IBC overriding effect versus State tax dues: article examines first charge, resolution plans, and crystallisation of liability on assessment.

The article examines whether the Insolvency and Bankruptcy Code's overriding effect under Section 238 can displace State VAT and entry tax dues, including whether Section 77 of the U.P. VAT Act creates a first charge that survives a resolution plan. It also addresses the contention that liability under State tax laws crystallises only upon assessment and demand notice, making that date relevant for recovery after insolvency resolution. The discussion contrasts the Code's bankruptcy framework with State taxing statutes and the competing arguments on priority, charge, and the effect of a resolution plan, but it does not record a final adjudication.

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Issues: Whether the overriding effect of Section 238 of the Insolvency and Bankruptcy Code, 2016 extends to State VAT dues and entry tax liabilities, whether Section 77 of the U.P. VAT Act creates a first charge unaffected by the resolution plan, and whether liability under the State tax enactments crystallises upon assessment and demand notice for purposes of recovery after approval of a resolution plan.

Analysis: The submissions emphasised that the Insolvency and Bankruptcy Code operates in the field of bankruptcy and insolvency under the Concurrent List, whereas the U.P. VAT Act and the Uttar Pradesh Tax on Entry of Goods into Local Areas Act, 2007 are State enactments within the State List. It was further urged that the Code's provisions for resolution plans and overriding effect do not extend to extinguishing State tax dues, particularly where the State statute creates a first charge. Reliance was also placed on the scheme of the Code and on the distinction between debts dealt with under the Code and liabilities under State taxing statutes. On the question of timing, it was submitted that assessment followed by demand notice crystallises the liability under the State tax laws and that the relevant date for recovery purposes is the date of assessment and demand, not merely the taxable event.

Outcome: The matter was not finally decided and was adjourned for further hearing along with connected writ petitions.

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