DECEMBER 17, 2019

By Dr G Gokul Kishore

PRIORITY of crown debt or sovereign dues is now part of history. These days the taxman has to wait to get the dues realized in favour of the exchequer. GST law is no exception. An interesting but important order is briefly discussed in this 66th part.

NCLT Order directing opening of GST portal

Insolvency and Bankruptcy Code (IBC) is more visible in news compared to GST these days. Orders of National Company Law Tribunal (NCLT) and its appellate body NCLAT and landmark judgments of Supreme Court under IBC are highlighted and discussed widely. Earlier, sick companies used to be liquidated if BIFR process fails. Now, under IBC, Corporate Insolvency Resolution Process (CIRP) comes first and only if a company cannot be revived, it goes into liquidation.

In a case under CIRP before NCLT, the corporate debtor (company under resolution process) pleaded that they be allowed to pay the current GST dues instead of insisting on dues pertaining to pre-admission period. This plea was advanced because access to GST portal was blocked for the applicant on failure to pay taxes for earlier period. The NCLT held that tax authorities are operational creditors and they are at liberty to file claims before the Resolution Professional (RP) instead of insisting the RP to pay pre-admission dues before accepting tax payments for the CIRP period. It directed GST authorities to permit the corporate debtor to access the GST portal to pay current tax dues after availing eligible input tax credit (ITC) [NCLT, Chennai Order dated 28-11-2019 / 5-12-2019 in the matter of Kiran Global Chem Ltd . = 2019-TIOLCORP-12-NCLT.

IBC overrides GST law

After the withering away of the concept of crown or sovereign debt being supreme and to be recovered first, tax statutes have been amended to state that tax dues to be the first charge on the property of the taxpayer. A provision to this effect has been incorporated in Section 82 of CGST Act. However, IBC has been kept as an exception in this provision. Therefore, when it comes to recovery of GST dues, the provision on first charge gives way to IBC. This is required to be read with Section 238 of IBC which says that provisions of IBC override other laws. In view of GST law yielding to IBC and IBC containing such an overriding provision, NCLT apparently saw no hitch in issuing such direction as mentioned above.

In respect of liquidation, as per the waterfall mechanism provided under Section 53 of IBC ('Distribution of assets'), even among operational creditors, government stands fifth in the queue. This means only after settlement of workmen's dues, dues of other operational creditors, etc., claim of tax authorities will be considered. However, in respect of resolution, the endeavour is to transfer the entity as a going concern and, therefore, as NCLT has observed, GST authorities can claim tax dues like any other operational creditor. If the corporate debtor is barred from accessing his cash ledger or credit ledger and if payment for past period is insisted, the objective of resolution of stressed asset as a going concern gets defeated.

Barring taxpayer from accessing GST portal

Sub-section (10) of Section 39 of CGST Act dealing with periodical returns states that a registered person shall not be allowed to furnish a return for a tax period if the return for any of the previous tax periods has not been furnished by him. As per sub-section (7) of Section 39, tax shall be paid as per the return on or before the due date for filing return. Considering the fact that tax payment and return filing are tagged together and in view of the above restriction on filing return for the current period, if return for the past period has not been filed, the prohibition is absolute. If a taxpayer has defaulted in payment of tax in a month and, therefore, could not file return, he can neither pay tax nor file return for any subsequent period till the time such default is rectified.

This may be a salutary provision from the compliance point of view as it compels taxpayers to either not commit default for any period or compound defaulting for several periods which is very penalising. When the processes in GST portal were created, it appears no exception has been created to allow a person to pay tax and file return even if there is a default for the part period. This exception should have been created as directions from court in this regard should have been visualised. Having not foreseen such contingency, GST authorities have been handed down such order by NCLT now. It is time that an exception is created in the GST portal to provide for payment of tax and filing of returns based on court orders.

Issues to be addressed

The NCLT order reveals that the company already in distress owing to financial difficulties has been compelled to move an application to allow it pay tax. It is ironical that a taxpayer has to get a judicial (quasi-judicial) order to permit him to pay tax dues. Preamble to IBC clearly mentions alteration of priority of payment of government dues and this comes after primary objectives like resolution and maximization of value of assets.

GST Council should consider an amendment to Section 39 as suggested above so that those who are already stressed are not compelled to undergo such travails. Another issue which may require attention is creating awareness among GST authorities on the provisions of other laws like IBC and Companies Act so that they do not interpret GST law to the isolation of other statutes which not only have overriding provisions but also require harmonious interpretation by reading together to achieve the intended objective.

[To be continued…]

[The author is an Advocate. The views expressed are strictly personal.]

See Part 65