GST Compliances under the IBC: A much needed clarity

On 23 March 2020 the Insolvency and bankruptcy Board of India (“IBBI”) issued some
clarifications (“Clarifications”) regarding the Goods and Services Tax (“GST”) compliances
needed to be adhered to by the corporate debtors (“CD”) undergoing Corporate Insolvency
Resolution Process (“CIRP”). Prescribing special procedures under Section 148 of the
Central Goods and Services Act, 2017 (“CGST Act”) for such CDs, the IBBI tried to ensure
the uniformity of implementation of complimentary provisions across statutes.

These clarifications on compliances become important because of the interplay between the
IBC and the GST regimes. IBC imposes a mandatory calming period called moratorium after
any CIRP is initiated. Such a moratorium exists to all existing and continuing legal
proceedings against the company, and the effective control of the company passes on the
Insolvency Resolution Professional. At the same time, in the GST regime, if previous returns
are not filed in a manner prescribed by the government, the defaulter (company) may then not
be allowed to file the returns for the next period. Keeping in view that there may be instances
where an on-going GST-related proceeding may be halted by the imposition of the
moratorium, National Plywood Industries Limited v. Union of India and another, the
Commissioner of Central Goods and Service Tax, Dibrugarh (“Plywood case”), these were
some welcome clarifications by the IBBI.
They have been accordingly summed up below, the first part relates to a pre-CIRP period,
and the second part with respect to the on-going CIRP, in a question and answer format.

Pre-CIRP Period:

1. How are dues under GST for a pre-CIRP period be dealt with?

The IBBI clarified that no coercive actions can be taken against the CD for the dues of the
period prior to the commencement of the CIRP. Such dues would be treated as operational
debts, and the claims for them have to be made as per the provisions of the Insolvency and
Bankruptcy Code, 2016 (“IBC”). This is in accordance with the prohibitive nature of the
moratorium.

2. Should the GST registration of the CD be cancelled?

The Clarifications categorically stated GST registration of the CD should not be cancelled. If
such cancellation had already occurred prior to the issuance of these Clarifications, and is
within the revocation period, the Clarifications state that such cancellation shall be revoked.
The registration although may be suspended on the discretion of the proper authority.

3. Is the Resolution Professional (“RP”) liable to file returns for the pre-CIRP period?
IRP is only liable for compliances after the CIRP is initiated, and is under no obligation to
file returns for the pre-CIRP period.
During CIRP:

4. Should a new registration be taken by the CP during the CIRP?

The Clarification states that the CD undergoing CIRP is to be taken as a distinct person, and
shall be eligible to take a new registration in each State and Union Territory in the which the
CD was registered earlier, but within thirty (30) days of the appointment of the IRP, or within
thirty (30) days of the issuance of the Notification 11/2020- Central Tax, dated 20.03.2020 if
the IRP is appointed before the issuance of the Notification.

5. How to file First Return after obtaining new registration?

The IRP shall be liable to furnish the returns and comply with the provisions of the GST law
during the CIRP period. The First Return has to be filed as per Section 40 of the CGST Act.

6. How to avail Input Tax Credit (“ITC”) of invoices issued to the erstwhile registered
person in case IRP/RP has been appointed before issuance of the notification and no
return has been filed by the IRP during the CIRP?

The procedure for availing ITC while furnishing First Return is provided under Section 148
of the CGST Act. The CD is eligible to avail ITC on invoices of goods and services received
since the appointment of IRP and during the CIRP period.

7. How to avail ITC for invoices by persons who are availing supplies from the
corporate debtors undergoing CIRP, in cases where the IRP/RP was appointed before
the issuance of the notification No. 11/2020 – Central Tax?

Persons receiving supplies from the CD shall be eligible to avail ITC for the period beginning
form the date of appointment of IRP to the date of registration, or thirty days from the date of
the Clarification, whichever is earlier.

8. Some of the IRP/RPs have made deposit in the cash ledger of erstwhile registration of the corporate
debtor. How to claim refund for amount deposited in the cash ledger by the IRP/RP?

Any such amount deposited in the cash ledger shall be refunded to the erstwhile registration,
even if the relevant forms FORM GSTR-3B/GSTR-1 are not filled for the said period.

Conclusion:

The Clarifications come as a welcome step from the IBBI. The harmony between different
laws which at times come into play simultaneously needs to be maintained, and such prompt
steps go a long way towards the goal.