SOP ON GST CLAIMS IN INSOLVENCY CASES

[Dr. Sanjiv Agarwal]

With large amounts of public money locked up in non-performing assets (stuck up bank loans), there was a new piece of legislation introduced in India in 2016, i.e., Insolvency and Bankruptcy Code, 2016 (IBC Code) by virtue of which, both financial creditors and operational creditors or other creditors need to lodge their claims before the Resolution Professional (RP).

IBC Code

The Insolvency and Bankruptcy Code (IBC), 2016, was enacted to consolidate the fragmented laws pertaining to insolvency. The IBC handles the insolvency proceedings cases through tribunals i.e. National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT). The Code recognizes three different types of creditors, viz, Financial Creditors, Operational Creditors and other Creditors. Section 5(20) of the Code defines an Operational debt as "a claim in respect of the provisions of goods or services including employment or a debt in respect of the payment of dues arising under any law for the time being in force and payable to the Central Government, any State Government or any local authority."

Operational Creditors

For the purposes of IBC Code, Customs and Goods & Services Tax (GST) authorities shall be considered as operational creditors, like any other creditor and they do not enjoy any privilege. As such, GST / Customs authorities need to submit claim against the corporate debtor against whom demand is in arrear before the Resolution Professional (IRP or RP as the case may be) as per IBC Code, 2016 and procedure stipulated therein. Accordingly, GST and Customs Authorities have been classified as Operational Creditors and are required to submit their claims against corporate debtors when the Corporate; insolvency and resolution process is initiated and public announcement inviting claims is made by the insolvency professional.

An operational creditor has the right to file an application to initiate the insolvency resolution process of a corporate debtor and to file a claim in the insolvency resolution process and to participate, without voting rights, in a committee of creditors through their representatives.

Claims by Creditors and Delay

A timeline of 90 days from the insolvency commencement date is available for filing of claims. However, the experience so far is that tax authorities have shown laxity in filing tax claims or have filed the claims belatedly resulting in claims not being lodged or lodged belatedly resulting in loss of tax revenue whether due to negligence of officers or otherwise. Later on, the authorities then litigate on the rejection of such claims, despite the settled position that no claims can be raised once the plan is approved and no demands can be raised on the resolution applicant who has taken over the company through such a resolution plan.

One of the reasons for such delay in filing of claims is that concerned Zonal office has not received information regarding initiation of the process in timely manner. Accordingly, CBIC has proposed that IBBI would share the details of the public announcement on a regular basis to an identified office/ officer or a centralized system and hence it has been requested that such office/ officer/ system in Central Board of Indirect Taxes and Customs (CBIC) needs to be identified and intimated to the IBBI for implementing the system for sharing of information.

SOP issued by CBIC

To overcome this problem, CBIC has issued a set of instructions called Standard Operating Procedure (SOP) to ensure proper compliances in matters of National Company Law Tribunal (NCLT) cases in respect of IBC Code, 2016 vide instruction No. 1083/04/2022 dated 23.05.2022. These SOPs accordingly, ensure a robust mechanism of communication from the nominated officer to the field formations and vice-versa and subsequent monitoring of action taken by the field formations on such communication by the Nodal Officer.

For this purpose CBIC has nominated Additional Director General, Director General of Performance Management (ADG-DGPM) as Nodal Officer. The basic purpose of nominating a Nodal Officer is to ensure filing of the claims with the IBBI in a timely manner and within the period of 90 days from the insolvency commencement date. In the interest of protection of government revenue and to make the entire process smooth and effective, CBIC has nominated the Additional Director General, DGPM as the Nodal Officer for the CBIC for the receipt of information regarding initiation of the insolvency resolution process and dissemination of the same to the field formations for necessary action at their end in terms of the provisions of the Insolvency and Bankruptcy Code, 2016.

The Gist of SOP is as follows:

• GST and Customs Authorities have been classified as operational Creditors and are required to submit their claims against corporate debtors when the Corporate Insolvency and Resolution Process (CIRP) is initiated and public announcement inviting claims is made by the insolvency professional.
• The delay in filing the claims by GST / custom authorities as operational creditors leads to their claims hot being admitted and extinguished once a resolution plan is approved.
• CBIC shall appoint a Nodal Officer to ensure filing of the claims with the IBBI in a timely manner and within the period of 90 days from the insolvency commencement date.
• Nodal officer nominated by CBIC shall be Additional Director General, DGPM as the Nodal Officer for the CBIC for the receipt of information regarding initiation of the insolvency resolution process and dissemination of the same to the field formations for necessary action.
• The Nodal Officer will disseminate the information received by him, through official email, to all Zonal Principal / Chief Commissioners with a copy to the concerned Principal Commissioner/ Commissioner within 02 (Two) working days.
• The concerned office/ Commissionerate which has arrears pending against the unit/ company shall file its claims timely for safeguarding and realisation of the government dues and inform the fact of having filed its claim to the Nodal Officer through the ADC/ JC in the Chief Commissioner's Office (CCO).
• Correspondences with the Resolution Professional (RP) should be made regarding finalisation of the Resolution Plan. Timely verification should also be done from the website www.ibbi.gov.in to check if any orders were issued by NCLT with respect to resolution, liquidation, and/or withdrawal of application.

The SOP, inter alia, provides for as follows:

• The Additional Director General, DGPM Nodal Officer will receive the information regarding initiation of the insolvency resolution process of a unit/company from the IBBI for which a dedicated email ID, to be accessed by the said Nodal Officer, will be created. The Nodal Officer may nominate JC/ADC (TAR), DGPM as alternate Nodal Officer for assisting him in his work.
• The Nodal Officer will disseminate the information received by him, through official email, to all Zonal Pr./ Chief Commissioners with a copy to the concerned Pr. Commissioner/ Commissioner within 02 (Two) working days.
• For faster and timely dissemination of the information a dedicated WhatsApp group will also be created by the Nodal Officer which will have ADC/JC concerned (who may be nominated as nodal officer for the Zone) in the Principal / Chief Commissioner's office, and the Principal Commissioners/ Commissioners concerned as its members.
• The concerned office/ Commissionerate which has arrears pending against the unit/ company shall file its claims timely for safeguarding and realisation of the government dues and inform the fact of having filed its claim to the Nodal Officer through the ADC/ JC in the Chief Commissioner's Office (CCO).
• The daily exercise to check for any new parties going in to insolvency from the website www.ibbi.gov.in will also be undertaken by all field formations for filing timely claims, as necessary.
• Correspondences with the Resolution Professional (RP) should be made regarding finalisation of the Resolution Plan. Timely verification should also be done from the website www.ibbi.gov.in to check if any orders were issued by NCLT with respect to resolution, liquidation, and/or withdrawal of application.
• A monthly report of work done in terms of checking the public announcements, filing of claims, if any, liasoning with CIRP for providing updates on cases would be sent to the Nodal Officer by the ADC/JC in the CCO, in the attached Format.
• The Nodal Officer will submit a consolidated monthly report to the Board for the purpose of review of progress/ action taken by the field formations.

The monthly report shall reveal the following:

1. Opening Balance of the claims filed
2. No. of intimations received pertaining to arrears pending in the zone
3. No. of claims field during the month

• No. of claims filed in the prescribed time limit (Out of C)
• No. of claims filed after the expiry of the prescribed time limit (Out of C)

4. No. of final orders issued for liquidation, resolution etc. along with brief details
5. Closing Balance (A)+(B)-(D)

It is expected that with this SOP, the cases of claim rejection of tax department may come down. In fact, Department should also fix accountability of jurisdictional tax authorities for any negligence leading to rejection or non-submission of claims under IBC law.