The Central Board of Indirect Taxes & Customs (CBIC) has come out with a mechanism to enable GST and Customs authorities submit their claims in a timely manner against corporates undergoing Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code (IBC). 

It has now come out with a standard operating procedure (SOP) for NCLT cases where insolvency process has been initiated and public announcement inviting claims has been made by the insolvency professional.

90-day timeline

A timeline of 90 days from the insolvency commencement date is available under law for filing of claims, but it has been found that there is an inordinate delay in filing of claims by customs and GST authorities. This leads to their claims not being admitted and extinguished once a resolution is approved. 

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While there is no official estimate as to how much exchequer may be losing due to delayed filing of claims by GST authorities in NCLT cases, some tax experts put the number to be at least ₹1-lakh crore.

Faced with rejection of claims, the GST authorities most often end up litigating on the rejection of each claims, despite the settled position that no claim can be raised once a resolution plan is approved and no demand can be raised on the resolution applicant who has taken over the company through such a resolution plan.

The latest move of CBIC to put in place an SOP for NCLT cases is expected to help in ensuring that claims are submitted in a timely manner, thereby reducing the likelihood of litigation and result in an increase in collection of tax revenues, said Neeraj Prakash, Partner, Chadha & Co, a law firm.

The insolvency law treats customs and GST authorities as “operational creditors” for the insolvency resolution process.

What is the SOP?

To ensure that the tax authorities are apprised of corporate debtors undergoing CIRP in a timely manner so that they can file their claims well within the timeline prescribed i.e. within 90 days from the insolvency commencement date, the CBIC has nominated the Additional Director General, Directorate General of Performance Management (DGPM) as the nodal officer responsible for coordinating with the Insolvency and Bankruptcy Board of India (IBBI) in this regard. 

The nodal officer is responsible for receiving information ( on corporates where insolvency process has been initiated) from the IBBI and disseminating it to the zonal offices of customs and GST for ensuring timely action. 

Bambi Bhalla, Emissary Counsel, Cornellia Chambers, said this  move will help remedy delays and reduce disputes regarding the acceptance/rejection of such claims by the tax authorities thereby reducing unnecessary litigation.

Raveena Rai, Principal Associate at Khaitan & Co, said that it is often seen that tax authorities miss the bus of submission of their claims as operational creditors in CIRPs and thereby resulting loss to the government exchequer. “They continue litigating seeking admission of their claims right up to the Supreme Court on the ground that they were not aware of the CIRP process and hence could not submit their claims. The CBIC instructions is a necessary step to ensure that tax claims are taken account of in resolution plans and are not extinguished due to non-submission,” Rai said.

Neha Naik, Associate Partner, Phoenix Legal, said the SOP applicable to the GST and Customs authorities would enable IBBI to notify identified zonal officers about public announcements which are published for submission of claims in the freshly admitted cases under IBC.

“This targeted sharing of information will streamline the GST and Customs authority’s knowledge base in order to keep track of fresh admissions and file their claims as an operational creditor in a timely manner. 

“This is proposed to be implemented in view of the fact that tax authorities are known to regularly lapse on the 90-day timeline for filing claims in the CIRP which leads to rejection of their claim as it becomes time barred and an ultimate loss of recoverable revenues to the government,” Naik added.

Multiplicity of litigation

Naik pointed out this has in the past also led to multiplicity of litigation as the tax authorities are constrained to approach the NCLTs to get their claims which are otherwise time barred, accepted and verified by the resolution professionals.  

The proposed mechanism may help in quick dissemination of information and at the least, timely filing of claims provided the procedures are followed. The ultimate admission of the claim may still be subject to verification, but this move is promising and useful given that a majority of debtors admitted into CIRP have pending GST and Customs dues with the tax authorities having to keep track of large number of fresh admissions, Naik added.