GST Law VS IBC Law: A Brief Analysis

GST (Goods and Service Tax) law and IBC (Insolvency and Bankruptcy code) law are two different laws in India that deal with different aspects of taxation and insolvency. While both the law is aimed at bringing efficiency and transparency in the business environment, they are fundamentally different laws. In this article we will discuss about GST Law VS. IBC Laws.

Quick Look

Goods and Services Tax (GST) law and Insolvency and Bankruptcy Code (IBC) law are two important legislations that were introduced in India in recent times. While GST aims to simplify and unify the country’s indirect tax regime, IBC provides for the insolvency resolution and bankruptcy process of companies in India. Before we compare and contrast the GST law and IBC law, highlighting their similarities and differences let us first discuss about GST Laws and IBC Laws in short so that we could have a basic understanding of both of these laws.

What is GST Law?

Goods and Service Tax (GST) was introduced in India in July 2017. GST tax is any tax on supply of goods or services or supply of both except tax on supply of alcoholic liquor for human consumption. GST simplified the taxation system as multiple indirect taxes got replaced with GST such as excise duty, service tax and value added tax.

The aim of introducing GST was to simplify the tax structure, reduce the tax burden on businesses, and ensure transparency in tax collection. Under GST, a business needs to register itself for GST Registration and file periodic returns based on its turnover. GST is levied at different rates based on the nature of goods and services.

What is IBC Law?

The Insolvency and Bankruptcy Code (IBC) was enacted in India in 2016 to provide a comprehensive legal framework for the insolvency resolution and bankruptcy process. The objective of IBC is to facilitate the revival of insolvent companies or, if that is not possible, to ensure a fair and equitable distribution of assets among the creditors. 

The IBC provides for two types of insolvency proceedings: Corporate Insolvency Resolution Process (CIRP) for companies and firms, and the Bankruptcy Process for individuals and partnerships.

IBC was introduced to resolve claims involving insolvent companies. The aim is to provide effective and efficient framework for resolving bankruptcy and insolvency cases.

Comparison with regards to Administrative Body in GST Laws and IBC Laws

The following are the comparison of GST and IBC Laws upon Administrative Body:

• GST Law: Administrative Body: The GST Law is administered by the GST Council. GST Council is a governing body to direct and regulate every step for the implementation of GST Tax in the country such as to modify, regulate and reconcile the decision over certain important aspects such as tax rates and other implementation measures too.
  It also monitors all the taxation process to avoid any fraudulent process and to provide support to the respective departments. The GST Council is headed by the Finance Minister of India which includes representative from all the union territories and state of India. The council introduced new taxation methods to ease the taxation process for the taxpayers by replacing all the existing multiple taxation process.

• IBC Law: Administrative Body: The IBC Law is administered by the Insolvency and Bankruptcy Board in India (IBBI). The IBBI is responsible for overseeing the implementation of IBC law in India. IBBI has various functions such as enforcing and developing rules and regulations related to insolvency and bankruptcy process, providing training and education to insolvency professional, maintaining an information database related to insolvency and bankruptcy cases, regulating and registration of insolvency agencies and professionals.
  Another important authority for IBC Law is (NCLT) National Company Law Tribunal, which is a quasi-judicial body. NCLT is a quasi – judicial body incorporated for dealing with corporate matters that are of civil nature, pertaining to claims of mismanagement and oppression of a company, winding up of company or all the powers that are prescribed under the Companies Act, 2013.

Comparison with regards to Purpose of incorporation of GST and IBC Laws 

The following are the purpose of incorporation of GST and IBC Laws:

Purpose of GST Law

The purposes of incorporation of GST Laws are:

• The main purpose of GST Law is to create a transparent, simplified, and efficient taxation system that benefits both the government and the taxpayer. 
• GST pave the way for common national market and the nationwide surveillance system under GST, making it easier to catch defaulters and tax evaders.
• GST helps to mitigate ill effects of double taxation and cascading in a major way as tax is only applicable on the net value added during each stage of supply chain.
• GST laws aims to create a uniform tax structure across the country and improve compliance which enhance the ease of doing business.
• GST eases the government’s tax administration process and reduces the burden of compliance for taxpayers as it helps to subsume most of the indirect taxes into a single taxation system.
• GST helps to widen the tax base in India, as it includes all the transaction related to goods and services in the country, so there is a greater scope for an increase in the number of the firms coming under the tax registration as compared to erstwhile indirect taxes.

Purpose of IBC Law

The following are the purpose of incorporation of IBC Laws:

• IBC provides a simplified, time bound, efficient and result oriented procedure for the resolution of all conflicts for insolvency and bankruptcy cases to prevent the assets from becoming unproductive.
• IBC aims to maximize the value of assets of the debtor company; it helps to restructuring of the dues in a manner to not cause any loss to any of the parties involved. It ensures that debtor’s assets are sold off in a fair and transparent manner.
• IBC helps to promote entrepreneurship, as a law provides the mechanism for companies to exit quickly if they are not viable, thus freeing up resources for new business to enter the market.
• IBC ensures that all the creditors are treated in an equitable manner depending on their share of credit or dues owned.
• IBC aims to protect the interests of all stakeholders, including employees, creditors, and shareholders.
• IBC provides for information utilities. These utilities provide all information that is required for the process enshrined under the IBC. The information utility helps to collect all the information that may come in use or may be of importance in deciding the future of an entity.
• The IBC Law improves the ease of doing business in India by providing a clear and predictable legal framework for resolving insolvency and bankruptcy cases.

Comparison with regards to types of GST and IBC Law

The following are the comparison between GST and IBC Laws, on behalf of different types:

Types of GST Law

The following are the types of GST Laws:

• Central Goods and Service Tax Law (CGST): The tax imposed by the central government on intra state supply of goods and services that is supply within the state.
• State Goods and Service Tax (SGST): The tax imposed by state government on intra state supply of goods and services that is supply within the state.
• Union Territory Goods and Service Tax (UGST): The tax imposed by the union territories of India on the intra state supply of goods and services. UGST and service tax replaces SGST in union territories like Andaman and Nicobar Islands or Chandigarh.
• Integrated Goods and Service Tax (IGST): The tax imposed on supply of goods and services on interstate basis that is between different states of India. Under IGST the taxes charged are shared by both the centre and state. It applies to exports and imports as well.

These are four major tax types of GST, in addition to these there may be other taxes such as Cess, Compensation Cess and Surcharge imposed on specific goods and services in some jurisdictions.

Types of IBC Law

The following are the types of IBC Laws:

• Individual Insolvency Resolution Process (IIRP): Individual Insolvency Resolution Process deals with the insolvency and bankruptcy of partnership firms, sole proprietorships, and individuals. A firm or an individual can initiate an IIRP when they are unable to pay their funds.
• Corporate Insolvency Resolution Process: CIRP is the most common type of IBC Law that deals with corporate entities. Under this law a company that is unable to pay its debts can be initiated into a resolution process to resolve its financial distress.
• Liquidation Process: Liquidation Process is initiated when an individual or a company fails to resolve their financial distress under the IIRP or CIRP. The process involves the sale of assets of an individual or a company to repay their debts.
• Cross Border Insolvency: This law deals with cases that include individuals or entities located outside of India. It provides a cooperation and coordination between foreign courts and Indian courts in resolving such cases.
• Pre – Packaged Insolvency Resolution Process (PPIRP): This law is a new addition to IBC. It is a cost-effective and faster resolution process that allows distressed company to prepare a resolution plan before initiating the CIRP.

Comparison with regards to Exemption offered under GST and IBC Law

The comparison as on behalf of exemption offered under GST and IBC Laws are as follows:

Exemption under GST Law

The following are the exemption offered under GST Laws:

• GST is not applicable on essential items such as vegetable, milk, food grains etc.
• Services provided by clinics, hospitals and educational institutions are exempt from GST.
• Export of goods and services are Zero rated under GST.
• Small businesses with annual turnover of 40 lakh (20 lakh in case of special category) are exempt from GST.
• Many agricultural product and services related to agriculture are exempt.
• Services provided by government and local authorities are exempt.
• Services provided by stockbrokers, banks, and insurance companies are exempt.

Exemption under IBC Law

The following are the exemption offered under IBC Laws:

• Insurance companies, banks and other financial service provider are exempted from the provision of IBC Law.
• The small companies with a turnover up to 1 crore or debt up to 1 crore are exempt.
• The IBC does not apply to partnership firms and individuals.
• Companies owned by central government are outside the ambit of the code.
• Public – private partnership project is exempt.

It is important to note that exemptions under IBC and GST are subject to change and may vary based on amendments.

Other Miscellaneous Comparison and Similarities between GST and IBC Laws

Although GST and IBC laws are two separate legislations, they are related in several ways. Let’s take a look at the similarities and differences between these two laws.

• Applicability: The GST law applies to all businesses, irrespective of their size, nature, or location. On the other hand, the IBC law applies only to companies, firms, and individuals who have a minimum threshold of outstanding debt or default.

• Objectives: While the primary objective of GST is to simplify and unify the indirect tax structure in India, IBC aims to provide a framework for the insolvency resolution and bankruptcy process.

• Processes: Under GST, businesses need to register themselves, file returns, and pay taxes periodically based on their turnover. In contrast, under IBC, the insolvency resolution process involves a range of legal and financial procedures, such as identifying the defaulting entity, appointing an insolvency professional, inviting bids for the insolvent entity, and ensuring the equitable distribution of assets among the creditors.

• Role of Government: The government plays a significant role in both GST and IBC. Under GST, the government sets the tax rates, collects taxes, and ensures compliance by businesses. Under IBC, the government appoints the Insolvency and Bankruptcy Board of India (IBBI), which is responsible for implementing the provisions of the law and regulating the insolvency professionals.

• Legal Framework: Both GST and IBC are comprehensive legal frameworks that provide a comprehensive set of rules and regulations for businesses and creditors. However, IBC has a more complex legal framework that involves the involvement of the judiciary and the National Company Law Tribunal (NCLT) in the insolvency resolution process.

GST law VS IBC law: Which is better?

It is not fair to compare the GST law and IBC law directly, as they serve different purposes. However, if we look at the impact that these laws have had on the Indian economy, we can say that both laws have been beneficial. The GST law has simplified the indirect tax system in India and has increased tax compliance, while the IBC law has streamlined the insolvency and bankruptcy process and has made it easier for creditors to recover their dues.

Conclusion

In conclusion, while GST and IBC laws have different objectives and processes, they are both important for the smooth functioning of the Indian economy. While GST aims to simplify and unify the indirect tax structure in India, IBC provides a legal framework for the insolvency resolution and bankruptcy process. Despite the differences, both laws are interrelated, and businesses need to comply with both laws to ensure smooth operations.