Authority of GST Department and Resolution Professionals over GST Dues under IBC: Legal Framework and Limitations

Introduction
The intersection of tax administration and insolvency proceedings has emerged as a critical area of legal discourse in India. When a corporate entity undergoes the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC), questions arise regarding the treatment of GST dues under IBC, particularly the extent to which Resolution Professionals can modify statutory tax liabilities, including Goods and Services Tax (GST) demands. This article examines whether the GST Department can permit or whether a Resolution Professional possesses the authority to edit or reduce GST amounts that have been assessed and confirmed by tax authorities. The analysis reveals that while Resolution Professionals manage the corporate debtor’s affairs during insolvency proceedings, they lack adjudicatory powers to alter tax assessments made under the GST regime.

CAN THE GST DEPARTMENT EDIT OR REDUCE THE GST AMOUNT BY A RESOLUTION PROFESSIONAL?

Understanding the Roles and Statutory Framework

The Resolution Professional’s Mandate

Under the IBC, when insolvency proceedings commence against a corporate debtor, the National Company Law Tribunal (NCLT) appoints a Resolution Professional who assumes control of the company’s management and operations. The primary objective is to revive the corporate debtor as a going concern rather than liquidate its assets. The Resolution Professional’s role encompasses administrative functions including managing day-to-day operations, inviting and evaluating resolution plans, and presenting these plans before the Committee of Creditors (CoC) for approval. However, the nature and extent of these powers are circumscribed by statutory provisions and judicial precedents.

The Supreme Court clarified the scope of Resolution Professional powers in Swiss Ribbons Pvt. Ltd. v. Union of India [1], where it emphasized that Resolution Professionals exercise administrative rather than quasi-judicial or adjudicatory functions. The Court observed that unlike liquidators, Resolution Professionals cannot act independently on numerous matters without approval from the Committee of Creditors, and their decisions are subject to oversight by both the CoC and the Adjudicating Authority. This fundamental principle establishes that Resolution Professionals serve as facilitators of the insolvency resolution process rather than as authorities empowered to make judicial determinations on disputed claims or modify legally confirmed tax assessments.

GST Department’s Authority and Assessment Powers

The Central Goods and Services Tax Act, 2017 (CGST Act) establishes a comprehensive framework for tax assessment and recovery. When the GST Department conducts assessments and issues demand orders under various provisions of the CGST Act, these determinations carry the force of law. Section 84 of the CGST Act specifically addresses situations where government dues are reduced through appeals, revisions, or other proceedings, requiring the Commissioner to issue intimations regarding such reductions to relevant authorities and the affected taxpayer [2].

The CGST Act empowers proper officers to issue assessment orders, which become final unless challenged through prescribed appellate mechanisms. These assessment orders represent adjudicatory decisions made by competent tax authorities exercising quasi-judicial functions. The legal framework does not contemplate Resolution Professionals as authorities competent to review, modify, or set aside such tax determinations, as these functions remain vested exclusively in the statutory authorities and appellate forums established under the GST legislation.

Limitation on Resolution Professional’s Power to Modify GST Assessments

The NCLAT Precedent

A significant ruling by the National Company Law Appellate Tribunal established definitive boundaries regarding Resolution Professional authority over GST assessments. The Tribunal examined whether CIRP Regulations could supersede the GST Act and whether Resolution Professionals possessed authority to modify GST amounts levied through assessment orders issued by GST authorities [3]. The facts involved a Resolution Professional who had reduced GST demand amounts that had been determined through multiple assessment orders issued under Section 62 of the CGST Act during the insolvency resolution period.

The GST Department challenged this action, arguing that the Resolution Professional lacked adjudicatory powers to modify assessments. The Department relied on the Supreme Court’s decision in Swiss Ribbons Pvt. Ltd. v. Union of India, which held that Resolution Professionals do not possess adjudicatory powers under IBC provisions. The Tribunal accepted this contention, observing that while the IBC constitutes a complete code allowing the Committee of Creditors to exercise commercial wisdom, this does not extend to judicial wisdom. The acceptance or rejection of creditor claims falls within the Resolution Professional’s duties under Regulation 14 of the CIRP Regulations, but such power cannot be exercised to modify tax assessments made under the GST Act.

The Tribunal held that the GST Act does not confer adjudicatory rights upon Resolution Professionals. While Regulation 14 of the CIRP Regulations empowers Resolution Professionals to verify and revise claims that are imprecise due to contingencies or other reasons, this provision cannot be invoked to modify GST levied through proper assessment procedures under the GST Act. The exercise of such power would effectively position the Resolution Professional as exercising powers vested in GST authorities, which clearly exceeds their statutory mandate. The Tribunal clarified that GST assessment orders attained finality during the resolution period, and the Resolution Professional committed an error by attempting to reduce these amounts under the pretext of exercising powers under Regulation 14.

Distinction Between Claim Verification and Tax Adjudication

The legal framework draws a crucial distinction between the Resolution Professional’s duty to verify creditor claims and the adjudicatory function of determining tax liability. When creditors, including tax authorities, file claims with the Resolution Professional during CIRP, the professional must examine these claims for accuracy and completeness. However, this verification process does not empower the Resolution Professional to question or modify the underlying legal determinations made by competent authorities.

In the context of GST, when the Department files claims based on confirmed assessment orders, the Resolution Professional must accept the quantum specified in those orders unless the orders are set aside through proper appellate procedures under the GST Act. The professional cannot substitute their own assessment for that of the tax authority, as doing so would constitute exercising judicial functions not contemplated by the IBC framework. Any dispute regarding the correctness or validity of a GST assessment must be pursued through the appellate mechanisms provided in the CGST Act, which include appeals to the Appellate Authority, the Appellate Tribunal, and ultimately to the High Court and Supreme Court.

Treatment of GST Dues under IBC: Statutory Framework and Judicial Limits

Pre-CIRP Period Dues as Operational Debt

The Central Board of Indirect Taxes and Customs (CBIC) issued Circular No. 134/04/2020-GST dated March 23, 2020, clarifying the treatment of GST dues arising before the commencement of CIRP [4]. This circular established that all GST dues pertaining to the period prior to CIRP commencement constitute operational debt under IBC provisions. The proper officer of the GST Department must file claims for such dues before the NCLT in accordance with IBC procedures rather than pursuing independent recovery action against the corporate debtor during the moratorium period imposed under Section 14 of the IBC.

This classification reflects the principle that once insolvency proceedings commence, the collective rights of all creditors, including government authorities, must be addressed through the resolution process. Tax authorities cannot maintain parallel recovery proceedings that would undermine the moratorium and the collective resolution mechanism established by the IBC. The GST Department’s claim for pre-CIRP dues stands on the same footing as claims of other operational creditors, subject to the priorities and distributions established in the approved resolution plan.

Post-CIRP Period Compliance Obligations

For GST liabilities arising during the CIRP period itself, different principles apply. Notification No. 11/2020-Central Tax dated March 21, 2020 prescribed special procedures under Section 148 of the CGST Act for corporate debtors undergoing CIRP [5]. This notification requires Resolution Professionals to obtain fresh GST registration on behalf of the corporate debtor, treating the entity under CIRP as a distinct person for registration purposes. The Resolution Professional bears responsibility for ensuring GST compliance during the CIRP period, including filing returns, making tax payments, and meeting all statutory obligations under the GST law.

The Resolution Professional’s obligation extends to filing the first return under Section 40 of the CGST Act for the period from the date the entity became liable for new registration until registration is granted. Subsequently, all applicable returns must be filed during the CIRP period. This framework ensures continuity of tax compliance while recognizing the changed management structure during insolvency proceedings. However, these compliance obligations do not translate into authority to modify pre-existing tax assessments or demands issued by GST authorities for periods before CIRP commencement.

Moratorium Protection and Its Limits

Section 14 of the IBC establishes a moratorium upon admission of an insolvency petition, which prohibits various actions including institution of suits or continuation of pending suits or proceedings against the corporate debtor, and enforcement of security interests. The scope of this moratorium has been examined in several judicial decisions to determine its applicability to tax proceedings and recovery actions.

The NCLT Kochi Bench addressed whether search and seizure operations conducted by the GST Department during CIRP violated the moratorium. The case involved GST officials who raided the corporate debtor’s premises, seized accounting documents, and issued summons to the Resolution Professional after the moratorium came into effect. The Tribunal held that these actions violated Section 14 of the IBC, noting that CBIC Circular No. 134/04/2020-GST explicitly stated that no coercive action should be taken regarding GST dues pertaining to the corporate debtor under CIRP [6]. The Tribunal ordered return of all seized records and set aside the summons issued to the Resolution Professional, while imposing compensatory costs on the GST Department.

This decision underscores that while GST authorities retain the right to file claims for pre-CIRP dues, they cannot pursue coercive recovery measures during the moratorium period. However, the moratorium does not extinguish tax liabilities or prevent the GST Department from participating in the resolution process as an operational creditor. The protection afforded by the moratorium is procedural rather than substantive, preventing harassment of the corporate debtor while resolution efforts proceed but not eliminating the underlying tax obligations.

Resolution Plan Approval and Its Binding Effect

The Finality Principle Under Section 31 of IBC

Section 31 of the IBC governs the approval of resolution plans and establishes their binding nature upon all stakeholders. When the Adjudicating Authority approves a resolution plan that meets statutory requirements and has been approved by the Committee of Creditors, the plan becomes binding on the corporate debtor and its employees, members, creditors (including the Central Government, State Governments, and local authorities to whom statutory dues are owed), guarantors, and other stakeholders. The 2019 amendment to Section 31 explicitly included governmental authorities to clarify that statutory dues fall within the ambit of claims that must be addressed in the resolution plan [7].

The Supreme Court examined this provision comprehensively in Ghanashyam Mishra and Sons (P.) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., which involved multiple cases raising a common issue: whether creditors, including governmental authorities, could pursue claims for dues not included in an approved resolution plan [8]. The Court held that once a resolution plan receives approval under Section 31(1), all claims provided in the plan stand frozen and become binding on all parties. Crucially, the Court declared that claims not forming part of the approved resolution plan stand extinguished, and no person is entitled to initiate or continue proceedings regarding such excluded claims.

This “clean slate” principle ensures that successful resolution applicants can implement their plans without facing surprise claims that would upset their financial calculations and render the plan unworkable. The Court emphasized that the 2019 amendment to Section 31 was clarificatory and declaratory in nature, applying retroactively from the date the IBC came into force. Therefore, even resolution plans approved before the amendment bound governmental authorities to the plan’s terms, with any statutory dues not included in the plan standing extinguished upon approval.

Implications for GST Claims

The binding nature of approved resolution plans has direct implications for GST claims. If the GST Department files its claim during CIRP and the approved resolution plan provides for payment of a specific amount toward these claims, the Department cannot subsequently pursue recovery of any additional amounts that existed before the plan’s approval. The resolution plan represents the final determination of all pre-existing liabilities, and any statutory dues not included are extinguished by operation of Section 31.

However, this principle applies only to dues arising before the CIRP period. GST liabilities that accrue during CIRP are CIRP costs that receive priority treatment under Section 53 of the IBC. Similarly, GST obligations arising after the resolution plan’s approval are new liabilities of the revived entity and do not fall within the scope of extinguished claims. The clean slate principle thus provides protection regarding historical dues while maintaining ongoing tax compliance obligations.

Reduction of Demands After IBC Proceedings

CBIC Circular 187/19/2022-GST

The Central Board of Indirect Taxes and Customs addressed the treatment of statutory dues after conclusion of IBC proceedings through Circular No. 187/19/2022-GST dated December 27, 2022 [9]. This circular responded to representations seeking clarification regarding the implementation of NCLT orders that reduced statutory dues as part of resolution plans. The circular interprets Section 84 of the CGST Act, which provides that when government dues are reduced through appeals, revisions, or other proceedings, the Commissioner must issue an intimation reducing the demand to the taxpayer and to authorities conducting recovery proceedings.

The circular clarifies that IBC proceedings fall within the scope of “other proceedings” under Section 84, as the NCLT and NCLAT function as quasi-judicial authorities adjudicating government dues pending under the CGST Act. Consequently, when IBC proceedings conclude with a resolution plan that reduces the quantum of GST dues payable compared to the original confirmed demand, the jurisdictional Commissioner must issue an intimation in Form GST DRC-25 reducing the demand accordingly. Recovery proceedings can continue only for the reduced amount specified in the resolution plan.

This mechanism provides the procedural framework for giving effect to reductions in GST liability that occur through the IBC process. Critically, however, this reduction occurs not through any modification by the Resolution Professional but through the binding effect of the resolution plan approved by the NCLT. The Resolution Professional does not determine the reduced amount; rather, the Committee of Creditors approves a resolution plan that proposes a certain payment toward GST dues, and upon NCLT approval, this amount becomes the extent of the corporate debtor’s liability. The GST Department must then adjust its records to reflect this court-approved resolution.

Procedure for Implementing Reductions

When a resolution plan approved by the NCLT provides for a reduced payment toward GST dues, the following procedure applies. The jurisdictional Commissioner examines the NCLT order approving the resolution plan and identifies the amount allocated for payment of GST dues. If confirmed demands were previously issued in Form GST DRC-07 or DRC-07A, the Commissioner issues a fresh intimation in Form GST DRC-25 reducing the demand to the amount specified in the resolution plan. This intimation is sent to the corporate debtor (now under new management following plan approval) and to any authorities with whom recovery proceedings were pending.

Upon receipt of the Form GST DRC-25 intimation, any ongoing recovery proceedings must be confined to the reduced amount. Tax authorities cannot pursue recovery of amounts exceeding what the resolution plan provides, as such claims have been extinguished by operation of Section 31 of the IBC. This procedure harmonizes the GST recovery framework with the insolvency resolution process, ensuring that the finality accorded to resolution plans by the IBC is given practical effect in tax administration.

Appellate Remedies for Disputed GST Assessments

Appropriate Forums for Challenging Tax Determinations

Neither the IBC framework nor the role of Resolution Professional provides a mechanism for challenging the correctness or validity of GST assessments. When the GST Department files claims based on confirmed assessment orders, any dispute regarding these assessments must be pursued through the appellate hierarchy established under the CGST Act. Section 107 of the CGST Act provides for appeals to the Appellate Authority against orders passed by adjudicating authorities. Further appeals lie to the Appellate Tribunal under Section 112, and thereafter to the High Court and Supreme Court under Sections 117 and 118 respectively.

The NCLAT has specifically directed that when there are disputes regarding the quantum of GST assessments, the appropriate remedy is to approach the Joint Commissioner or other appellate authority under the GST Act rather than seeking modification through the Resolution Professional’s claim verification process. In one case, the Tribunal directed the Resolution Professional to file an appeal before the Joint Commissioner for reassessment of the GST amount payable, recognizing that this was the proper forum for adjudicating tax disputes rather than the insolvency proceedings.

This requirement ensures that tax disputes are resolved by authorities with technical expertise in tax matters and in accordance with the substantive and procedural provisions of tax legislation. The insolvency framework is designed to address the collective resolution of a distressed entity’s affairs, not to serve as an alternative forum for adjudicating disputes about the correctness of individual creditors’ claims. Maintaining this separation of functions preserves the integrity of both the tax administration system and the insolvency resolution process.

Time Limitations and Practical Considerations

Corporate debtors undergoing CIRP must navigate time limitations in both the IBC and GST frameworks. The IBC mandates completion of CIRP within 330 days from the insolvency commencement date, including any extensions. During this period, the Resolution Professional must invite claims from all creditors, verify these claims, prepare an information memorandum, invite and evaluate resolution plans, and facilitate Committee of Creditors decisions. Given these time constraints, challenging GST assessments through appellate procedures may not always be feasible within the CIRP timeline.

Nevertheless, the legal position remains that unresolved disputes regarding GST assessments must be addressed through appropriate tax appellate forums. The Resolution Professional can note in the claim verification that certain assessments are under appeal or that grounds exist for challenging the assessments, but cannot unilaterally reduce the claimed amounts. When the Committee of Creditors evaluates resolution plans, the existence of disputed tax claims becomes a factor in assessing the corporate debtor’s true liability profile, and resolution applicants may structure their offers accordingly.

If a resolution plan is approved while tax appeals are pending, the plan’s provisions govern the extent of payment toward GST dues regardless of the ultimate outcome of the appeals. This is because Section 31 of the IBC extinguishes all claims not included in the approved plan, including disputed tax claims. The governmental authority becomes bound by the plan’s terms and cannot pursue additional recovery even if a pending appeal might have resulted in confirmation of higher tax liability.

Regulatory Framework and Compliance Requirements

Special Procedures for CIRP Entities

The GST regime recognizes the unique status of corporate debtors undergoing CIRP by prescribing special compliance procedures. Notification No. 11/2020-Central Tax requires Resolution Professionals to obtain fresh GST registration for the corporate debtor, treating it as a distinct person from the date of CIRP commencement. This approach acknowledges that management and control have shifted to the Resolution Professional while maintaining continuity of the business entity’s tax obligations.

The fresh registration requirement serves multiple purposes. It clearly demarcates the pre-CIRP period, for which the erstwhile management was responsible, from the CIRP period under Resolution Professional management. It also ensures that the Resolution Professional can file returns and make tax payments for the CIRP period without being burdened with compliance obligations relating to pre-CIRP periods for which returns may not have been filed. The existing registration is not cancelled but may be suspended by the proper officer if necessary.

Resolution Professionals must file the first return under Section 40 of the CGST Act covering the period from the date of liability for new registration until registration is granted. Thereafter, all applicable periodic returns must be filed during the CIRP period. The Resolution Professional can avail input tax credit on invoices bearing both the earlier GSTIN and the new GSTIN, subject to conditions specified in Chapter V of the CGST Act. This provision ensures continuity in credit chain despite the change in registration.

Interaction Between IBC and GST Provisions

The interaction between IBC and GST provisions requires careful coordination to avoid conflicts. Section 238 of the IBC establishes that IBC provisions override other laws to the extent of inconsistency. However, this overriding effect does not eliminate the substantive obligations imposed by tax laws but rather modifies procedural aspects to accommodate the insolvency resolution process.

The GST Department retains its authority to assess tax liabilities and issue demand orders even during CIRP, though enforcement actions are stayed by the moratorium. The Department’s status as an operational creditor for pre-CIRP dues and its right to file claims before the NCLT are recognized under the IBC framework. What changes is the mechanism for recovery: rather than independent enforcement proceedings, the Department’s claims are addressed collectively through the resolution process alongside other creditor claims.

For post-CIRP tax liabilities, the GST framework applies without modification. The Resolution Professional must ensure full compliance with GST obligations for transactions occurring during the CIRP period, as these represent costs of the resolution process itself. Any defaults in GST compliance during CIRP attract normal consequences under the CGST Act, including interest, penalties, and potential prosecution, though the moratorium prevents immediate enforcement actions against the corporate debtor’s assets.

Conclusion

The legal framework governing the intersection of GST administration and corporate insolvency, particularly the treatment of GST dues under IBC, establishes clear boundaries regarding the authority of Resolution Professionals and the GST Department. Resolution Professionals exercise administrative functions in managing corporate debtors during insolvency proceedings but lack adjudicatory powers to modify tax assessments made by competent authorities under the CGST Act. The GST Department’s assessment orders represent quasi-judicial determinations that can be challenged only through prescribed appellate mechanisms under tax legislation, not through claim verification procedures in insolvency proceedings.

GST dues arising before CIRP commencement constitute operational debt that must be claimed before the NCLT in accordance with IBC procedures. During the moratorium period, coercive recovery actions by the GST Department are prohibited, though the Department retains its right to participate in the resolution process as a creditor. For liabilities arising during CIRP, Resolution Professionals bear responsibility for ensuring compliance with all GST obligations, which form part of CIRP costs receiving priority treatment.

The binding effect of resolution plans approved under Section 31 of the IBC extends to all creditors, including governmental authorities to whom statutory dues are owed. Upon approval of a resolution plan, all claims not included in the plan stand extinguished, providing the successful resolution applicant with a clean slate. Where a resolution plan provides for reduced payment toward GST dues compared to original assessed amounts, the jurisdictional GST Commissioner must issue intimation in Form GST DRC-25 reducing the demand accordingly, confining recovery proceedings to the amount specified in the NCLT-approved plan.

This framework reflects a careful balance between preserving governmental revenue interests through proper tax administration and facilitating the revival of distressed corporate entities through time-bound resolution processes. Neither the Resolution Professional nor the GST Department can unilaterally modify confirmed tax assessments. Rather, the quantum of payment toward GST dues is determined through the collective resolution process involving creditor voting on proposed plans and NCLT approval of plans meeting statutory requirements. The system ensures that tax claims receive proper consideration in insolvency proceedings while maintaining the integrity of tax assessment and appellate procedures established under the GST legislation.

References

[1] Swiss Ribbons Pvt. Ltd. v. Union of India, (2019) 4 SCC 17, Supreme Court of India. Available at: https://indiankanoon.org/doc/17372683/ 

[2] Central Board of Indirect Taxes and Customs, Circular No. 187/19/2022-GST dated December 27, 2022. Available at: https://cbic-gst.gov.in/pdf/circular-187.pdf 

[3] IBC Laws, “Resolution Professional cannot modify GST levied under the Assessment Order” (January 2, 2022). Available at: https://ibclaw.blog/resolution-professional-cannot-modify-gst-levied-under-the-assessment-order/ 

[4] IBC Laws, “Compliance under GST to be followed by Resolution Professional during CIRP under Insolvency & Bankruptcy Code, 2016 (IBC).” Available at: https://ibclaw.in/compliance-under-gst-to-be-followed-by-resolution-professional-during-cirp/ 

[5] Clear Tax, “GST compliance of companies under Insolvency and Bankruptcy Code, 2016 (IBC)” (July 6, 2021). Available at: https://cleartax.in/s/gst-compliance-company-insolvency-bankruptcy 

[6] IBC Laws, “GST Search and Seizure during Insolvency proceedings and summons to Resolution Professional, NCLT imposes compensatory cost on GST Department.” Available at: https://ibclaw.in/gst-search-and-seizure-during-insolvency-proceedings-and-summons-to-resolution-professional-nclt-imposes-compensatory-cost/ 

[7] IBC Laws, “Section 31 of IBC – Insolvency and Bankruptcy Code, 2016: Approval of resolution plan.” Available at: https://ibclaw.in/section-31-approval-of-resolution-plan/ 

[8] Ghanashyam Mishra and Sons (P.) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd., (2021) ibclaw.in 54 SC, Supreme Court of India (Civil Appeal No. 8129 of 2019). Available at: https://indiankanoon.org/doc/30560910/ 

[9] Fintax Blog, “CBIC Clarification on Reduction in GST Demand/Statutory Dues in IBC cases” (March 6, 2023). Available at: https://fintaxblog.com/cbic-clarification-on-reduction-in-gst-demand-statutory-dues-in-ibc-cases/