TaxTMI 
TaxTMI 
2026 (1) TMI 395
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....porate Debtor ("CD") - M/s Afcan Impex Pvt. Ltd. was admitted to Corporate Insolvency Resolution Process ("CIRP") by order dated 17.02.2021 based on an application filed by Bank of Maharashtra under Section 7 of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the "IBC"). (ii) The RP issued public announcement on 23.02.2021 inviting the claims. The Appellant - State Tax Officer filed its claim in Form-B on 19.04.2021, which was provisionally accepted by the RP. (iii) On 10.03.2023, the Appellant addressed a letter to the RP to consider the Appellant's claim as secured creditor as per the judgment of the Hon'ble Supreme Court in Rainbow Papers Pvt. Ltd. The RP sent a reply dated 03.04.2023, in which the Appellant's claim was not accepted as secured creditor. The RP informed the Appellant that Committee of Creditors ("CoC") has approved the Resolution Plan, which has been submitted before the Adjudicating Authority for approval. (iv) In the Resolution Plan, the State Tax Officer was not considered as secured creditor. The assets of the CD were attached by the State Tax Department, for which the RP filed an application - IA No.1513 of 202....
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....ble Appellate Tribunal; c) That this Hon'ble Appellate Tribunal may be pleased to declare the status of the unpaid CST dues of the Appellant as a secured dues as such that the Appellant be consider as a secured creditor under section 53(1)(b)(ii) of the Code; d) Pass such other/further order(s) or direction(s) as this Hon'ble Tribunal may deem fit and proper in the facts and circumstances of the case." Company Appeal (AT) (Ins.) No.1805 of 2025 "a) This Hon'ble Appellate Tribunal may be pleased to quash and set aside the impugned order dated 30.09.2025 passed by the Hon'ble Adjudicating Authority in Interlocutory Application No. 447 of 2025 in C.P. (IB) No. 289 of 2020 and direct the resolution professional to consider the claim of the appellant under the CST Act,1956 as secured creditor as per the judgment of Hon'ble Supreme Court in the case of Rainbow Papers Limited;; b) This Hon'ble Appellate Tribunal may be pleased to direct the Respondent No. 1 to deposit the amount of claim which the appellant is entitled to receive under section 53(1)(b)(ii) of the Code before the registry of this Hon'ble Appellate Tribunal; c) That ....
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....nd judgment of Gujarat High Court, which we shall refer hereinafter. 6. Learned Counsel appearing for the Respondent supported the impugned order and submits that there are no pari materia provision under CST Act to that of GVAT Act. Section 48 of GVAT Act provides for creation of statutory charge on the assets of the CD, whereas Section 9 sub-section (2) of CST Act, does not provide creation of statutory charge by operation of law. Section 9 sub-section (2) simply says that CST shall be assessed, re-assessed, collected and enforced by the State Authorities as if it were tax under the State VAT law. It is submitted that provision of Section 9 sub-section (2) is a machinery provision, not a provision creating a separate statutory charge unlike GVAT Act Section 48. Section 9 sub-section (2) imports only the procedural machinery of VAT law for assessment and recovery. It does not and cannot import the substantive first charge created under Section 48 of the GVAT Act. The CST Act does not contain any pari-materia provision like Section 48 of GVAT Act. The deeming fiction in Section 9 sub-section (2) is expressly limited to procedural matters, i.e. assessment, returns, recovery steps....
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....nt of tax, interest or penalty for which he is liable to pay to the Government shall be a first charge on the property of such dealer, or as the case may be, such per- son."" 8.1. The Hon'ble Supreme Court in the above judgment held that secured interest could be created by operation of law. Relying on Section 48 of the GVAT Act, the Hon'ble Supreme Court held that security interest has been created by operation of law. In Paragraphs 56 to 59, the Hon'ble Supreme Court has laid down following: "56. Section 48 of the GVAT Act is not contrary to or inconsistent with Section 53 or any other provisions of IBC. Under Section 53(1)(b)(ii), the debts owed to a secured creditor, which would include the State under the GVAT Act, are to rank equally with other specified debts including debts on account of workman's dues for a period of 24 months preceding the liquidation commencement date. 57. As observed above, the State is a secured creditor under the GVAT Act. Section 3(30) IBC defines "secured creditor" to mean a creditor in favour of whom security interest is credited. Such security interest could be created by operation of law. The definition of "secured credit....
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....stration of the transferee of any business, imposition of the tax liability of a person carrying on business on the transferee of, or successor to, such business, transfer of liability of any firm or Hindu undivided family to pay tax in the event of the dissolution of such firm or partition of such family, recovery of tax from third parties, appeals, reviews, revisions, references, refunds, rebates, penalties, charging or payment of interest, compounding of offences and treatment of documents furnished by a dealer as confidential, shall apply accordingly: Provided that if in any State or part thereof there is no general sales tax law in force, the Central Government may, be rules made in this behalf make necessary provision for all or any of the matter specified in this sub-section." 10. The question to be answered is as to whether by virtue of Section 9 sub-section (2) of the CST Act, a security interest has to be held to be created on the assets of the CD. When we look into Section 9 sub-section (2), the heading of Section 9 starts with "Levy and collection of tax and penalties". When we look into Section 9 sub-section (2), the provision empowers the Authorities under....
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....very steps, appeals, penalties etc. and does not import any substantive rights of the State, much less a statutory first charge as created under Section 48 of the GVAT Act. 12. Now, we need to notice the judgments relied by the Appellant in support of its submissions. Learned Counsel for the Appellant has relied on judgment of this Tribunal in Company Appeal (AT) (Ins.) No.720 of 2021 - State Tax Officer vs. Premraj Ramratan Laddha & Ors. In the above case, the Appellant had claimed that a sum of Rs. 11,70,47,801/- has accrued under the GVAT Act. The State Tax Officer had filed a claim. Although the claim of Rs. 11,70,47,801/- had been admitted by the RP, but nothing was given to the Appellant in the Resolution Plan, it being an Operational Creditor. The Appellant's case was that it is a secured creditor on ground of charge created by operation of law. Reliance was placed on Hon'ble Supreme Court judgment in State Tax Officer vs. Rainbow Papers Ltd. The Respondent therein supported the classification of the Appellant as Operational Creditor. This Tribunal after hearing both the parties allowed the Appeal, relying on the judgment of the Hon'ble Supreme Court in the State Tax Offi....
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....t in the present case. 14. Learned Counsel for the Appellant has relied on judgment of the Gujarat High Court in State of Gujarat vs. Sanjay Kumar Agarwal R/Special Civil Application No.23256 of 2019 decided on 23.09.2024. The above Writ Petition was filed by the State of Gujarat challenging the order dated 18.11.2019 passed by National Company Law Tribunal, Mumbai Bench in Misc. Application No.2357 of 2019, wherein the Tribunal directed the State to lift its attachment from the assets of the Company, which was undergoing liquidation. In the Writ Petition, the State claimed that under GVAT Act, the State has first charge on the assets of the CD. Therefore, it could be treated as secured creditor for purposes of liquidation. The Writ Petition was allowed and High Court directed the Liquidator to treat the Appellant as secured creditors. In Paragraphs 9 to 12, following were held: "9. In view of the above, the respondent No.1 - liquidator is directed to treat the petitioner as a secured creditor within the meaning of Section 53(1)(b)(ii) of the Code and do the needful in this behalf in the matter before the learned Tribunal. 10. Considering the aforesaid developm....
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....ght of first appropriation insofar as the dues under RST Act was concerned. However, an objection was raised with regard to CST Act and it was submitted that provision of Section 9 sub-section (2) of CST Act, could not give priority to the Respondent over the claim of secured creditors. The above submission of the Appellant was noticed in Paragraph 6 of the judgment, which is as follows: "(6.) The petitioner in the proceedings before the DRAT conceded the right of first appropriation insofar as the dues under the RST Act were concerned in view of the provisions of Section 50 of RST Act, but sought to raise the issue in view of what was claimed to be the absence of any provision for such appropriation under the CST Act. The petitioner claimed that the provisions of Section 9(2) of the CST Act could not give priority to the respondent over the claim of secured creditors. This plea was, however, not accepted by the DRAT in terms of the impugned order dated 04.11.2010. It is in view of this factual matrix that the question of law as referred to aforesaid arises for consideration." 16.1. The Delhi High Court has also noticed Section 50 of the RST Act, 1994 and in Paragraph-3....
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.... case, once again giving precedence to a charge created by operation of law over a charge by way of an existing mortgage. The judgments cited by learned counsel for the petitioner in M/s Builders Supply Corporation v. The Union of India and Ors.'s case and Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. and Ors.'s case are also on the same lines. However, the question involved in the present case is whether such a charge by operation of law has been created under the CST Act. We have come to a conclusion that such a charge stands created if meaning is to be given to the words "collection" and "enforcement" found in various provisions, more specifically Sections 9(1) and 9(3) of CST Act read with the relevant provisions of Section 9(2) of the CST Act, coupled with the right of appropriation conferred in the States though the tax may be collected by the Central Government. Thus, the priority given under Section 50 of the RST Act to the recovery of local sales tax will apply with equal force to the recovery of Central sales tax qua interState trade or commerce." 17. There can be no dispute to the proposition laid down by the Delhi High Court in the above case. In the present....
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.... GVAT Act. 20. In the case on hand, it could be said that the day the assessment order came to be passed determining the liability of the writ applicant under the provisions of the GVAT Act, a charge over the immovable assets of the writ applicant could be said to have been created in favour of the State by operation of law, as envisaged under Section 48 of the GVAT Act. Today, the recovery might have been stayed by the first appellate authority, but, tomorrow, if the first appeal as well as the second appeal that may be filed by the writ applicant is dismissed, then the next step in the process would be the recovery of the requisite amount. What could be said to have been done as on date is just to make one and all aware that by operation of law, as envisaged under Section 48 of the GVAT Act, there is a charge of the State Government over the immovable properties owned by the writ applicant, as described above. How would all come to know about the same. It is for this reason that an entry is ordinarily made in the revenue records. 21. We would like to clarify that what has been done by the Talati-cum-Mantri does not amount to attachment of the property. There is ....
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....eated or not. The creation of security interest to declare a creditor as secured creditor is sine-qua-non for treating a creditor as secured creditor. The due of the Appellant are dues under Section 11E of Central Excise Act, 1944. Section 11E of Central Excise Act provides as follows: "11E. Liability under Act to be first charge.-- Notwithstanding anything to the contrary contained in any Central Act or State Act, any amount of duty, penalty, interest, or any other sum payable by an assessee or any other person under this Act or the rules made thereunder shall, save as otherwise provided in Section 529A of the Companies Act, 1956 (1 of 1956), the Recovery of Debts Due to Banks and the Financial Institutions Act, 1993 (51 of 1993) the Securitisation and Reconstruction of Financial Assets and the Enforcement of Security Interest Act, 2002 (54 of 2002) and the Insolvency and Bankruptcy Code, 2016, be the first charge on the property of the assessee or the person, as the case may be." 21. Section 11E of the Central Excise Act came for consideration, noticing which provision, this Tribunal held that the said provision cannot be read to create any security interest in the as....