Issues under GST for Companies under IBC, 2016

Clarification In Respect of Issues Under GST Law For Companies Under Insolvency And Bankruptcy Code, 2016 (IBC 2016)

OVERVIEW 

Insolvency and Bankruptcy Code, 2016 (IBC) is an evolving legislation, still being interpreted by courts in order to harmonize IBC with our related legal policy.

The Hon’ble Supreme Court in the matter of State Bank Of India vs V. Ramakrishnan held that the protection under IBC from coercive measures of recovery during moratorium period inures only to the Corporate Debtor, and not to the assets of the guarantors.

As per IBC, once an entity defaults certain threshold amount, Corporate Insolvency Resolution Process (hereafter referred to as “CIRP”) gets triggered and the management of such entity and its assets vest with an interim resolution professional (hereafter referred to as “IRP”) or Resolution Professional (hereafter referred to as “RP”). It continues to run the business and operations of the said entity as a going concern till the insolvency proceeding is over and an order is passed by the National Company Law Tribunal (hereinafter referred to as the “NCLT”) approving the resolution plan.

IRP/RP vested with an array of statutory and legal duties and powers as per the provisions of the IBC.

He/She exercises the powers of the Board of Directors of the corporate debtor undergoing resolution and manage operations as a going concern, protects the value of its property and complies with applicable laws on its behalf.

Since, there is a mortarium under the IBC, therefore, the companies under CIRP do not have to pay past taxes, including GST. The GST software doesn’t allow companies to pay current or future taxes without clearing dues from earlier years.

In this regard, various representations were made by the trade and industry seeking clarification on issues being faced by entities covered under Insolvency and Bankruptcy Code, 2016.

Section 148 of the Central Goods and Services Tax Act, 2017 

Section 148 of the CGST Act, 2017 provides that the Government may, on the recommendation of the Council and subject to such conditions and safeguards as may be prescribed, notify certain classes of registered persons, and the special procedure to be followed by such persons including those with regard to registration, furnishing of returns, payment of tax and administration of such persons.

NOTIFICATION NO. 11/2020 – CENTRAL TAX DATED MARCH 21, 2020

The Central Government on the  recommendations of the Council has notified those registered persons (hereinafter referred to as the erstwhile registered person), who are corporate debtors under the provisions of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), undergoing the corporate insolvency resolution process and the management of whose affairs are being undertaken by IRP or RP, as the class of persons who shall follow the special procedure, from the date of the appointment of the IRP/RP till the period they undergo the corporate insolvency resolution process. The said Notification inter-alia provides that-

(i) the said class of persons shall, with effect from the date of appointment of IRP / RP, be treated as a distinct person of the corporate debtor;

(ii) they shall be liable to take a new registration in each of the States or Union territories where the corporate debtor was registered earlier, within thirty days of the appointment of the IRP/RP;

(iii) 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;

(iii) To file the first return under Section 40 of the CGST Act, 2017 from the date on which he becomes liable to registration till the date on which registration has been granted;

(iv) 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 his appointment as IRP/RP but bearing the GSTIN of the erstwhile registered person, subject to the prescribed conditions of Chapter V of the CGST Act, 2017 and the rules made thereunder, except the provisions of sub-section (4) of section 16 of the said Act and sub-rule (4) of rule 36 of the Central Goods and Service Tax Rules, 2017;

(v) 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 this notification or thirty days from the date of this notification, whichever is earlier, be eligible to avail input tax credit on invoices issued using the GSTIN of the erstwhile registered person;

(vi) 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 registration in terms of this notification shall be available for refund to the erstwhile registration.

CIRCULAR NO. 134/04/2020-GST DATED MARCH 23, 2020

In order to ensure uniformity in the implementation of the provisions of the law across the field formations, the Board, in exercise of its powers conferred under section 168(1) of the CGST Act, 2017 hereby clarifies various issues in the table below:-

Sumit Wadhva | Founder and Managing Partner |  Abott Law Office |E-mail: sumit@abott.in