NCLT Issues Directions to Restore E-way Bill Facility for Taxpayer Undergoing Insolvency Proceedings

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Facts:

An application has been filed by Videocon Group (“Corporate Debtors” or “the Applicant”) in the National Company Law Tribunal Mumbai (“NCLT Mumbai”) seeking directions to the Central Goods and Services Tax Department (“CGST Dept” or “the Respondent”) to:

  1. Restore the e-way facility to enable the Applicant to file GST returns on behalf of the Corporate Debtors;
  2. Accept the manual/physical filing of GST returns; and
  3. Refrain from taking any coercive actions including the cancellation/suspension of the registration and/or blockage of e-way bill facility for filing of GST returns of the Corporate Debtors.

The Corporate Debtors are engaged in business of manufacturing, assembling and distribution of comprehensive range of consumer electronic and home appliances (“VIL”). VIL is licensee of “Videocon Trademark”, Videocon Telecommunications Limited to provide telecom services in six circles across India.

In order to carry on business, Techno Electronics Limited (“TEL”), one of the above named Corporate Debtors, is registered under the Goods and Services Tax (“GST”) laws, in the state of Uttarakhand bearing GSTIN 05AACCT6860AIZN. The Corporate Insolvency Resolution Proceedings (“CIRP”) of TEL commenced on August 31st, 2018 vide the Admission Order of the same date.

On November 13th, 2018, the CGST Dept issued a show cause notice (“SCN”) to TEL stating that TEL’s GST registration is liable to be cancelled on account of not having filed the GST returns for the period of August, 2017 till September, 2018 as required under Rule 61(5) of the Central Goods and Service Tax Rules, 2017 (“CGST Rules”). In response to the SCN, TEL sent a letter dated November 29th, 2018 to the Respondent informing them of the commencement of the CIRP, the moratorium coming into effect as per the provisions of the Insolvency and Bankruptcy Code (“the Code” or “IBC”), also further informing the Respondent that they may file a claim with respect to the amounts due to the Respondent.

Subsequently Rule 138E of the Central Goods and Service Tax Amendment Rules, 2017 (“CGST Amendment Rules”) came into force which provides that no person (including a consignor, consignee, transporter, an e-commerce operator or a courier agency) shall be allowed to furnish the information in PART-A of FORM GST EWB01 in respect of a registered person, whether as a supplier or a recipient, who –

(a) being a person paying tax under Section 10, has not furnished the returns for two consecutive tax periods; or

(b) being a person other than a person specified in clause (a), has not furnished the returns for a consecutive period of two months.

TEL has been filing its statutory returns of GSTR-1, regularly and it has been filed up to October 2019. It is admitted that due to severe financial hardship, TEL was unable to deposit GST in the form of GSTR 3B for the period of August 2017 till August 2018, prior to the commencement of the CIRP.

Pursuant to the commencement of the CIRP of TEL on August 31st, 2018, TEL attempted to deposit GST collected from customers on the online GST portal. The required GST amount pertaining to the period from September 2018 till June 2019 was deposited by TEL on a monthly basis on the GST portal in the electronic cash ledger. However, due to the design and mechanics of the GST portal, in order to deposit GST on the online GST portal for a particular month, a taxpayer is required to first deposit GST and file returns for all the preceding months. Since the Corporate Debtors have not filed returns and not paid GST for the period prior to the commencement of CIRP, hence the GST portal is not allowing filing of returns or payment of GST till the past GST dues are paid. Therefore, while the Applicant is eager to comply with GST laws, the Applicant has been unable to file returns and pay GST during the moratorium period.

The GST authority has now blocked the e-way bill facility for filing of returns, thus making the operations of the factory practically impossible and jeopardizing the maintenance of TEL as a going concern in terms of the provisions of the Code. Additionally, it is also apprehended by the Applicant that the Respondent may cancel the GST registration of TEL in light of the SCN issued by the CGST Dept.

Issue involved:

Whether the Return Filing Facility can be blocked for Taxpayers undergoing CIRP?

Held:

The Hon’ble NCLT Mumbai has passed the following order in the matter of Miscellaneous Application No. 4048/2019 dated January 27th, 2020 observing as follows:

  • In the present case it is submitted by the Resolution Professional that the moratorium under section 14 of the I&B Code vide the respective Admission Orders will apply to all the registrations, licenses and permits including the Central Goods and Servicing Department registrations obtained by TEL. In view of the same, it is imperative that the GST registrations obtained by TEL, one of the Corporate Debtors, is also preserved during the moratorium period to enable the Corporate Debtors to find a potential resolution applicant and successfully complete the CIRP.
  • While the Applicant had endeavoured to file GST returns online as well as deposit GST online, however, he is unable to file the GST returns for the moratorium period due to the technical constrains owing to the GST portal requiring past dues to be paid first (which pertained to the period prior to commencement of CIRP) and consequently, the Corporate Debtors’ GST liabilities cannot be deposited, till the time the dues pertaining to the period prior to the commencement of CIRP are fully paid.
  • It is noteworthy that while the GST laws do not restrict deposition of GST in a particular month if the prior GST dues are not paid, the online portal restricts the same. Further, the Hon’ble National Company Law Tribunal, Chandigarh Bench, in a case of M/s Hind Tradex Ltd. V/s M/s Lakshmi Precision Screws Ltd., CA No. 491 of 2018, has recognised that a resolution professional is unable to file returns during the moratorium period due to the design of the online GST portal, which leads to an unnecessary and avoidable non-compliance with law. Accordingly, the Hon’ble Tribunal was pleased to pass the following Orders :-

“Having heard the learned counsel for the parties, we allow this application partly, permitting the Interim Resolution Professional/Resolution Professional to file the regular returns in accordance with the provisions of the Goods and Services Tax Act and the related provisions in physical form and also pay the taxes collected by the Interim Resolution Professional/Resolution Professional, as the case may be in accordance with the provisions of Goods and Services Tax Act and the respondents-Departments are directed to accept the payment of the tax and the returns in physical form.”

Conclusively, the Hon’ble NCLT Mumbai allowed all the reliefs sought by the Applicant in the present miscellaneous application i.e to restore the E-way bill facility, to accept the manual/physical filing of GST Returns if possible and to not take any coercive steps against the Corporate Debtors.

Important Provisions:

Section 14 of the Insolvency and Bankruptcy Code

(1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following namely :-

(a) The institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority.

(b) Transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein.

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