Provisions of Insolvency and Bankruptcy Code override GST provisions

The Insolvency and Bankruptcy Code 2016 (IBC) was introduced to promote the ease of doing business in India, to address the issue of liquidity in cases relating to insolvency/bankruptcy in India. It consolidates all existing insolvency-related laws like the Sick Industrial Companies, Special Provisions Act 1985, and many more. The IBC also specifies that it will override any other legislation in cases of conflict. 

The companies going through a resolution mechanism under the IBC, the revenue authorities are insisting on having a priority in the collection of past tax dues.

In December 2019, the National Company Law Tribunal (NCLT), Chennai, in the case of T. R. Ravichandran - Resolution Professional (RP) for Kiran Global Chem Limited¹. (Corporate Debtor), has directed the revenue authorities not to insist upon payment of past dues, when the Corporate Debtor is paying the tax dues in respect of the period, commencing after the Corporate Insolvency Resolution Process (CIRP) is initiated.

In this case, the Resolution Professional (RP) of the Corporate Debtor approached the NCLT seeking access to the GST portal of the Corporate Debtor to file GST returns.  The RP requested to allow paying the net liability from the date of commencement of CIRP till its completion, disregarding the non-payment of GST arrear for the period before the commencement of CIRP. 

The revenue authorities submitted that there is no provision under the GST law, which allows acceptance of current dues before clearing the past dues. 

The NCLT observed that as under:

• Section 238 of the IBC shall have an overriding effect on all other laws which are in contravention. 
• In respect of past dues, the revenue authorities fall within the ambit of ‘operational creditor’.
• Being an operational creditor, they are entitled to file a claim with the RP rather than insisting upon him to make payment of past tax dues.

Based on the above, the NCLT allowed the Corporate Debtor to access its GST account and permitted the RP to file GST returns of the Corporate Debtor after the commencement of CIRP without insisting on payments of past GST dues. Further, it stated to accept net GST liability, i.e., after availing eligible ITC from the date of commencement of CIRP and adjust the GST payment remitted by the Corporate Debtor towards discharge of GST for the CIRP period.

It is pertinent to note that this decision is in line with the verdict of Synergies Dooray Automotive Ltd. [(2018) 1 CLJ 108]. In that said verdict, the National Company Law Appellate Tribunal, Hyderabad, has held that the statutory liabilities (i.e., VAT, GST, income-tax) are operational debt and the concerned revenue authorities would be considered as operational creditors. Hence, the revenue authorities would not have any priority in the collection of past tax dues from the companies going under the IBC. 

Also, the Andhra Pradesh High Court, in the case of Leo Edibles & Fats Ltd. [(2018) 407 ITR 369], has held that the revenue authorities cannot claim any such priority in respect of past tax dues. 

It is necessary that all the important aspects of the IBC that conflict with other laws should be addressed immediately. On similar lines, if the GST law may also be appropriately modified to facilitate the implementation of the said order as currently, no provisions permit the revenue authorities to accept current GST dues before clearing past GST dues. Separately, the GSTN currently does not provide any such functionality for differentiating pre and post CIRP periods. 

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¹MA/1298/2019 in IBA/130/2019