing such demand, to the taxable person or any other person as well as the appropriate authority with whom recovery proceedings are pending.
Sd/- D. Jagannathan
Commissioner of State Tax
To
1. All the Joint Commissioners (Territorial) and (LTU)
2. All the Head of Assessment Circles in the State
Copy to
1. All the Additional Commissioners, including Service Tax cell in the Office of the CCT, Chennai-5.
2. All the Joint Commissioners (Intelligence) in the State
3. Director/Additional Commissioner, Commercial Taxes Staff Training Institute, Chennai -35.
4. Appellate Joint Commissioner (GST) Chennai.
5 All the Deputy Commissioners (Territorial and Intelligence) in the State
6. All the Appellate Deputy Commissioner (GST) in the State.
7. The Joint Commissioner (CS), Chennai 35, to upload the same in the Internet website.
8. Stock file/ Spare.
//Forwarded by Order//
