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CBIC issues clarifications on tax recovery from firms under insolvency

New Delhi, December 28, 2022 

Issues a separate circular on limitation period of show-cause notices

The Central Board of Indirect Taxes and Customs (CBIC) issued two key circulars on Wednesday, clarifying its stance on the treatment of tax dues from companies undergoing insolvency and the limitation period for issuing show-cause notices under the Goods and Services Tax (GST) regime. This is following the approval of the GST Council in its December 17 meeting.

On the issue of recovery of tax dues from firms under insolvency, the apex body of indirect taxation clarified that proceedings under Insolvency and Bankruptcy Code (IBC) would now come under the purview of Section 84 of the CGST Act. The provision deals with the process to be followed when the original tax, interest or penalty (‘Government Dues’) stands reduced under an appeal, revision or other proceedings.

The circular clarified that scope of ‘proceedings’ under Section 84 would cover those under IBC as well. Therefore, where confirmed government dues stand reduced under an IBC order, the GST department shall only recover such reduced dues by following the prescribed procedure.

Under the procedure, an intimation for such reduction of government dues has to be given by the Commissioner to such person and to the appropriate authority with whom the recovery proceedings are pending. Further, recovery proceedings can be continued in relation to such reduced amounts of government dues.

In a separate circular, CBIC clarified that in case a show-cause notice was issued beyond the “limitation period” and the adjudicating authority held that an extended period of limitation cannot be invoked, then the entire proceeding will have to be dropped. It further clarified that in case a show-cause notice was issued for multiple financial years and only a part of the period is subject to limitation, then the demand will sustain only for the period which is under the limitation period.

GST law provides an effective period of two years and nine months from a prescribed date to issue a show-cause notice.

[The Business Standard]

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