The Delhi High Court decided to investigate if the GST department can perform indirectly what the insolvency law averts it from accomplishing directly.
When the goods and services tax council refuses the GST input tax credit to the customers of the insolvent entity on the basis of the unpaid dues of the latter.
The matter is concerned with Trimax IT Infrastructure and Services Ltd., which admitted to insolvency in 2018. Thereon, a resolution plan, submitted via EbixCash Ltd., for Trimax was authorized by the National Company Law Tribunal in May 2020.
As per the plan, all the GST claims along with the indirect taxes were being settled for Rs 1. The same was sanctioned via the insolvency tribunal that directed that the GST council can not move against the insolvent company for any tax dues.
As the notice would be imposed on Trimax’s customers the national informatics centre refuses the ITC to the tune of Rs 3.4 cr upon the supplies that have been incurred via an insolvent firm. The input tax credit was refused on the basis of the details that Trimax received the GST via NIC however unable to deposit the same with the government. As the council has refused the same credit, NIC sustained the payments to Trimax on future invoices.
This prompted Trimax which is now EbixCash Mobility Software India Ltd. before the high court. The GST authorities attempting to meet their claim indirectly by initiating actions against its customers since there is no direct action that can come against it, EbixCash Mobility before the court.
Breach of clean state doctrine under insolvency law is there that has been done by the department.
Read Also: Best Tips to Protect GST ITC After Draconian Changes 2022
Clean slate doctrine furnishes, when the tribunal approves a resolution plan then there would be no claim satisfied or else it endures. When the tax council provides the claim which would be settled under the resolution plan then there shall be no claim that can exist against the company. The same must be extended to the customers of the company as well. They must allot ITC for the goods obtained.
Tax experts elaborated the same would not as black-and-white. As per him, various conditions would be required to get fulfilled under GST law to claim the credit, i.e. possession of a tax invoice, proof of goods or services obtained through furnishing the returns, and tax payment to the government. Until the sort of conditions is met, the recipient of service for the matter, NIC is not really permitted to credit.
In the literal GST provisions interpretation, the council is not obligated to provide the credit for the unpaid tax. For the current case but there would be no proceedings that could come against the insolvent firm to recover the tax. against the recipient, no bar would proceed for the same sort of services since the supplier and the recipient would secure the joint and various liability under the act.
The major thing is whether the bona fide individual could refuse the credit on the non-payment of the tax via a supplier.
The Bombay High Court backed against permitting the credit while the Madras and Calcutta High Courts have permitted the tax credit in bona fide transactions.
A notice would have been allotted by the high court for the matter of Ebix’s, recognizing the issue needs subsequent consideration. The court shall hear the case dated Jan. 24.
