GST for Companies under CIRP as per IBC, 2016

Bhawna Dang

06 Jun, 2024

As per the Insolvency and Bankruptcy Code, when a default is made up to the threshold amount and application for the Insolvency is filed with the National Company Law Tribunal, the Corporate Insolvency resolution process begins (“CIRP”) and management and asset of the company vests with Interim Resolution Professional (“IRP”) or Resolution Professional (“RP”). The IRP or RP continues to run the business of the company till the time the procedure for Insolvency proceeding is not completed. This article simplifies the compliance relating to GST for companies under CIRP.

Under the CIRP, all the lawsuits and proceedings are kept under the moratorium period, and it is held in abeyance to give time to the entity to resolve the status. However, the compliances need to be made by IRP or RP till the insolvency proceeding is over, and an order is passed by NCLT.

Laws under GST

Under the GST laws, if the company has not filed previous returns, then the company is not allowed to submit the next period return, i.e., if the company has defaults before the insolvency period in GST, then it needs to comply with previous compliances before complying with returns related to the insolvency period. So, in some cases, RP or IRP does not allow to adhere to the default earlier, then they are not able to abide by the compliances pertains to the insolvency period.

To resolve the practical problems being faced by such company, the particular procedure under section 148 of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the “CGST Act”) for the corporate debtors who are undergoing corporate Insolvency resolution process (CIRP) under the provisions of IBC and the management of the corporate debtor are being undertaken by IRP/RP.

Dues in GST for Companies under CIRP

As per the provisions of IBC and other legal pronouncements, no action can be taken against the corporate debtor concerning pre-dues. It shall be treated as an operational debt and can be claimed by a proper officer in default.

However, the tax officer can take the details of supplies/made received and total tax dues pending from the corporate debtor to file the claim before the NCLT. But as per Section 14 of the IBC, the moratorium period is imposed for filing of the suit and continuation of the pending litigation or proceedings.

Can the Corporate Debtor Cancel GST Registration?

GST registration for such a company cannot be cancelled. However, the same can be suspended by the proper officer. However, if the registration for GST of an entity undergoing CIRP has already been cancelled or if it is under the period of revocation of cancel, then such cancellation may be revoked by taking appropriate steps. The IRP/RP is not liable to file the GST returns of the pre-CIRP period. They are only bound to file the return for the period after the Insolvency Commencement Date.

GST for companies under IBC During the CIRP period

New Registration by The Corporate Debtor During the CIRP Period

During the CIRP Period, the corporate debtor shall be considered as a different entity and shall be labile to take new registration with each state or union territory in which corporate debtor was earlier registered.

Registration shall be taken within thirty days of the appointment of IPR/RP.

First Return After Obtaining New Registration Under CIRP Period

TheIRP/RP Shall be liable to furnish a return, make a payment, and comply with the provision of the GST Act.

The first returns shall be filed under Section 40 of the CGST Act from the period it becomes liable to take registration till the date for which the registration has been granted.

ITC WhenInvoices issued when IRP/RP appointed before Notification and no return filed

Section 148 of the CGST Act provides the particular procedure of availing ITC while furnishing the first return under section 40.

Only the said class of persons shall, in their first return, be eligible to avail input tax credit (ITC) on the supplies of goods or services or both, received since appointment as IRP/RP and during the CIRP period but GSTIN bearing is of the erstwhile registered person who is also subject to the conditions of Chapter V of the CGST Act and rule made thereunder, except the provisions of sub-section (4) of Section 16 of the CGST Act and sub-rule (4) of Rule 36 of the CGST Rules.

In terms of the particular procedure under section 148 of the CGST Act, issued vide notification No.11/2020-Central Tax, dated 21.03.2020, this exception is made only for the first return filed under Section 40of the CGST Act.

ITC For Invoices by Persons Who Availed Supplies from Corporate Debtors Undergoing CIRP When IRP/RP Appointed before Notification

Persons who are registered and receiving supplies from the said class of persons shall pay for the period from the date of appointment of IRP / RP till the date of registration as required in this notification or 30 days from the date of this notification, whichever is earlier, shall 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 CGST Act and rule made thereunder, except for the provisions of sub-rule (4) of Rule 36 of the CGST Rules.

A claim of Refund of Amount Deposited in the Cash Ledger of before Registration of the Corporate Debtor by IRP/RP

The amount deposited by the IRP/RP in the cash ledger in the existing registration of the period starting from the date of appointment of IRP / RP till the date of notification in which the particular procedure for corporate debtors undergoing CIRP, shall be available for refund to the erstwhile registration under the head refund of cash ledger, even though the relevant FORM GSTR-3B/GSTR-1 is not filed for the said period. The instructions which were contained in Circular No. 125/44/2019-GST dated 18.11.2019standsmodified to this extent.

Conclusion

GST Compliances for the company under IBC are different from the normal company, the Department of Revenue has issued the notification No.11/2020- Central Tax, dated 21.03.2020 prescribing special procedure under section 148 of the Central Goods and Services Tax Act, 2017. The clarification with respect to the practical problems being faced by the Company under IBC vide CircularNo.134/04/2020-GST dated March 23, 2020, has been issued by the department.