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GST UPDATE - Notification 11/2020 dated 21st March 2020 & Circular 134/04/2020 dt 23rd March 2020 & relating to the Companies Covered under the IBC,2016- Part 2

GST UPDATE - Notification 11/2020 dated 21st March 2020 & Circular 134/04/2020 dt 23rd March 2020 & relating to the Companies Covered under the IBC,2016- Part 2

 

In our earlier update, we have discussed special procedures Notified by CBIC vide Ntfn.No.11/2020 related to Registration, Filing of Returns & the availability of ITC which are to be followed by the Companies vis. Corporate Debtors who are undergoing the CIRP process and the management of whose affairs are being undertaken by IRP/RP.

The present update seeks to discuss Circular no.134/04/2020 dt 23rd March 2020 where the CG has clarified certain issues relating to the Companies under IBC Code 2016. The update is hereby divided in two parts i.e. issues arising before and during CIRP period:-

Issues during Pre-CIRP Period

Issue- Recovery of dues under GST for pre-CIRP period

Clarification-The circular clarified that no coercive action can be taken against the entity (vis. Corporate debtor) with respect to the dues for Pre-CIRP period. However, the proper officer may file the claims before the NCLT which are termed as operational debt as per the provisions of IBC. They shall seek the details of supplies made / received and total tax dues pending from the corporate debtor to file the claim before the NCLT. But there is no provision in GST law in this regard. Is the circular is enough to enforce the same. The provisions should have been incorporated to this effect in GST law. As we have seen that the circulars are not binding. Or else, we can assume that the IBC has superseding effect on provisions of GST law. But the provision should have been incorporated to end the disputes.

“Operational Debt is debt may arise out of provision of goods or services or dues arising out of employment or dues arising under any law for the time being in force and payable to the Centre/State Government”.

Moreover, a moratorium period may be imposed under IBC, wherein the institution of suits /pending suits or proceedings against the corporate debtor is prohibited.

 

Issue- Should the GST registration of corporate debtor be cancelled?

Clarification-No, the GST registration shall not be cancelled of an entity for which CIRP has been initiated. The proper officer may suspend the registration. In case the registration of an entity undergoing CIRP has already been cancelled and it is within the   period of revocation of cancellation of registration, it is advised that such cancellation may be revoked. Again there is no law provision in GST to do so. How a department officer will keep this pending without a legal backing? Whether GST portal will support the same? These questions should be answered and portal should be amended to do this exercise.

 

Issue- Filing of returnsby IRP/RP of pre-CIRP period

Clarification-As per the provisions of the IBC Code 2016 the IRP/RP is not under an obligation to comply with all legal requirements for period before the Insolvency Commencement Date, therefore, not liable to file returns of pre CIRP period.

But the portal does not support the same and as such IRP was not able to file the returns for next period without filing earlier period returns. Even the High Court has held that it should be allowed to file the same without filing earlier period returns. But portal cannot be operated on the individual basis. Hence, it has been provided that IBC will take a separate registration and file the returns in its new registration. Hence, a way out of new registration has been introduced so that IRP/RP can file the returns.

 

During the CIRP Period

 

Issue-Should a new registration be taken by the corporate debtor during the CIRP period?

Clarification-New registration has to be taken within 30 days of the appointment of the IRP/RP in respect of said class of persons, in each & every States /UTwhere the corporate debtor was registered earlier since they will be treated as a distinct person of the corporate debtor.

However, where the IRP/RP has been appointed prior to the date of notification 11/2020 dt.21st March 2020, he shall take registration within 30 days from the commencement of this notification i.e. up to 20th April 2020.

But earlier separate registration was granted only when the assesee has different business vertical. However, there will not be different business vertical as the same business is being run by IRP/RP. Moreover, now the registration can be granted at different locations of a person within same state. But here also, no different location exists. But the notification has provided that new registration will be allowed to him under special procedure.

 

 

Issue-How to file First Return after obtaining new registration?

Clarification-The IRP/RP will be liable to furnish first return under Sec 40 for            the period beginning the date on which it became liable to take registration till the date on which registration has been granted. The IRP/RP will also be liable to make payment of tax, file the returns and comply with all the provisions of the GST law during CIRP period.

 

Issue-How to avail ITC for invoices issued to the erstwhile registered person in case the IRP/RP has been appointed before issuance of Notification No.11/2020 - Central Tax, dated 21.03.2020 and no return has been filed by the IRP during the CIRP?

Clarification-The special procedure vide notification No.11/2020 - Central Tax, dated 21.03.2020issued under section 148 of the CGST Act has provided the manner of availment of ITC while furnishing the first return under section 40.We have already discussed this procedure in our previous part of update. This exception is made only for the first return filed under section 40 of the CGST Act.

A point worth to be noted here is that the time limit for availing the ITC as prescribed by Sec 16(4) shall not be applicable and the newly registered IRP/RP can avail the ITC after the time limit for the month of September or the filing of date of Annual Return too. Moreover, the limitation for the availment of ITC as per Rule 36(4) subject to 20% (now 10%) shall also not be applicable to the said class of persons

 

 

Issue-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, dated 21.03.2020?   

Clarification-Registered persons who are receiving supplies from the said class of persons shall, for the period from the date of appointment of IRP / RP till the date of registration as mentioned in this notification or 30 days from thedate of this notification, whichever is earlier, be eligible to avail ITC on invoices issued using the GSTIN of the erstwhile registered person, subject to the conditions of Chapter V of the CGST Act and rule made thereunder, except the provisions of sub-rule (4) of rule 36 of the CGST Rules.

Again it will be interesting to see that invoice showing different GST number as well as GSTR-2A showing different GST number, the credit will be allowed. Even it will be very difficult for the assesee claiming credit. The accounting software will have the GST number as shown in invoice and GSTR-2A is showing different GST number under which IRP/RP has filed the return. It will be very difficult to reconcile the GSTR 2A.

Issue-Some of the IRP/RPs has 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?

Clarification- Any amount deposited in the cash ledger by the IRP/RP, in the existing registration, from the date of appointment of IRP / RP to the date of notification No.11/2020 specifying the special procedure for corporate debtors undergoing CIRP, shall be available for refund to the erstwhile registration under the head refund of cash ledger, even if the relevant FORM GSTR-3B/GSTR-1are not filed for the said period.

Now, if the IRP/RP has filed the return for this period and this cash is adjusted then how the refund will come. Moreover, IRP/RP has to file again returns as per provision of notification as well as circular then whether the payment will be made twice? There is no clarification on this issue. It only says that they have to file return.

Further, it is not clarified that whether the IRP/RP will have to pay interest for the period. This will be clear from example. Suppose, this unit deposited the tax of Rs. 1,00,000/- in cash ledger of old registration. Now IRP/RP takes new registration and filed refund of Rs. 1,00,000/- . Unless this amount is received, IRP/RP does not file return in new registration. Now this refund is received in month of June. Now, IRP/RP will deposit this amount in new registration and file return. But the registration will ask for late fee and interest whereas there is no fault on the firm part as they have paid the tax. When it is going to be declared as insolvent and suffering from financial difficulty then how they will pay interest and late fee?

The instructions contained in Circular No. 125/44/2019-GST dt. 18.11.2019 stands modified to this extent.

 

This is solely for educational purpose.


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