LIQUIDATOR IS LIABLE TO REGISTER UNDER GST LAWS

[Mr. M. GOVINDARAJAN]

Corporate insolvency resolution process

The Insolvency and Bankruptcy Code, 2016 (‘Code’ for short) provides for initiation of corporate insolvency resolution by a financial creditor or by an operational creditor or by the corporate person itself.  On admission of the application the Adjudicating Authority (National Company Law Tribunal) appoints interim resolution professional to take care of corporate insolvency resolution professional.  The tenure of interim resolution professional is short.   He may continue as a resolution professional or he may be replaced by insolvency professional.

The resolution process is undergoing various stages.  The Committee of creditors is taking the active part of the resolution process with the resolution professional who is to call for resolution plan, analyzed them and put up for the approval of the committee of creditors.   He is also to take the orders of Adjudicating Authority now and then as per the requirements of the provisions of the Code.  The duration of the corporate insolvency resolution process is 180 days from the day of its commencement.   If it could not be completed within the said limitation period the Adjudicating Authority may grant only one extension not exceeding 90 days.  At any cost this process will not long lost beyond 330 days.

Appointment of Liquidator under Code

The Adjudicating Authority may pass the liquidation of a company which underwent corporate insolvency resolution process under the following circumstances-

• before the expiry of the insolvency resolution process period or the maximum period permitted for completion of the corporate insolvency resolution process under section12 or the fast track corporate insolvency resolution process under section 56, as the case may be, does not receive a resolution plan under sub-section (6) of section 30;
• rejects the resolution plan under section 31 for the non-compliance of the requirements specified therein;
• where the resolution professional, at any time during the corporate insolvency resolution process but before confirmation of resolution plan, intimates the Adjudicating Authority of the decision of the committee of creditors approved by not less than 66% of the voting share to liquidate the corporate debtor;
• where the resolution plan approved by the Adjudicating Authority is contravened by the concerned corporate debtor, any person other than the corporate debtor, whose interests are prejudicially affected by such contravention.

The resolution professional of corporate insolvency resolution professional may act as the liquidator unless the Adjudicating Authority replaces the said resolution professional.  The Adjudicating Authority may direct the Insolvency and Bankruptcy Board to recommend the name another insolvency professional to act as a liquidator.  The Board shall propose the name of insolvency professional along with his consent to the Adjudicating Authority within 10 days from the receipt of direction from the Adjudicating Authority.  The Adjudicating Authority will appoint such person as liquidator.

On the appointment of a liquidator under this section, all powers of the board of directors, key managerial personnel and the partners of the corporate debtor, as the case may be, shall cease to have effect and shall be vested in the liquidator.  He is the person to complete the liquidation proceedings as per the requirements of the Code.

Liquidators under Companies Act, 2013

Companies Act, 2013 provides for liquidation proceedings through the National Company Law Tribunal.  Section 359 of the Act provides that for the purposes of this Act, so far as it relates to the winding up of companies by the Tribunal, the Central Government may appoint as many Official Liquidators, Joint, Deputy or Assistant Official Liquidators as it may consider necessary to discharge the functions of the Official Liquidator.

The Companies omitted the provisions of voluntary liquidation proceedings since the same is dealt within by the Insolvency and Bankruptcy Code.

Registration under GST laws by a liquidator

The Authority for Advance Ruling, West Bengal in the following case ruled that the liquidator is liable to take registration under GST laws:

In re ‘Mansi Oils and Grains Private Limited’ – 2020 (7) TMI 141 – AAR, West Bengal, the Adjudicating  Authority, Kolkata Bench passed an order on 19/07/2019, declaring the applicant a corporate debtor under the provisions of the Insolvency and Bankruptcy Code, 2016 and appointed a liquidator.  The applicant sought for advance ruling on the following questions-

• whether any sale done by the liquidator of the assets of the applicant results in a supply of goods and/or services or both within the meaning of ‘supply’ as defined under section 7 of the GST Act?
• if the answer is affirmative, then what will be the rate of GST?
• whether the liquidator needs to get registered under the GST Act?

The liquidator submitted the following before the Authority for Advance Ruling-

• The business of the company for which liquidation proceedings has been initiated,  has been closed for ten years.
• It had been registered under the West Bengal Value Added Tax Act, 2003 and provided provisional registration under the GST Act for migration.
• The company in liquidation has not obtained GST registration under GST laws.
• After her appointment as liquidator all powers of directors in decision making are vested in the liquidator under section 34(2) of the Code.
• The plant and machinery, office equipment and furniture of the applicant were auctioned as per regulation laid down under section 32 (c) of the Code  at the price ₹ 2.82 cr.

The Authority for Advance Ruling observed that-

• Sl. No 4 (a) of Schedule II of the GST Act says, where goods forming part of the assets of a business are transferred or disposed of by or under the directions of the person carrying on the business so as no longer to form part of those assets, whether or not for a consideration, such transfer or disposal is a supply of goods by the person.
•  As the applicant, the corporate debtor is not a going concern, the liquidator is required to sell its assets under clauses (a) to (d) of Regulation 32 of the Insolvency and Bankruptcy Board of India (liquidation process) Regulations.
• The sale of the applicant’s assets like the plant and machinery, office equipment & furniture is, therefore, a supply of goods by the liquidator. 
• The liquidator is required to register under GST Laws.

The Authority for Advance Ruling further observed that if the liquidator is already registered as a distinct person of the corporate debtor in terms of Notification No. 11/2020 – Central Tax dated 21/03/2020, the liquidator  should continue to remain registered till her liability ceases under section 29 (1) (c) of the GST Act.  The liquidator acts as the authorized person of the corporate debtor. Once a resolution professional takes registration as the authorized person of the corporate debtor, it remains in effect with suitable amendment in the certificate of registration if the status or person of the authorized person gets changed (refer to Circular No.138/08/2020 – GST dated 06/05/2020).

The Authority for Advance Ruling ruled that-

• The sale of the assets of the applicant by Adjudicating Authority appointed liquidator is a supply of goods by the liquidator, who is required to take registration under section 24 of the GST Act. 
• If the liquidator  is already registered as a distinct person of the corporate debtor in terms of Notification No. 11/2020 – Central Tax dated 21/03/2020, she should continue to remain registered till her liability ceases under section 29 (1) (c) of the GST Act.
• The assets are broad categories classifiable under different HSN and taxable under appropriate Sl.  Nos. of the Schedules under Notification No. 1/2017 – CT (Rate) dated 28/06/2017.