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GST And Insolvency and Bankruptcy Code, 2016 (IBC)

Insolvency And Bankruptcy Code, 2016

When a default in repayment is witnessed, the creditors gain control over the debtor’s assets and are supposed to take appropriate decisions to recover the loss. Hence, the Insolvency and Bankruptcy Code 2016 (IBC) was introduced. As per the IBC, both, the debtor and creditor can initiate recovery proceedings against each other. This Code (IBC), is one of the most significant economic reforms which provides a uniform and comprehensive insolvency legislation covering corporates, partnership firms, and individuals (other than financial firms).

According to the Insolvency and Bankruptcy Code, 2016 (IBC), as soon as a company/LLP fails to pay any amount above INR 1 lakh, the financial or operating creditors can initiate the Corporate Insolvency Resolution Process (CIRP). This limit of INR 1 lakh has been recently raised to INR 1 crore due to the COVID-19 pandemic.  LLPs/Companies undergoing insolvency and bankruptcy are termed as the defaulting ‘Corporate Debtors’.

Procedure For Resolving Insolvency Under GST

The procedures to be followed by GST registered Companies undergoing insolvency is prescribed in Notification No. 11/20 dated 21 March 2020. As per this notification, the ‘Corporate Debtors’ undergoing CIRP, whose assets are managed by the Interim Resolution Professional (IRP)/Resolution Professional (RP) are required to follow the below-mentioned procedures:

  • New GST registration
    Every Corporate Debtor is required to obtain a new GSTIN for each State/UT where it was previously registered within 30 days from the date when the IRP/RP is appointed.
  • Returns under Section 40
    All relevant taxpayers who have made an outward supply in the period between the date on which the application for the new GST registration was made (as mentioned above) and the date when the GST registration was granted; should declare those supplies in the first GST returns, filed after the registration is granted. That means, the Interim Resolution Professional (IRP) must include the details of transactions effected during the period between the date on which the company becomes liable for the new GST registration and the date the registration is granted, in the first GSTR-3B after registration.
  • Claim ITC
    With the new GST registration, the taxpayers can claim the Input Tax Credit (ITC) available in all invoices that have the previous GSTIN. This ITC can be availed as per the conditions specified in chapter V of the CGST Act, except under:

    1. Sub-rule (4) of rule 36: A taxpayer filing GSTR-3B can claim provisional Input Tax Credit (ITC) up to a maximum of 10% of the eligible credit available in GSTR-2A. That means the amount of eligible credit is only as per the invoices or debit notes which have been uploaded by the suppliers in the GSTR-2A.
    2. Section 16 (4) of CGST rules: A taxpayer is not eligible to claim Input Tax Credit for the invoices/debit notes issued for the supply of goods or services, or both after the due date of filing the returns (as per section 39 of CGST Act).

Section 39 of CGST ACT: Every registered person should furnish a monthly return electronically, disclosing the inward and outward supply of goods or service or both, tax credit availed, paid, etc. within the due date prescribed by the government.

  • Refund Application
    Any amount deposited in the cash ledger by the IRP/RP will be available as a refund in the new registration. This refund is available from the interim period between the date of appointment of the IRP and the date when the notification for a special procedure for Corporate Debtors under IBC is issued. The said refund can be availed even if GSTR-3B/GSTR-1 returns are not filed for the period in concern.

Frequently Asked Questions

Q. How are the pre-CIRP GST dues dealt with?

Ans. All the GST dues of the period before the commencement of CIRP are considered as operational debts. A claim for such dues can be filed with the National Company Law Tribunal (NCLT) in coordination with the Insolvency and Bankruptcy Code. The Tax Officer will inspect all the details concerning the supplies made or received before filing a claim with the NCLT.

Q. Is the previous GST registration of the Corporate Debtor cancelled?

Ans. The previous GST registration of the Corporate Debtor is not required to be cancelled even though a new GST registration is mandatory. The previous registration can be suspended by the concerned Government officer if needed.

Q. Is it required for the IRP/RP to file returns pertaining to the pre-CIRP period?

Ans. An IRP is only liable to comply with the legal requirements and provisions for the period after the commencement of the insolvency resolution process.

Q. Can ITC be availed by the taxpayer for invoices having the previous GSTIN when the Corporate Debtor is undergoing CIRP and when the IRP/RP is appointed before the notification is issued?

Ans. ITC for invoices having previous GSTIN can be claimed from the date of appointment of IRP/RP to the date of the new registration or within 30 days from the date when the notification is issued, whichever is earlier.