CBIC Tells Taxmen To Recover Only Reduced Tax Dues In Insolvency And Bankruptcy Code Cases

The CBIC has asked tax officers to abide by the NCLT order in insolvency cases and recover only that much GST dues as has been finalised by the tribunal.

In a circular, the Central Board of Indirect Taxes and Customs (CBIC) said the proceedings at the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code (IBC) will be covered under Section 84 of the Central GST Act -- which deals with recovery proceedings.

The CBIC on December 27 issued a clarification in response to representations received from the trade as well as tax authorities regarding the modalities for implementation of the order of the adjudicating authority under the IBC with respect to the demand for recovery against the such corporate debtor.

"In cases where a confirmed demand for recovery has been issued by the tax authorities...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 under CGST Act..., the jurisdictional Commissioner shall issue an intimation reducing such demand, to the taxable person...," the CBIC said.

EY Tax Partner Saurabh Agarwal said the circular clarifies the treatment of statutory dues under GST law in respect of taxpayers for whom proceedings have been finalised under IBC. 

Section 84 of the CGST Act deals with the procedure where original tax, interest or penalty stands reduced under an appeal, revision or other proceedings. 

"Where confirmed Government Dues stand reduced as per IBC order then the GST department shall only recover such reduced dues by following the prescribed procedure," Agarwal said, adding industry stands benefited by this circular.

KPMG Tax Partner Abhishek Jain said the Insolvency and Bankruptcy law in India overrides any other law in India and stipulates that recovery, including tax recovery, needs to be made as per the resolution plan approved post-NCLT proceedings. 

"This circular also resolves the much pending confusion for indirect tax authorities to tackle matters, involving interplay with the IBC law and would prevent unnecessary litigation," Jain added.