Secured status of tax dues depends on statutory security interest, determining their treatment in the insolvency distribution waterfall.

Central Sales Tax dues do not constitute secured operational debt under the applicable Tribunal precedent, so they lack secured status in insolvency distribution. In contrast, dues under the Gujarat Value Added Tax Act, 2003 are treated as secured debt where the applicable statutory regime creates a secured interest. Those secured State tax dues are distributable through the statutory waterfall under Section 53 of the Insolvency and Bankruptcy Code. The stated principle is that tax dues receive secured-debt treatment in insolvency only when the governing tax law creates a security interest.

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Issues: (i) Whether Central Sales Tax dues constitute secured operational debt. (ii) Whether dues under the Gujarat Value Added Tax Act, 2003 constitute secured debt and are distributable under the insolvency waterfall.

Issue (i): Whether Central Sales Tax dues constitute secured operational debt.

Analysis: The determination that Central Sales Tax dues do not constitute secured operational debt was consistent with the applicable precedent of the Tribunal.

Conclusion: Central Sales Tax dues do not constitute secured operational debt. The conclusion is against the assessee.

Issue (ii): Whether dues under the Gujarat Value Added Tax Act, 2003 constitute secured debt and are distributable under the insolvency waterfall.

Analysis: Gujarat Value Added Tax dues were treated as secured debt in accordance with the settled legal position. Distribution of those secured dues is governed by the statutory waterfall under Section 53 of the Insolvency and Bankruptcy Code.

Conclusion: Dues under the Gujarat Value Added Tax Act, 2003 constitute secured debt and shall be distributed in accordance with Section 53 of the Insolvency and Bankruptcy Code. The conclusion is in favour of Revenue.

Final Conclusion: The secured status of State tax dues under the Gujarat Value Added Tax regime is recognised for insolvency distribution, whereas Central Sales Tax dues do not obtain the character of secured operational debt.

Ratio Decidendi: Tax dues qualify for insolvency distribution as secured debt only where the applicable statutory regime creates a secured interest; their distribution then follows the statutory waterfall.

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