Centre tweaks Rules for Companies under IBC

On Sunday, the Central Govt. notified new rules, which mandated that companies obtain new Central Goods & Service Tax (CGST) & State Goods & Services Tax (SGST) registration numbers once the Corporate Insolvency Resolution Process (CIRP) of a company is initiated & an Interim Resolution Professional (IRP) or Resolution Professional (RP) is appointed.

The said corporate debtor, which starts functioning as a new entity under the IRP or RP, shall register itself in all states & Union Territories where it had operations before undergoing CIRP process, the new rules said.

According to experts, the new registration number of the company will be separate from the old registration number of the company, & enable the IRP or the RP to continue paying statutory dues & taxes as required.

The CGST system software mandates that companies under CIRP must first clear past dues in order to be able to pay new dues.

The issue, however, is that once CIRP process is initiated against a company, a total moratorium is imposed, & no refunds are allowed.

Under the existing laws, once CIRP is initiated against a company & moratorium is imposed, the IBC rules take precedence over all other laws of the country. Centraln & state governments, which collect CGST, & SGST, are treated as operational creditors & must therefore file applications to claim their share of dues from the IRP, the experts said.

Abhishek A Rastogi, partner at Khaitan & Co, said that “The notification pragmatically resolves the system issue by obtaining new registration. However, old credits are denied in light of the refund provisions".

Once a new registration for the company under CIRP is obtained, it shall within 40 days file CGST & SCGT returns, the new rules said. The input tax credit for the corporate debtor with the new registration number shall be given since the appointment of IRP or RP.

The funds, which had been deposited by erstwhile IRP RP in the cash ledger of a corporate debtor undergoing CIRP, shall be available for refunds to company under new registration number, the rules said.

Rastogi said that “While the notification provides that any amount deposited by an IRP in the cash ledger will be eligible for refunds, it appears that the intention is only to give refunds of taxes for the period prior to the appointment of the IRP".

The said issue was also challenged by several companies before the High Court of Gujarat Sept 2019. In their plea, the companies had then claimed that while the discrepancy between the Insolvency & Bankruptcy Code & the CGST rules meant that the authorities had to wait several days to claim their dues, it could also result in them getting an unfair advantage if all lenders had to take a haircut on their claims.

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