APRIL 27, 2020

By Rohini Mukherjee, Joint Partner, Lakshmikumaran & Sridharan

WITH a view to ease the hindrances faced in the Corporate Insolvency Resolution Process (CIRP), recently, a special procedure has been prescribed for Interim Resolution Professional (IRP) or Resolution Professionals (RP) during the corporate insolvency process ¹. Certain clarifications have also been issued to further clarify specific issues ².

While this special procedure prescribes the procedure for registration of the IRP/RP as distinct person of the corporate debtor, filing of first return and specific provisions for availing input tax credit have been prescribed as well, there are still a range of issues which remain unaddressed.

The first open issue which comes to light on a perusal of the special procedure is the duration of the registration of the IRP/RP. A special procedure has been prescribed that the IRP/RP would be treated as a distinct person of the corporate debtor and would be liable to take a new registration in each of the States/Union Territories where the corporate debtor was registered earlier. In this context, a question arises whether such registration taken by the IRP/RP would continue post the CIRP?

As far as the existing GST registration of an entity is concerned for which CIRP has been initiated, it has been clarified that the GST registration of an entity for which CIRP has been initiated should not be cancelled and the proper officer may, if required, suspend the registration ³. Is it indicative of the intention to continue the existing GST registration post the CIRP?

In the backdrop of this clarification, there can be various possibilities depending on the scenario post the CIRP.

One such scenario is if the business is carried out by the same corporate debtor entity post CIRP, whether the new GST registration of IRP/RP or old corporate debtor entity registration may be continued?

Further, in a situation where the business is taken over by a different business entity, the general procedure with respect to the new registration may be required to be followed. In such a case, IRP/RP and old corporate debtor entity registration may be required to be surrendered.

While the above are the possible views that may be adopted in the respective scenarios, neither the Notification nor the Circular specifically address this issue leaving the same unresolved.

There is ambiguity surrounding other areas as well, one such area being the treatment of the input tax credit balance in the electronic credit ledger of the GST registration of IRP/RP post the CIRP. The question which arises here is whether such balance can be carried forward or transferred? The special procedure prescribed is silent on this aspect.

In a scenario where the same entity continues post the CIRP, there is no clarity on the treatment of such balance in electronic credit ledger. On the other hand, if the existing entity undergoing the CIRP is taken over by a new entity, such a case being a case of transfer of business, the unutilised balance credit in electronic credit ledger can be transferred in the manner prescribed under GST law ⁴.

Another contentious issue which acts as a hindrance to the smooth functioning during the CIRP is the absence of any specific provision addressing the availment of credit on the following invoices by RP/IRP:

a) Invoices which were inadvertently missed out at the time of filing first return by IRP/RP; and

b) Invoices bearing GSTIN of the erstwhile registered person and raised for supplies made prior to the appointment of IRP/RP.

With the special procedure stating that IRP/RP can take credit of invoices issued for supplies of goods and/or services received post their appointment and which bears the GSTIN of the erstwhile registered person in the first return, it appears to be a one-time opportunity for the IRP/RP to avail credit. Though the IRP/RP may consider availing credit of tax charged on the above invoices in the GST return which is to be filed subsequent to the first return, such availment would remain open to dispute.

As is evident from the above, though the special procedure prescribed by the Notification and the Circular has addressed certain specific issues faced during the CIRP, the picture remains unclear at present on various issues. It is imperative that suitable clarifications are issued to settle the open issues faced by the trade and industry during such process for the ease of doing business.

[The views expressed are strictly personal.]

¹Notification No. 11/2020-Central Tax dated 21.03.2020

²Circular No. 134/04/2020-GST dated 21.03.2020

³Serial No. 3 of Circular No. 134/04/2020-GST dated 21.03.2020

⁴ Section 18(3) of the Central Goods and Services Act, 2017 read with Rule 41 of Central Goods and Services Rules, 2017