GST Compliance by Resolution Professionals for Corporate Debtors

[Prasanna KS]

As we all know, every person is liable for registration whose aggregate turnover in Financial Year exceeds Twenty Lakhs rupees and file return. Returns are required to be filed for all the tax periods irrespective of supply is made or not and section 39(10) of CGST Act, 2017, does not allow to file return for subsequent period if any previous period return is not filed.

Due to this restriction imposed in section 39(10) of CGST Act, 2017, resolution professionals were facing the problem to file return for the subsequent period after appointing them under Insolvency and Bankruptcy Code, 2016 (‘IBC’ for short).

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 (Corporate Debtor) 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”)

However due to the condition places under section 39(10) of CGST Act, 2017 RP/IRP were not able to file return if such registered person has defaulted in filing returns. To address the aforementioned problems, notification No.11/2020- Central Tax, dated 21.03.2020 has been issued by the Government prescribing special procedure for the corporate debtors who are undergoing CIRP under the provisions of IBC and the management of whose affairs are being undertaken by IRP/RP

Key Definitions of IBC

Section 3(7) and 3(8)

As per Section 3(8) of the Code "corporate debtor" means a corporate person who owes a debt to any person. Corporate person as defined in section 3(7), is a company as defined in clause (20) of section 2 of the Companies Act, 2013 (18 of 2013), a limited liability partnership, as defined in clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009), or any other person incorporated with limited liability under any law for the time being in force but shall not include any financial service provider;

Section 3(19)

Section 3(19) of the Code defines the expression ‘insolvency professional’ as a person enrolled under section 206 with an insolvency professional agency as its member and registered with the Board as an insolvency professional under section 207

Section 5(27)

Section 5(27) of the Code defines the expression ‘resolution professional’ as  an insolvency professional appointed to conduct the corporate insolvency resolution process and includes an interim resolution professional.

Procedures to be followed by RP/IRP

1. Separate Registration: 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 (CIRP) and the management of whose affairs are being undertaken by interim resolution professionals (IRP) or resolution professionals (RP) (defined as ‘class of person’) shall be treated as distinct person of the corporate debtors and shall be liable to take new registration in each state wherever corporate debtor had taken GST registration within thirty days of the appointment of the IRP/RP:

Provided that 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.

2. Return: The IRP/RP will be liable to furnish returns, make payment of tax and comply with all the provisions of the GST law during CIRP period. The IRP/RP is required to ensure that the first return is filed under section 40 of the CGST Act, for the period beginning the date on which it became liable to take registration till the date on which registration has been granted

3. Input tax credit: IRP/RP is allowed to take credit of ITC in his first return 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).

All the conditions of Chapter V are to be fulfilled to take credit with two exception. Sub-section (4) of section 16 of The CGST Act, 2017 specifies the time limit to take credit and time limit to take credit is due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or debit note pertains or furnishing of the relevant annual return, whichever is earlier. This condition is not applicable for the invoices received by IRP/RP since his appointment.

Another exception given is for compliance of Rule 36(4) of CGST Rules, 2017. Since the invoices will be bearing the GSTIN of the erstwhile registered person, these invoices will be not be appearing in GSTR 2A of the said class of person.

Likewise 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.

However these exception are not applicable for the returns to be filed for subsequent tax period.

4. Refund

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

Status of Erstwhile Registered Person for Pre-CIRP Period

Status of Registration: It is clarified by the CBIC through its circular no. 134/04/2020-GST that registration of an entity for which CIRP has been initiated should not be cancelled and the proper officer if need be, suspend the registration. If the registration is already cancelled and if it is within the period of revocation of cancellation of registration, it is advised to revoke such cancellation.

Tax Dues: GST Dues if any not paid for the period prior to CIRP shall be dealt as per IBC provisions. It is clarified by the CBIC through its circular no. 134/04/2020-GST that no coercive action can be taken against the corporate debtor with respect to the dues for period prior to insolvency commencement date. The dues of the period prior to the commencement of CIRP will be treated as ‘operational debt’ and claims may be filed by the proper officer before the NCLT in accordance with the provisions of the IBC. The tax officers shall seek the details of supplies made / received and total tax dues pending from the corporate debtor to file the claim before the NCLT.

Return for the period Prior to CIRP Period: RP/IRP are not under any obligation to comply with GST law for the period prior to CIRP.

Other Points to be considered

Registration Procedures: Registration form and procedures are not amended to capture specific information of corporate debtors who are undergoing CIRP under the provisions of IBC however RP/IRP can act as authorised person and apply for registration. One of document required while applying for registration is authorisation letter. Once the RP/IRP is appointed, entire management vests with him and powers of board will be suspended and hence authorisation letter will be not available. It suggested to use the NCLT’s order as authorisation letter and apply for registration.

Final Liability: After the registration, all other provision of the CGST Act, 2017 shall apply to corporate debtors who are undergoing CIRP under the provisions of the IBC subject to two exceptions for first return which are explained in earlier paras.

RP/IRP shall act as authorised person and file the returns for all the tax period during CIRP and CIRP shall be completed within 180 days from the date of admission of the application. GST is applicable on supply and needs to be paid immediately as soon as supply is made irrespective of collection. If the supply is made during CIRP and collection has not happened, RP/IRP will have difficulties to pay taxes and the said notification is not clear on how the tax recovery will be made