NCLT directs CGST authorities to accept GST payments and GST returns manually and refrain from taking any coercive steps against Company undergoing insolvency proceedings

by | Mar 3, 2020 | Insight

The recent order passed by the National Company Law Tribunal, Mumbai (‘NCLT’) in the miscellaneous application of Videocon Group v. CGST Department, TS-54-Tribunal-2020(Mum)-NT filed in the matter of State Bank of India v. Videocon Industries Limited, CP No. 02/I&BC/NCLT/MB/MAH/2018.

 Brief Facts

Corporate Insolvency Resolution Process (‘CIRP’) was initiated for Videocon Industries Limited and its group companies (‘VIL’) on August 31, 2018. The business of VIL was carried on through Techno Electronics Limited (‘TEL’). Due to financial hardship, TEL was unable to pay GST and file GSTR-3B for the period August 2017 till August 2018. Since past GST liabilities were unpaid, GST portal did not allow TEL to pay GST and file Form GSTR-3B for the subsequent period.

Owing to this, the CGST department issued Show Cause Notice on TEL proposing to cancel its GST registration. Further, the CGST department also blocked e-way bill generation facility for TEL under Rule 138E of the Central Goods and Services Tax Rules, 2017 on account of non-filing of returns.

 Decision of NCLT

The NCLT noted that the Insolvency and Bankruptcy Code, 2016 (‘IBC’) requires a business to be run as a going concern during the moratorium period. Holding a valid CGST registration and ability to generate e-way bill was crucial for TEL to carry on the business of VIL Group as a going concern. The NCLT directed the CGST department to refrain from cancelling registration of TEL, re-open e-way bill generation facility and accept GST payments and Form GSTR-3B returns manually. 

NITYA’s Comments:

 Section 238 of the IBC affords an overriding effect to the IBC in case of any inconsistencies with any other law. Further, the CGST department qualifies as an operational creditor under the IBC. Therefore, for a company undergoing insolvency proceedings, the CGST department is governed by the provisions of the IBC notwithstanding anything inconsistent in the GST Acts.

 It is also important to note that Section 14 of the IBC inter alia prohibits initiation or continuation of any proceedings by any authority, against the debtor during the moratorium period. Such prohibition is imposed to allow the business to be run as a going concern. Therefore, the CGST department is bound to refrain from initiating or continuing any proceedings against the debtor during the moratorium period that will prevent the business from being run as a going concern.

 Cancellation of GST registration and closure of e-way bill facility directly hampers the business of any company. Therefore, the NCLT rightly directed the CGST department to refrain from the proposed coercive actions and accept GST payments and returns in Form GSTR-3B manually. Similar directions have been given by the NCLT to the GST department in the cases of Hind Tradex Limited v. Lakshmi Precision Screws Limited, CA 491/2018 and T.R. Ravichandran v. Assistant Commissioner of Central Tax, MA/1298/19.

 In light of the above, any taxpayer undergoing insolvency proceedings but unable to pay GST and file GST returns electronically, can seek directions from the NCLT refraining the GST department from taking any coercive actions and accept GST payments and GST returns manually.