The ministry of finance notified the process to be followed by an interim resolution professional (IRP) or resolution professional (RP), for ensuring GST compliances of corporate debtors (CD), undergoing corporate insolvency resolution process (CIRP).
The notification appears to be a welcome move for all the IRP/RP. It may not cover all scenarios under the IBC but, this may even dilute existing rights, impose new responsibilities and lead to guidance on interpretational issues. There are fews gaps noticed in this notification, like follows :
There was an confusion that whether Liquidation proceedings and personal guarantors covered or not. According to 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 than CIRP and thus, if only the CIRP is mentioned in the notification, it cannot be assumed to include liquidation in it’s 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 1st December 2019. These personal guarantors might also be GST-registered persons. The notification is silent on the treatment of GST for such persons.
There is Dilute in the 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 mentioned 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.
It might raise the question whether the Circular is 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.
The notification provides for filing first return, it’s 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.
It seems there are few gaps in the newly notified mechanism that need to be taken care of immediately.