On 23 March 2020 the CBIC issued some clarifications regarding the Goods and Services Tax (GST) compliances needed to be adhered to by the corporate debtors (CD) undergoing Corporate Insolvency Resolution Process (CIRP). Prescribing special procedures under Section 148 of the Central Goods and Services Act, 2017 (CGST Act) for such CDs, the IBBI tried to ensure the uniformity of implementation of complimentary provisions across statutes.
These clarifications on compliances become important because of the interplay between the IBC and the GST regimes. IBC imposes a mandatory calming period called moratorium after any CIRP is initiated. Such a moratorium exists to all existing and continuing legal proceedings against the company, and the effective control of the company passes on the Insolvency Resolution Professional. At the same time, in the GST regime, if previous returns are not filed in a manner prescribed by the government, the defaulter (company) may then not be allowed to file the returns for the next period. Keeping in view that there may be instances where an on-going GST-related proceeding may be halted by the imposition of the moratorium, National Plywood Industries Limited v. Union of India and another, the Commissioner of Central Goods and Service Tax, Dibrugarh (“Plywood case”), these were some welcome clarifications by the IBBI.
They have been accordingly summed up below, the first part relates to a pre-CIRP period, and the second part with respect to the on-going CIRP, in a question and answer format.
Q 1. How are dues under GST for a pre-CIRP period be dealt with?
Ans: The IBBI clarified that no coercive actions can be taken against the CD for the dues of the period prior to the commencement of the CIRP. Such dues would be treated as operational debts, and the claims for them have to be made as per the provisions of the Insolvency and Bankruptcy Code, 2016 (IBC). This is in accordance with the prohibitive nature of the moratorium.
Q 2. Should the GST registration of the CD be cancelled?
Ans: The Clarifications categorically stated GST registration of the CD should not be cancelled. If such cancellation had already occurred prior to the issuance of these Clarifications, and is within the revocation period, the Clarifications state that such cancellation shall be revoked. The registration although may be suspended on the discretion of the proper authority.
Q 3. Is the Resolution Professional (“RP”) liable to file returns for the pre-CIRP period?
Ans: IRP is only liable for compliances after the CIRP is initiated, and is under no obligation to file returns for the pre-CIRP period.
Q 4. Should a new registration be taken by the CP during the CIRP?
Ans: The Clarification states that the CD undergoing CIRP is to be taken as a distinct person, and shall be eligible to take a new registration in each State and Union Territory in the which the CD was registered earlier, but within thirty (30) days of the appointment of the IRP, or within thirty (30) days of the issuance of the Notification 11/2020- Central Tax, dated 21.03.2020 if the IRP is appointed before the issuance of the Notification.
Q 5. How to file First Return after obtaining new registration?
Ans: The IRP shall be liable to furnish the returns and comply with the provisions of the GST law during the CIRP period. The First Return has to be filed as per Section 40 of the CGST Act.
Q 6. How to avail Input Tax Credit (“ITC”) of invoices issued to the erstwhile registered person in case IRP/RP has been appointed before issuance of the notification and no return has been filed by the IRP during the CIRP?
Ans: The procedure for availing ITC while furnishing First Return is provided under Section 148 of the CGST Act. The CD is eligible to avail ITC on invoices of goods and services received since the appointment of IRP and during the CIRP period.
Q 7. 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?
Ans: Persons receiving supplies from the CD shall be eligible to avail ITC for the period beginning form the date of appointment of IRP to the date of registration, or thirty days from the date of the Clarification, whichever is earlier.
Q 8. 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?
Ans: Any such amount deposited in the cash ledger shall be refunded to the erstwhile registration, even if the relevant forms FORM GSTR-3B/GSTR-1 are not filled for the said period.
The Clarifications come as a welcome step from the IBBI. The harmony between different laws which at times come into play simultaneously needs to be maintained, and such prompt steps go a long way towards the goal.