CA Akanksha Bohra Anchaliya

Notification No. 11/2020- Central tax dated 21st March 2020 has been issued prescribing the procedure of registration, filing of return, availing of input tax credit and further clarification has also been issued vide circular no. 134/04/2020-GST dated 23rd March 2020 on the same for registered taxpayers covered under Insolvency and Bankruptcy Code, 2016 (IBC). Government by exercising powers under section 148 of CGST Act 2017, has notified registered persons who are corporate debtors under the provisions of IBC as class of persons who shall follow this special procedure.

The Insolvency and Bankruptcy Code 2016 (IBC) was introduced to promote the ease of doing business in India, to address the issue of liquidity in cases relating to insolvency/bankruptcy in India. It consolidates all existing insolvency-related laws like the Sick Industrial Companies, Special Provisions Act 1985, and many more. The IBC also specifies that it will override any other legislation in cases of conflict as per Section 238 of IBC.

Prior to issuance of this notification and clarification many decisions were passed by the National Company Law tribunal for such registered persons. In many cases, NCLT directed revenue authorities upon not insisting for non-payment of past dues. They directed for the payment of dues after the commencement of Corporate Insolvency resolution process (CIRP). But there arose a problem of technical glitch as portal doesn’t allow filing of return   of next tax period unless the return of previous ones are filed. NCLT in such cases also directed to manually file returns during CIRP period. But this was not an end to the problem. If the returns were filed manually then after the completion of process how would the liability and credit be offset online. A few citations of the cases are being produced below for your reference:

1. Videocon Industries limited [MA-4048/2019 In CP No. 02/I&BC/NCLT/MB/MAH/2018]

2. Kiran Global Chem Limited [MA/1298/2019 in IBA/130/2019]

3. Synergies Dooray Automotive Ltd. [(2018) 1 CLJ 108]

4. Leo Edibles & Fats Ltd. [(2018) 407 ITR 369]

Now on the demand of trade and industry, the aforementioned notification has been issued. But yet the dust doesn’t seem to settle. As per the notification and circular a new registration is required to be taken by the corporate debtor with effect from the date of appointment of Interim Resolution Professionals within 30 days from such appointment. He shall as well be required to file first return as per Section 40 of CGST Act 2017. Further clarification had also been given with respect to availing of credit, cancellation of old GST registration and what is to be done if cash is deposited in old registration by IRP prior to issuing this notification and circular. In this article we shall discuss the practical problems to be faced while availing input tax credit either by corporate debtor or the registered person receiving goods or services or both and cancellation of registration.

Coming to the point of availing of input tax credit, which has always been a thing to ponder upon. Excerpt from the notification id produced below

“Input tax credit.-(1)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 conditions of Chapter V of the said Act 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 (hereinafter referred to as the said rules).

(2)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, subject to the conditions of Chapter V of  the said Act and the rules  made thereunder, except the provisions of sub-rule (4) of rule 36 of the said rules.

(5) 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

The highlighted portion indicates that credit can be taken by the corporate debtor even though the invoices contains the erstwhile GSTIN of such debtor, subject to provisions of Chapter V except the provisions of section 16(4) and Rule 36(4). Does this mean that the corporate debtor is eligible to take input tax credit even after the due date of furnishing of the return under Section 39 for the month of September following the end of financial year.

Further whether the limit of availing input tax credit up to 10% of that reflected in GSTR-2A shall not be applicable to returns filed by corporate debtor. Will this not curb the aim of introduction of limit in order to avail input tax credit and avoiding fraudulent invoices.

Moreover, similar restriction of Chapter V has also been put on availing input tax credit by the registered persons who have been receiving goods or services or both from corporate debtors. But in this case only the provisions of rule 36(4) shall not apply relating to availing credit up to a cap of 10% of the matched credit which is being reflected in Form GSTR-2A. This indicates that the receiver of goods or services can take 100% of the credit of invoices received from corporate debtors whether or not it reflects in GSTR-2A. Will the registered person receiving goods or services from corporate debtor keep a track of the suppliers and keep differentiating that which is the GSTN of corporate debtor so that he can claim the credit without any limit as prescribed in Rule 36(4)?

Clarification issued on 23rd March 2020 states that there may not be need for cancellation of erstwhile registration. Excerpt from this circular is being provided below

“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.”

The moot question that arises is here is what shall happen to the unutilized credit, if any left in credit ledger of erstwhile registration. Can this be transferred to new registration? Or is refund, to be applied in of the same. If the credit is to be transferred, then under what provisions as Section 18 of CGST act 2017 does not attract this situation. Moreover, what shall be the position of old registration if returns are not filed for 6 months and the registration gets cancelled. Who shall be liable to pay tax dues, if any which are pending in the erstwhile registration and the proceedings under CIRP gets completed as IRP are not responsible for the earlier claims due.

Hope government clarifies on these unsettled issues quickly.

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April 2021