Under the IBC, an IRP/RP has the responsibility of managing affairs of the CD as a going concern. This responsibility includes the responsibility for all statutory compliances, including a deposit of tax. However, practically speaking, most of the CD at the time of commencement of the CIRP had defaulted on the payment of GST dues or filing of returns which made it impossible for an IRP/RP to file returns for the period of the CIRP and/or pay the GST liability accruing during the CIRP since such a scenario was neither envisaged in the law nor while designing the online utilities.
Therefore, the notification, at the outset, appears to be a welcome move for all the IRP/RP, who has been demanding the same. However, on deeper analysis, this may not cover all scenarios under the IBC
-- in fact, this may even dilute existing rights, cast new responsibilities, and lead to interpretational issues as encapsulated below.
1. Liquidation proceedings and personal guarantors not covered?
According to the headnote of the notification, it notifies only companies undergoing the CIRP as the class of persons to whom the notification shall be applicable. According to the IBC, liquidation stands on a completely different footing than CIRP -- thus, if only the CIRP is mentioned in the notification, it cannot be assumed to include liquidation in its ambit. Therefore, it would appear that the notification is not applicable to CD who are presently under liquidation under Section 33 or Section 59 of the IBC.
Also, the provisions of insolvency and bankruptcy of personal guarantors have come into force from December 1, 2019. These personal guarantors might also be GST-registered persons. The notification is silent on the treatment of GST for such persons.
2. Dilutes right to GST credit: While Clause 4 of the notification allows the IRP/RP to take the input tax credit (ITC) of GST on supplies received during the CIRP, it does not mention the procedure of transitioning the ITC already lying in the electronic credit ledger of the CD to new registration taken by the IRP/RP. Therefore, it appears that the ITC lying in the CD’s electronic credit ledger on date of the CIRP commencement cannot be used by the IRP/RP. If this is the intent, it will be against the settled law that ITC of an assessee is protected as a vested property right.
3. Circular more restrictive than the notification? While the notification specifies that Section 16(4) of the CGST Act, 2017, prescribing time-limit of taking ITC on invoices shall not be applicable, the circular clarifies that this concession is only applicable with respect to the first return filed by the IRP/RP. Therefore, the circular appears to go beyond the notification and to that extent may be vulnerable to legal challenge.
4. Use of IRP/RP interchangeably:
The notification uses the words ‘IRP’ and ‘RP’ interchangeably despite their different connotations under the IBC.
For example, where an IRP appointed by the NCLT is not ratified as RP in the first CoC meeting and the CoC goes ahead to appoint a different RP, whether registration taken by the erstwhile IRP will be handed over to the RP or does the new RP have to take fresh registration?
5. Filing of returns: While the notification provides for filing first return, it is not clear if the IRP/RP needs to file a final return on approval of a resolution plan or approval of liquidation. Further, it is not clear that in cases where a CD is revived by way of a resolution plan, whether the old registration will revive or not.
In summary, it appears that there are clear gaps (probably unintended) in the newly notified mechanism that need to be plugged immediately if this long-standing issue has to be addressed keeping in mind the intent and objectives of IBC, 2016.
Garg is partner, AGS legal, while Bhattacharjee is partner, Advaita Legal