Analysis of special GST procedure for Corporate Debtors under IBC and pending issues therein

[Suresh Goyal]

Analysis of special GST procedure for Corporate Debtors under IBC and pending issues therein

As per provisions of Insolvency and Bankruptcy Code, 2016, an IRP/RP is required to ensure the compliance of GST related provisions of deposit of GST dues and filing of GST returns pertaining to corporate insolvency resolution process (CIRP) and in respect of GST dues in arrears pertaining to pre-CIRP period, if any, GST authorities are required to submit the claim as an operational creditors. However, practically,  the GST portal does not allow to deposit the GST dues and filing of current period pertaining to CIRP period in case there are GST dues pending relating to pre-CIRP period without deposit of GST liability pertaining to earlier period first. Thus, there was no such mechanism under GST law where the IRP/RP could deposit the tax and file the GST returns pertaining to CIRP period without deposit of GST dues of earlier period which was creating an anomaly between provisions of IBC and GST law.

In view of this problem, in the 39^th GST Council meeting held on 14^th March 2020 under the Chairmanship of Union Finance & Corporate Affairs Minister Smt. Nirmala Sitharaman had recommended for a special procedure for registered persons who are corporate debtors under the provisions of the Insolvency and Bankruptcy Code, 2016 and are undergoing the corporate insolvency resolution process, so as to enable them to comply with the provisions of GST Laws during the CIRP period.

Accordingly, NOTIFICATION No. 11/2020–Central Tax dated 21^st March 2020 has been issued by Ministry of Finance vide which in exercise of the powers conferred by section 148 of the Central Goods and Services Tax Act, 2017 (12 of 2017) (hereinafter referred to as the said Act), the Government, on the recommendations of the Council, hereby notifies 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 interim resolution professionals (IRP) or resolution professionals (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, as mentioned in this notification.

Particulars	Procedure defined as per said Notification
Registration	In case appointment of IRP/RP for Corporate debtor is done after this notification i.e. 21st March 2020 The IRP/RP shall be liable to take a new registration (hereinafter referred to as the 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 In case appointment of IRP/RP for Corporate debtor is done prior to this notification i.e. 21st March 2020 The IRP/ RP shall take registration within thirty days from the commencement of this notification, with effect from date of his appointment as IRP/RP
Filing of GST returns	After obtaining registration, the IRP/ RP shall file the first return under section 40 of the said Act, from the date on which he becomes liable to registration till the date on which registration has been granted
Input Tax Credit	ITC eligibility to corporate debtor under new GSTIN While filing the first GST return, 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 will be eligible, subject to the conditions of Chapter V (Input Tax Credit) 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 (condition of input tax credit mismatch of more than 10% not uploaded on GST portal) of the Central Goods and Service Tax Rules, 2017 ITC credit eligibility to GST supply recipients from Corporate debtor Registered persons who are receiving supplies from the corporate debtor, 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.
Refund of amount deposited in cash ledger of erstwhile GSTIN of corporate debtor	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.

Though the special procedure for new GSTIN introduced vide said notification dated 21^st March 2020 is a welcome relief for IRP/RPs from the current scenario where it was very difficult to ensure the compliance of GST laws during CIRP period in most of the cases due to huge pending GST liability of pre-CIRP period and non-filing of GST returns, still few issues are pending for which clarification is required as practical difficulties will be faced by IRP/RP to implement this special procedure as discussed below :

Mandatory new GST registration in all cases

As per said notification, it seems that new GST registration has been made compulsory in respect of all CDs under CIRP process irrespective of the fact that if CD is already fully compliant of GST laws and there is no pendency of GST dues or filing of returns.  In the absence of any option or exemption, it would be very challenging to comply with provisions of this notification. In our opinion, an option should have been given to IRP/RP whether to opt special procedure or not after considering the facts of each CD.

Whether applicable for CDs under liquidation

This special procedure has been laid for corporate debtors which are under CIRP under IBC 2016. The notification is silent about CDs already under liquidation process as per IBC 2016 at the time of issue of this notification. Further, there is no clarity if CIRP fails and the CD goes into liquidation proceedings under IBC 2016, whether the new GSTIN under special procedure will continue or erstwhile GSTIN would be used during liquidation. Therefore, clarification required in this regard.

No clarity about continuity of GSTIN after resolution during CIRP

The notification is silent about the scenario where the CIRP is resolved by way of Resolution plan under IBC 2016 as going concern, then whether new GSTIN under special procedure or erstwhile GSTIN will be used for operations of the said concern.

Any cash deposit lying in cash ledger of erstwhile GSTIN prior to CIRP initiation

The notification deals with the scenario of cash deposit of GST into existing GSTIN of corporate debtor during CIRP period by IRP/RP and allows for refund of the same. However, it does not consider the scenario of unutilized cash lying in Cash ledger of existing GSTIN prior to CIRP period.

Status of Unutilized Input tax credit lying in Electronic Credit ledger of Existing GSTIN of Corporate Debtor

Practically, it has been observed  in some instances where unutilized input tax credit is lying in Electronic credit ledger of existing GSTIN of corporate ledger pertaining to pre-CIRP period which can be utilized for payment of GST liability arising during CIRP period or liquidation period. However, with new notification making it mandatory to take new GSTIN during CIRP period, there is no mention about utilization of this ITC lying in erstwhile GSTIN of corporate debtor whether the same will be allowed to be transferred to new GSTIN or not. It will also create a problem for valuation of Securities or Financial Assets of the corporate debtor as to how to assign the fair value or liquidation value to unutilized ITC lying under erstwhile GSTIN of corporate debtor in the absence of clarification in this regard.

Practical problems in taking new GSTIN registration

In case, where the corporate debtor is having business in multiple states/ UTs, it would be difficult for IRP to take new GSTIN on behalf of the corporate debtor within 30 days given the fact that initially proper co-operation is not extended by most of the promoters to IRP and even the documents required to obtain new GST registration are not readily available with IRP.

Status of input tax credit of invoices issued by vendors with erstwhile GSTIN of corporate debtor even after taking new GSTIN

Though the relief has already been given in respect of input tax credit of invoices issued with erstwhile GSTIN during CIRP period up to date of taking new GST registration, for which credit can be filed in first GST return to be filed under new GST registration. However, in the instances of Corporate debtors of large size running as going concern, it is very difficult to intimate and ensure that all the invoices raised by vendors bear new GSTIN of corporate debtor and most of the vendors will be issuing erstwhile GSTIN even after intimation resulting into mismatch of input tax credit and will impact the cash flows of the concern due to disallowance of input credit in such cases.  

Summing up:

Summarizing, though the procedure for new GSTIN during CIRP period is a welcome relief, however, few unanswered  issues as discussed above need to be answered at the earliest to ensure proper compliance of GST laws and make sure that there is no anomaly between GST laws and IBC.

Disclaimer:

Every effort has been made to avoid errors or omissions in this material. In spite of this, errors may creep in. Any mistake, error or discrepancy noted may be brought to our notice which shall be taken care of in the next edition. It is notified that neither the publisher nor the author or seller will be responsible for any damage or loss of action to any one, of any kind, in any manner, there from. It is suggested that to avoid any doubt, the reader should cross-check all the facts, law and contents of the publication with original Government publication or notifications. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Authors:

CA Suresh Goyal, B.Com, FCA, LL.B, FAFD, DISA, Insolvency Professional, Registered Valuer -Securities or Financial Assets    Email id   [email protected]

CA Sandeep Jain, B.Com, FCA, LL.B, MBM, FAFD, DIRM, FICA, Insolvency Professional, Registered Valuer -Securities or Financial Assets    Email id    [email protected]

Discussions to this article

[KUNAL JAIN]

Hello Sir,

Just want to know, practically how can a IRP/RP take the new registration. As there is no specific form available for this on the portal. Also, if we do registration through normal taxpayer, then we can not give details of directors as there is no directors during the CIRP proceeding.

Thanks in advance.