GST compliance of companies under Insolvency and Bankruptcy Code, 2016 (IBC)

As per the Insolvency and Bankruptcy Code, 2016 (IBC), as soon as a company/LLP fails to make a payment above Rs 1 lakh, the financial/operating creditors can initiate the Corporate Insolvency Resolution Process (CIRP). The limit has been recently raised to Rs 1 crore, due to the COVID-19 pandemic.

Such an LLP/company can be termed as the defaulting ‘corporate debtor’. Accordingly, the management of the LLP/company’s assets gets transferred to the Interim Resolution Professional (IRP) or Resolution Professional (RP).

A corporate debtor undergoing insolvency is liable to furnish its GST returns, make payment of tax and meet all other compliance as per the GST law during the CIRP period. The IRP/RP must follow a prescribed procedure for compliance. Further, he must take a new registration under the GST Act within 30 days of the appointment of the IRP/RP.

The CBIC issued a CGST notification no. 11/2020 on 23rd March 2020 for the procedure. Also, a CGST circular no. 134/04/2020-GST clarified some frequently asked questions.

Special Procedure for Corporate Debtors Undergoing CIRP

A corporate debtor undergoing CIRP and whose assets are managed by IRP or RP should follow the below procedure. The period of compliance shall begin from the date of appointment of IRP/RP till the date on which they undergo corporate insolvency resolution process.

Obtain a new registration under the GST Act

From the date of appointment of IRP/RP, such entities are treated as different persons. They are liable to obtain new registration under each State/Union Territory where it was earlier registered.

File returns under Section 40

Such persons are liable to file their first return as per Section 40 of the CGST Act. The IRP must file the applicable returns such as GSTR-3B during the period beginning from the date on which the company becomes liable for new registration till the date on which registration is granted.

Claim ITC

Such persons can avail Input Tax Credit (ITC) on all invoices bearing earlier GSTIN covering both goods and services. ITC can be availed as per the conditions specified under Chapter V of the CGST Act. There are two restrictions imposed under the CGST Act on claiming ITC. These are as follows:

• Section 16(4): It puts a restriction on availing ITC if such taxpayer has delayed filing GSTR-3B for tax periods from July 2017 to March 2018.

• Rule 36(4): It stipulates a cap of 10% provisional ITC. Even a registered person receiving goods from such companies can claim ITC on invoices bearing the earlier GSTIN in compliance with the conditions specified under Chapter V of the GST Act.

Applying for Refund

Any amount deposited in the cash ledger of the earlier GSTIN by the IRP/RP is available for a refund from the date of appointment of IRP till the date of notification specifying a special procedure for corporate debtors undergoing insolvency. Such refund is available even if GSTR-3B/GSTR-1 returns are not filed for the said period.

Frequently Asked Questions on the Special Procedure for Corporate Debtors Undergoing CIRP

How are pre-CIRP GST dues dealt with?

All GST dues with regards to the period prior to the commencement of CIRP are treated as operational debt. The proper officer can file a claim before NCLT for such dues. Such claims should be as per the provisions of IBC. The tax officials should ascertain all the details of supplies made/received and tax dues on the same before filing a claim with the NCLT.

Should the GST Registration of Corporate Debtor be cancelled?

An entity undergoing CIRP is required to obtain a new registration. However, it is not required to cancel the previous registration. If required, the proper officer may suspend the registration.

Is IRP/RP required to file returns of the pre-CIRP period?

An IRP/RP is liable to comply with legal requirements for the period after the commencement of CIRP. Thus, they are not required to file returns for the period prior to the commencement of the insolvency process.

How to avail ITC of invoices issued to the erstwhile registered person in case IRP/RP has been appointed before issuance of the notification?

Such persons are required to file their first return as per Section 40. They can claim ITC on such supplies subject to the conditions specified under Chapter V of the CGST Act and rules made thereunder.

Can a person avail ITC on purchase invoices from the corporate debtor undergoing CIRP wherein, IRP/RP was appointed before issuance of the notification?

A registered person receiving supplies from such corporate debtors is eligible to claim ITC on invoices bearing earlier GSTIN as per the conditions specified under Chapter V of the CGST Act. They can claim for the period from the date of appointment of IRP/RP till the date of a new registration or within 30 days of issuance of the notification, whichever is earlier.