Companies Which Are In A Fix Due To Clashing GST, IBC Rules Likely To Take Indirect Tax Department To Court

Companies are likely to take the indirect tax department to court due to a clash between the goods and services tax (GST) regime and the Insolvency and Bankruptcy Code (IBC).

Apparently, the GST software doesn’t allow companies to pay current or future taxes without clearing dues of earlier years, though under the IBC, the tax department has to wait until all creditors get their dues before beginning recovery.

Incidentally, there is a moratorium under the IBC framework and companies do not have to pay past taxes after a defined trigger point. Yet, due to the manner in which the GST software works, companies can’t pay taxes until they have cleared dues.

The matter is likely to be challenged court since companies fell that the tax department should either allow them to pay GST without clearing their dues or refund the money paid for the previous period within statutory time prescribed.

Presently, companies are first asked to pay previous years’ indirect taxes if they wish to continue with future GST payments. This not only blocks cash flows of several bankrupt companies which are already under financial pressure, but also seem to flout current IBC regulations.

In several cases, the direct tax department has not been able to claim past taxes from companies under the resolution process.

On the other hand, GST has to be paid by the end consumer and no goods or services can be sold without paying the tax.