Operational debt treatment for government tax dues prevails over state VAT priority under insolvency law.

Government tax dues were treated as operational debt under the insolvency framework, so the State Tax Department could not claim secured statutory creditor status in preference to the Code. Section 48 of the Gujarat Value Added Tax, 2003 was held not to override section 238 of the Insolvency and Bankruptcy Code, 2016 because the Code has overriding effect over inconsistent state law provisions. The dues therefore had to be pursued through the resolution professional in the operational creditor capacity, and the applicant's claim failed on merits.

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Issues: (i) Whether Government tax dues claimed by the State Tax Department could be treated as secured statutory creditor dues in preference to the insolvency regime; (ii) whether section 48 of the Gujarat Value Added Tax, 2003 could prevail over section 238 of the Insolvency and Bankruptcy Code, 2016.

Issue (i): Whether Government tax dues claimed by the State Tax Department could be treated as secured statutory creditor dues in preference to the insolvency regime.

Analysis: The dues claimed by the State Government were examined against the scheme of the Insolvency and Bankruptcy Code, where dues payable to the Government or a local authority fall within the category of operational debt. The definitions relied on by the Authority show that such statutory dues are not treated as financial debt, and the claim to be recognized as a secured statutory creditor was inconsistent with that scheme.

Conclusion: The claim for treatment as a secured statutory creditor was not accepted.

Issue (ii): Whether section 48 of the Gujarat Value Added Tax, 2003 could prevail over section 238 of the Insolvency and Bankruptcy Code, 2016.

Analysis: Section 238 of the Insolvency and Bankruptcy Code gives the Code overriding effect over inconsistent provisions of other laws. On that basis, any inconsistency between the State VAT provision and the insolvency framework could not displace the operation of the Code. The Authority also relied on the settled position that statutory dues do not escape the insolvency classification merely because another law provides a priority or recovery mechanism.

Conclusion: Section 48 of the Gujarat Value Added Tax, 2003 did not override section 238 of the Insolvency and Bankruptcy Code, 2016.

Final Conclusion: The application failed on merits because the applicant's dues were held to fall within the operational creditor framework under insolvency law, leaving only the remedy of filing the claim before the resolution professional in that capacity.

Ratio Decidendi: Statutory dues payable to the Government are to be treated as operational debt under the insolvency framework, and any inconsistent priority claim under another statute yields to the overriding effect of section 238 of the Insolvency and Bankruptcy Code, 2016.

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