Government tax dues as operational debt override secured creditor claims under insolvency law

Statutory tax dues payable to the Government were treated as operational debt under the Insolvency and Bankruptcy Code, 2016, and not as secured creditor dues under the Gujarat Value Added Tax Act, 2003. The claim to secured status based on section 48 of the GVAT Act was rejected because section 238 of the Insolvency and Bankruptcy Code gives the Code overriding effect over inconsistent state-law provisions. The government authority was therefore required to lodge its claim before the Resolution Professional as an operational creditor, rather than assert secured creditor priority in the insolvency process.

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Issues: Whether the State tax dues could be treated as secured creditor dues under the Gujarat Value Added Tax Act, 2003 notwithstanding the Insolvency and Bankruptcy Code, 2016, and whether such dues were to be dealt with as operational debt under the insolvency framework.

Analysis: The dues claimed by the State authority were held to fall within the concept of operational debt, as statutory dues payable to the Government are covered by the insolvency definition of operational debt. The claim to secured creditor status based on section 48 of the Gujarat Value Added Tax Act, 2003 was found untenable because section 238 of the Insolvency and Bankruptcy Code, 2016 gives the Code overriding effect over inconsistent provisions of laws. The order relied on the settled position that statutory dues of this nature are to be addressed within the insolvency process and that government authorities do not acquire secured creditor status merely by virtue of the taxing statute.

Conclusion: The claim to be treated as a secured creditor was rejected, and the applicant was relegated to filing its claim as an operational creditor before the Resolution Professional.

Ratio Decidendi: Where statutory dues are payable to the Government, they constitute operational debt under the Insolvency and Bankruptcy Code, 2016, and any inconsistent claim to secured status under another law is overridden by section 238 of the Code.

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