IBC Circular to facilitate on GST tax due recovery from IBC Companies

Circular to facilitate on GST tax due recovery from IBC Companies

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Circular to facilitate on GST tax due recovery from IBC Companies
  • The government will release a circular to facilitate the recovery of tax debts from insolvent enterprises, which may force new buyers to settle "agreed tax claims" while a resolution package is finished.
  • Revenue Department will consult with the MCA, which administers the IBC, on any necessary changes. The action is intended to provide clarification following a Supreme Court decision.
  • The GST Council met on Saturday to examine the problem, and it was decided that more explanation was needed about the treatment of Goods and Services and other statutory dues under the Insolvency and Bankruptcy Code.
  • After the GST Council meeting, the Ministry of Finance stated that a circular will be released to explain the problem of the treatment of Goods and Services as well as other statutory dues under the Goods and Services Act.

Operational Creditors

Under the Insolvency and Bankruptcy Code, GST Tax officials are presently categorised as operational creditors, making it not possible to recover debts. The difficulties in recovering legal Goods and Services dues once a company approaches the NCLT under the Insolvency and Bankruptcy Code has been highlighted multiple times by tax authorities.

“Recovery has been very poor in cases that have gone under insolvency,” a Govt official said.

The resolution process will clearly establish the tax liability of the new buyer of an insolvent company, ensuring payments while cutting down on disputes, the official said. Changes will also be made to Rule 161 of Central Goods and Services Tax (CGST) Rules, 2017, & Form GST DRC-25 to allow fresh demand notices when resolution proceedings have been finalised under the Insolvency and Bankruptcy Code.

The Economic Times reported last week that the Ministry of Corporate Affairs is already examining changes to the Insolvency and Bankruptcy Code and is likely to introduce an amendment bill in the budget session.

In its ruling in the ABG Shipyard fraud case, the Supreme Court had held insolvency proceedings and the imposition of moratoria under the Insolvency and Bankruptcy Code limiting powers available to customs authorities under the Customs Act, 1962, for recovery of Customs and other duty.

The judgement is seen to have set a precedent for indirect taxes. Source from ET Times 

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