ITC Issue in case of Acqusition of Company in Insolvency

[umeshkumar jhawar]

Dear Experts,

Our Client has acquired a Company from Resoultion Professional (RP) through Auction on going concern basis.

As per NCLT order new management will not be responsible for any Government dues before 01.08.2023 i.e. date of sale certificate.

Now GST official has conducted Survey on our company asking issue related to fake ITC pertaining to FY 2018-19 and FY 2019-20 i.e. prior to acquisition.

The above issue of Fake ITC was not known as on date of acqusition as per Financial given by RP as on 01.08.2023

The department has never filed any claim before RP for their demand in this regard.

Please suggest/guide how to proceeds with and reply Notices/Summon received during Survey.

[Sadanand Bulbule]

Dear querist 

In terms of Section 53 of the IBC, once the proceeds from the sale of the liquidated assets are distributed in the order of priority specified therein, no authority can claim any amount from the RP or the dissolved company post its sale. In this case, whether the ITC is fake or otherwise has nothing to with the IBC as it prevails over all the laws of the Union/State Governments. GST Act is a subordinate legislation to the IBC.

So you can apprise the GST Authority about this. Probably out of ignorance of the IBC law, it might have asked you about such ITC.  Nothing to worry at all.

[Shilpi Jain]

Yes. No claim should lie with the new management in this regard.

[DR.MARIAPPAN GOVINDARAJAN]

Once the resolution plan is approved by the Adjudicating Authority all the claims, which have not claimed with RP, are extinguished.  

AI Summary

Insolvency protection of acquirer: resolution plan extinguishes unpreserved pre sale tax claims against new management. Acquirer bought a company as a going concern under an insolvency sale with an order shielding the new management from pre sale government dues; a subsequent GST survey queried alleged pre acquisition fake ITC that was not claimed against the RP. Respondents state that once the resolution plan is approved and proceeds distributed per the insolvency code, authorities cannot claim those pre sale liabilities from the RP or the new management, and such unpreserved claims are extinguished under the insolvency framework.