REGISTRATION OF FRESH GST NUMBER OF THE CORPORATE DEBTOR

[Mr. M. GOVINDARAJAN]

Corporate Insolvency Resolution Process

The Insolvency and Bankruptcy Code, 2016 (‘Code’ for short) provides the procedure for initiation of corporate insolvency resolution process against the corporate debtor who failed to pay the debts to the financial creditor/operational creditors.  The corporate applicant may itself proceed the said process.  The object of the Code is for the revival of the business of the corporate debtor.  It is not a recovery mechanism.  The process is managed to completed within180 days or within the further extended time.  Running the corporate debtor as a going concern is the main objective of the Code.

GST registration

According to Section 22 of the Central Goods and Services Tax Act, 2017 every supplier shall be liable to be registered under this Act in the State or Union territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees. 

On taking over the management of the corporate debtor by the Resolution Professional the Board and management of the corporate debtor will be suspended and vests in the hands of Resolution Professional.  If the corporate debtor is proposed to run as a going concern the business of the corporate debtor will be continued and GST is applicable if the aggregate turnover exceeds the threshold limit as prescribed in Section 22 of the Act. 

Distinct person

Vide Notification No. 11/2020-Central Tax, dated 21.03.2020 the Central Government, on the recommendations of GST Council notified that those registered persons (hereinafter referred to as the erstwhile registered person), who are corporate debtors under the provisions of the Code, undergoing the corporate insolvency resolution process and the management of whose affairs are being undertaken by interim resolution professionals or resolution professionals, as the class of persons who shall follow the  special procedure as notified in the said notification, from the date of the appointment of the IRP/RP till the period they undergo the corporate insolvency resolution process.

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, and shall be liable to take a new registration in each of the States or Union territories where the corporate debtor was registered earlier, within 30 days of the appointment of the IRP/RP or by 30th June, 2020, whichever is late.

Clarifications

A doubt has arisen whether the Resolution Professional may carry the business on the GST registration held by the corporate debtor or he has to obtain a new registration since the Board and the Management is suspended on the admission of the application of corporate insolvency resolution process.

The Central Board of Indirect Taxes and Customs came out with a circular clarifying the above issues.  In the said circular the Board clarified two issues as detailed below-

• Should the GST registration of corporate debtor be cancelled?

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.

• Should a new registration be taken by the corporate debtor during the CIRP period?

The corporate debtor who is undergoing CIRP is to be treated as a distinct person of the corporate debtor and shall be liable to take a new registration in each State or Union territory where the corporate debtor was registered earlier, within thirty days of the appointment of the IRP/RP. Further, in cases where the IRP/RP has been appointed prior to the issuance of notification No.11/2020- Central Tax, dated 21.03.2020, he shall take registration within thirty days of issuance of the said notification, with effect from date of his appointment as IRP/RP

Case law

In SAPAN MOHAN GARG, RP FOR SORT INDIA ENVIRO SOLUTION LTD. VERSUS COMMERCIAL TAX OFFICER GHATAK 40 (VADODRA) , RANGE-10 [2021 (5) TMI 409 - NATIONAL COMPANY LAW TRIBUNAL , AHMEDABAD BENCH] the present application was filed by the Resolution Professional of Sort India Enviro Eolution Limited against which the corporate insolvency resolution process was initiated. 

The said corporate insolvency resolution process was initiated under section 7 of the Code.  The said application was admitted on 23.09.2020.  Shri Manish D. Shah was appointed as Interim Resolution Professional.  The Insolvency Resolution Professional made a public announcement inviting claims from the creditors/stakeholders of the corporate debtor.  The Insolvency Resolution Professional collated the claims and constituted a Committee of Creditor.  On 27.11.2020 the Committee of Creditors replaced the Interim Resolution Professional and appointed the applicant viz., Sapan Mohan Garg, as the Resolution Professional to conduct and complete the corporate insolvency resolution process. 

The VAT claims and GST claims have been filed by the respective department to the tune of ₹ 9,30,34,480/- and ₹ 1,05,76,000/- respectively.  The applicant intended to run the corporate debtor as a going concern.  He made an arrangement with ‘Go Clean Solution Private Limited’ to run the factory and generate revenues.  The entire cost, as incurred towards such production will be borne by Go Clean, with no liability being incurred upon the Corporate Debtor/Applicant.

The GST registration of the corporate debtor was suo moto cancelled by the Department.  Since there were transactions involving cash and the same required to levy GST.   The Applicant made registration applications on two occasions i.e. 20.01.2021 and 12.02.2021, however both the registration applications have been arbitrarily rejected by the Respondent Department on the ground that since the GST registration of the Corporate Debtor was earlier cancelled by the Respondent Department suo-moto, there was no occasion to apply for or grant a fresh registration.

The applicant filed the present application against the order of the Department rejecting the registration on the applications made by the applicant.  The applicant contended that-

• The final product, as produced by Go Clean is to be sold by the Corporate Debtor at a fix margin of 40 paisa per kilogram.
• The amounts so received are to be credited in the Corporate Debtor's bank account, which shall then be disbursed to Go Clean, after retaining the margin of 40 paisa per kilogram plus applicable GST.
•  While keeping the Corporate Debtor as a going concern, there is substantial cash flow and hence the GST is applicable to the transactions carried on by the Corporate Debtor.
• The applicant made applications for registration under GST Act twice with the Department both the registration applications have been arbitrarily rejected by the Respondent Department.
• The reason for non grant of registration is the GST registration of the Corporate Debtor was earlier cancelled by the Respondent Department suo-moto, there was no occasion to apply for or grant a fresh registration.
• While rejecting the application of the Applicant, the Respondent failed to take into account the Circular No. 134/04/2020-GST dated 23.03.2020, whereby the Ministry of Finance, Government of India, issued clarification to all the GST Departments/officials in respect of issues under GST law for companies under CIRP under the aegis of IBC.

The Adjudicating Authority observed that the applicant Resolution Professional is managing to run the business operation of the Corporate Debtor as a going concern as per Section 25(1) of the Code, which is the intent of the IB Code, so as to, keep the Corporate Debtor as going concern.   For this purpose the applicant    has applied for registration of the GST of the Corporate Debtor, the GST Department supposed to register the same, instead of rejecting on a very flimsy ground ignoring the circular so issued by the Ministry of Finance on 23.03.2020.   the circular issued by the Ministry of Finance, puts forth, that a suo-moto cancellation of GST registration on an earlier occasion by the GST department cannot be a ground to reject a fresh registration application by Company/Corporate Debtor undergoing corporate insolvency resolution process  under the  Code.  The said circular dated 23.03.2020 is very clear on the issue that the Corporate Debtor who is undergoing CIRP is to be treated as distinct person of the Corporate Debtor and shall be liable to take a new registration in each State or Union Territory, where the Corporate Debtor was registered earlier.  The Adjudicating Authority further observed that Section 238 of the IB Code, clearly provide that, it will override the provision of other laws. Under such circumstances, the instant application is allowed by the Adjudicating Authority.