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Government Seeks To Recover Tax Dues From IL&FS Group Companies

Tax officials have been asked to recover indirect tax from 169 India-based entities of IL&FS, according to an internal note.

A student attends a welding class during vocational training at the Infrastructure Leasing & Financial Services  Institute of Skills in New Delhi. (Photograph: Udit Kulshrestha/Bloomberg)  
A student attends a welding class during vocational training at the Infrastructure Leasing & Financial Services Institute of Skills in New Delhi. (Photograph: Udit Kulshrestha/Bloomberg)  

The Central Board of Indirect Taxes and Customs has directed its officials to take “suitable action” to recover dues from India-based subsidiaries of debt-ridden Infrastructure Leasing & Financial Services, according to an internal note accessed by BloombergQuint.

Tax officials have been asked to recover indirect tax from 169 India-based entities of IL&FS, according to the note. 47 subsidiaries of the IL&FS group are closed, and out of the remaining 302 entities, 133 are overseas firms and 169 are based in India, the note said, citing an affidavit filed on Feb. 12 by the central government against the company in National Company Law Tribunal.

While the National Company Law Appellate Tribunal had earlier imposed a moratorium on subsidiaries of IL&FS, the tax department believes that it won’t affect the ascertainment of tax, and recovery once the case is resolved, an official said requesting anonymity.

The indirect tax department has used permanent account numbers and the goods and service tax identification numbers of these 169 companies and segregated them based on their jurisdictions, the person cited earlier said. He also said the regional or zonal offices of CBIC have been informed to recover tax from entities that fall under their respective jurisdictions.

Not Just IL&FS

The indirect tax department has also ordered its officials to actively monitor announcements by the NCLT to check if the corporate insolvency resolution process has been initiated against a company that owes tax to the government, the person cited earlier said, adding that if such a case is found, the tax officer will have to file a claim before the interim resolution professional.

Udit Gupta, partner at the law firm Udit Kishan & Associates, however, told BloombergQuint that there would be a problem in ascertaining the amount claimed by the tax department. “If a penalty is imposed, the resolution professional has no legal authority to adjudicate, which judicial or quasi-judicial bodies have.”

As statutory tax dues have been declared as operational debt under the Insolvency and Bankruptcy Code, the official said that indirect tax officers have been asked to engage in the resolution process as operational creditors, and if dues claimed by them are not less than 10 percent of the total debt, they should attend the meeting of committee of creditors as well.

Special emphasis is needed in cases where insolvency proceedings are initiated against parties that are already under the indirect tax department’s radar, the note said, adding that these cases would be pending at investigation, audit or adjudication stage, while officers have been advised to expedite the process and fast-track pending anti-evasion cases.

This, according to Gupta, won’t delay the overall insolvency resolution process if the tax department submits its claims with proof, within the stipulated time of 90 days from initiation of insolvency process.

In cases where a debtor is liquidated, tax officers have to actively monitor initiation of the process and ensure tax department’s claims are submitted to the liquidator, the official cited earlier said.

The tax department has also directed its officers to monitor matters pending at debt recovery tribunals to protect the government’s revenue, the official said. The tax department has observed inadequate representation in DRT proceedings by officers, which has led to passing of orders which do not include taxman’s claims, he said.

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