27-Mar-2020 Special Procedure For Corporate Debtors Under GST

 The Backdrop

Resolution Professionals (‘RPs’) under IBC are faced with the task of carrying on the business of the Corporate Debtor (‘CD’) as going concern. However as per the provisions of GST, returns cannot be filed and taxes cannot be paid unless all pending dues have been cleared. As a result, the RPs were not able to pay taxes under GST for the Corporate Insolvency Resolution Process (‘CIRP’) period since the pre-CIRP dues were already pending.

To overcome this hurdle, the NCLT in the matter of Kiran Global Chem Limited ruled that since the pre-CIRP dues have to be recovered as an ‘operational debt’ from the CD, the GST department was wrong in not allowing the CD to not file returns and pay taxes for the CIRP period. It also took cognizance of Section 238 of the IBC, 2016 which categorically mentions that IBC will have over riding effects over all other laws in case of contravention.

Consequently the government has come out with a special procedure for CDs under IBC so as to enable them to comply with the provisions of the law.

Whom does it apply to?

The special procedure prescribed vide Notification 11/2020 (CT) will apply only to the following class of ‘Registered’ persons under GST:

·         Corporate Debtors under IBC,2016 undergoing CIRP and the management of whose affairs are being undertaken by Interim Resolution Professional(‘IRP’) or Resolution Professional (‘RP’)

It is important to note here that the notification will apply only in case the aforesaid class of persons are already registered under GST (‘Erstwhile registered persons’). In case they are not already registered, no obligation is being put on them to get registered in consequence of this notification.

(For ease of reading, the said class of persons are termed as ‘CD’ in the subsequent text) 

Registration

As per the special procedure, the registration requirement can be classified as follows:

·         Cases where IRP/RP have been appointed before 21 March,2020:

A fresh registration has to be taken in each state where the CD was already registered. Such registration should be taken within 30 days of issue of the notification (i.e. By 20 April,2020)- (subject to extension that may be provided  due to Covid-19 crisis)

·         Cases where IRP/RP have been appointed after 21 March, 2020:

A fresh registration will have to be taken in each state where the CD is already registered. Such registration should be taken within 30 days of appointment of IRP/RP

Return

First return

·         Once a fresh registration has been obtained, the CD shall file the ‘first return’ reflecting supplies from the date on which he becomes liable to registration to the date of grant of registration

·         It should be noted that the ‘first return’ will be the same as the normal return and no separate return has been notified for the same

·         Further, since the first return will be the same as normal return, the time limit for filing the ‘first return’ will be the same as the time limit for normal returns

Normal returns

·         The CD shall be required to file all other returns as required under the provisions of GST Law and no benefit or modifications have been extended in such case

Input Tax Credit (‘ITC’)

For ‘First return’

·         ITC pertaining to the supplies since the appointment of IRP/RP would be allowed to be taken in the first return filed by the CD

·         The ITC would be allowed to be availed even if the invoices mention the GSTIN of the erstwhile registered person

·         Provisions of Chapter V of the CGST Act would still apply in these cases

·         Relaxation has been granted from Section 16(4) of the CGST Act which hereby means that there will be no time limit applicable for availment of ITC in case of first return

·         Relaxation from Rule 36(4) has also been granted as a result of which there will be no restriction on the amount of ITC that can be availed even if the same have not been uploaded by the supplier or even if there is mismatch in ITC exceeding 10% of such ITC.

For subsequent returns

·         All the provisions of ITC are applicable for all subsequent returns

·         Provisions of Chapter V of the CGST Act would continue to apply in these cases

·         No relaxation from Section 16(4): Time limit for availment of ITC will apply as a result of which ITC will have to be availed before the due date of return for September of next financial year or the date of filing of Annual return for that financial year, whichever is earlier

·         No relaxation from Rule 34(4): The amount of ITC availed cannot exceed 10% of the amount of ITC related to which invoices have been uploaded by the suppliers.

ITC for Recipients

·         In case of supplies made by CD between the period from:

Start date - Date of appointment of RP

End date   - Earlier of:

Date of registration of CD under the special procedure

                                                       Or

                       End of thirty days from 21 March,2020 (i.e. 20 April,2020) 

the recipients of such supplies will be eligible to avail such credit even if the same have not been uploaded by the CD on the GST common portal. Therefore, the provisions of Rule 36(4) will not apply to the recipients in this case.

Refund of Electronic Cash Ledger

·      The notification further allows the erstwhile registered person to claim refund of the amount deposited under Electronic Cash Ledger by the said person

·       The notification has not provided any clarity on whether the amount would be the total amount deposited or only the unutilized amount standing in the Electronic Cash Ledger

 

APMH Speaks:

While the notification along with the circular issued lacks clarity on certain issues like the amount of refund or cases where returns have already been filed, the government has taken an important step towards providing some sense of clarity and relief to CDs under IBC in order to enable them to comply with the provisions of the GST Law. 

APMH would be glad to provide the readers any further clarity and assistance in this regard. 

Readers may refer the following notifications and circulars for their reference:

1.       Notification 11/2020 (CT)

http://cbic.gov.in/resources//htdocs-cbec/gst/notfctn-11-central-tax-english-2020.pdf

2.     Circular No. 134/04/2020

http://cbic.gov.in/resources//htdocs-cbec/gst/circular-cgst-134.pdf

Please feel free to write to us on info@apmh.in / jimit@apmh.in for any further queries on the above blog.