Proposal to allow use of GSTR-1, GSTR-3B by vendors to establish debt, default
Keeping in view of the delay in admission or rejection of insolvency petition due to the requirement of establishing the existence of debt and default, the insolvency regulator has proposed that operational creditors or vendors should file copies of GSTR-1 and GSTR-3B returns filed by the operational creditors along with e-way bill as additional documentary evidence.
It is also proposed that the same information may also be submitted as part of the claim documents submitted to the IRP for easier verification and admission of claims
This proposal has been made by the Insolvency and Bankruptcy Board of India (IBBI) in a consultation paper on issues related to reducing delays in the corporate insolvency resolution process.
It has been argued in the consultation paper that it is often times difficult to ascertain existence of debt and default from the evidence filed along with the application for admission. Besides, promoters of the CD file objections to the application on grounds contesting the existence of the transaction, debt or the default. Thus, significant time is lost in the process of establishing the debt and default.
The consultation paper says that the average time taken for admission of insolvency plea filed by a vendor/operational creditor was 650 days in 2021-22 compared to 468 days in 2020-21. In at least 82 cases, it took more than two years to admit the insolvency petition, according to the insolvency regulator.
It is to be mentioned here that Section 9 of the Code provides a time limit of 14 days for admission or rejection of an application for initiating insolvency proceedings.
The insolvency regulator has argued that an operational creditor registered under the Goods and Services Tax (GST) provisions, is required to furnish details of sales and purchases of goods and services along with GST amount by filing GST returns and such return filing system is automated.
GSTR-1 contains detailed information of all the outward goods and services of a business.
It includes details of invoices, debit notes, credit notes, and revised invoices for outward goods and services and is required to be filed by the supplier of goods/services every month or quarter. GSTR-3B is a monthly self-declaration to be filed by a registered GST dealer – a simplified return to declare summary GST liabilities for a tax period.
This return contains information relating to outward supplies of goods/services, amount of taxes paid etc. Rule 138 of the CGST Rules, 2017 provides for the e-way bill mechanism and in this context, it is important to note that “information is to be furnished prior to the commencement of movement of goods” and “is to be issued whether the movement is in relation to a supply or for reasons other than supply”.
Thus, GSTR-1 and GSTR-3B filed by the operational creditor along with e-way bill, wherever applicable can serve as proof to establish that the supply of goods/services to the corporate debtor has actually happened and thus, can be used as evidence in establishing default.
“Such information will also be helpful if the operational creditor can submit these details as additional documents with the claim forms submitted with the interim resolution professional (IRP) or resolution professional (RP). This will reduce time taken by the IRP to verify and decide on admission of the claims,” says the consultation paper floated by IBBI.
Also Read: Why IBBI is keeping a close eye on fees charged by insolvency professionals
