GST dept paves way for reduced tax demand on companies undergoing insolvency process
The Central Board of Indirect Taxes and Customs (CBIC) through a circular issue recently has directed the jurisdictional commissioners of GST to reduce tax demands, if required, on companies or businesses against whom proceedings have been finalised under the IBC.
It has been noticed that GST department file several petitions against the corporate debtor in NCLT/NCLAT or other legal forums delaying the CIR process. The clarification from the CBIC should reduce the litigations between corporate debtors/new promoters and GST department.
The Circular clarified that in cases where a confirmed demand for recovery has been issued by the tax authorities for which a summary has been issued in FORM GST DRC-07/DRC 07A against the corporate debtor, and where the proceedings have been finalised against the corporate debtor under IBC reducing the amount of statutory dues payable by the corporate debtor to the government under CGST Act or under existing laws, the jurisdictional Commissioner shall issue an intimation in FORM GST DRC-25 reducing such demand, to the taxable person or any other person as well as the appropriate authority with whom recovery proceedings are pending.
The clarification come after representations have been received from the trade as well as tax authorities, seeking clarification regarding the modalities for implementation of the order of the adjudicating authority under the Insolvency and Bankruptcy Code with respect to demand for recovery against such corporate debtor under GST laws as well under the existing laws, after finalization of the proceedings under IBC.
According to the clarification issued by CBIC, Rule 161 of Central Goods and Services Tax Rules, 2017 prescribes FORM GST DRC-25 for issuing intimation for such reduction of demand specified under section 84 of CGST Act.
As per Section 84 of CGST Act, if the government dues against any person under CGST Act are reduced as a result of any appeal, revision or other proceedings in respect of such government dues, then an intimation for such reduction of government dues has to be given by the Commissioner to such person and to the appropriate authority with whom the recovery proceedings are pending. Further, recovery proceedings can be continued in relation to such reduced amount of government dues.
The word ‘other proceedings’ is not defined in CGST Act. It is to be mentioned that the adjudicating authorities and appellate authorities under IBC are quasi-judicial authorities constituted to deal with civil disputes pertaining to insolvency and bankruptcy. For instance, under IBC, NCLT serves as an adjudicating authority for insolvency proceedings which are initiated on application from any stakeholder of the entity like the firm, creditors, debtors, employees etc. and passes an order approving the resolution plan. As the proceedings conducted under IBC also adjudicate the government dues pending under the CGST Act or under existing laws against the corporate debtor, the same appear to be covered under the term ‘other proceedings’ in Section 84 of CGST Act.
Also See: Do not entertain unsolicited revision in resolution plans, suggests insolvency regulator
