TaxTMI 
TaxTMI 
2026 (5) TMI 1032
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....lication of the secured financial creditor of the CD-Gangotri Glazed Private Limited (Respondent No.2) and has directed the appellant to release the charge created by the appellant on the land situated at Morbi District (erstwhile Rajkot District), Sub- District -Morbi, Village-Dhuva, Revenue Survey No.130 paiki, land admeasuring 14678.80 sq. Mtrs, industrial purpose land (NA) along with construction thereon. Submissions of the Appellant 2. The recovery of tax from the Corporate Debtor (CD) is due under the GVAT and CST Act for the Assessment Years 2010-11, 2011-12, 2012-13, which is prior to the initiation of the CIRP proceedings. Notices were being issued by the appellant for the assessment period of 01.04.2010 to 31.03.2011, 01.04.2011 to 31.03.2012 under Section 9(2) of the Central Sales Tax Act, 1956 read with Section 48 of the GVAT Act, 2003. Also notices were issued for the Assessment period of 01.04.2012 to 31.03.2013 under Section 9(2) of the Central Sales Tax Act, 1956 read with Section 48 of the GVAT Act, 2003. 3. Appellant had addressed a letter on 25.11.2016 to the Talati-cum- Mantri of Dhuva Village and Mamlatdar of Wankaner Taluka, that the tax are dues of t....
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....im is being accepted or not. On 16.3.2021, the appellant addressed a letter to the liquidator of the corporate debtor with regard to the withdrawal of lien over the bank accounts and withdrawal of the charge on the land stating that the attachment is made much prior to the initiation of the CIRP proceedings. The RP addressed a mail to the appellant, that the provisions of IBC 2016, supersede the provisions of the Central / State Tax Laws and section 238 states that it would have an overriding effect on any other Act. On 26.7.2021, the appellant submitted its Form C submission of claim before the liquidator for the dues pertaining to the CST Act for the assessment year of 2016-17, the said assessment year of 2016-17 was completed on 29.3.2021. 5. An Assessing Officer under the Gujarat Value Added Tax Act, 2003 is a Quasi-judicial authority, and that an order passed by the assessing officer is a Quasi-judicial order. The orders passed by the authority are not been challenged by the corporate debtor therefore they have attained finality. 6. Section 48 of the Transfer of Property Act, 1882 deals with the priority of rights in case of multiple charges or encumbrances created over ....
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....t considering the appellant as a secured creditor of the corporate debtor as per the provisions of Section 48 of the GVAT Act, 2003 which has to be read along with Section 3(30) of the IB Code, 2016 and to be read with section 9(2) of CST Act. 9. In the case of IFCI Ltd. versus Commercial Tax Officer, the Division Bench of the Hon'ble High Court of Delhi in WP(C) 337 of 2011 has come to the conclusion that a charge created under section 9(1) and 9(3) read with section 9(2) of CST Act will have priority to collect tax which is to be read with section 50 of the RST Act and therefore the dues under CST Act are to be considered as Secured dues. The issue before the Hon'ble High Court of Delhi was that whether the dues under the CST Act provided under the State Sales Tax Act would equally apply to the Central Sales Tax Act to be collected under the CST Act or not, and that the dues have to be considered under the category of Secured Creditor or not. The question involved in the case was whether a charge by operation of law has been created under the CST Act and the Hon'ble High Court came to the conclusion that a charge stands created if meaning is to be given to the word....
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.... subject to security interest, shall become part of the liquidation estate. [Explanation.- It is hereby clarified that the requirements of this regulation shall apply to the liquidation processes commencing on or after the date of the commencement of the Insolvency and Bankruptcy Board of India (Liquidation Process) (Amendment) Regulations, 2019.]". 11. As per the proviso of Regulation 21(A) the legislature has specifically stated that if the security interest is not being relinquished by a secured creditor under the Code within the 30 days' time period of the liquidation commencement date, then the assets covered under the security interest shall be presumed to be part of the liquidation estate. The Appellant herein have a charge by way of operation of law on the properties of the Corporate Debtor which would have precedence over the charge created by way of attachment on the property of the corporate debtor. 12. Respondent No. 1 and Respondent No. 3 have relied upon the Section 77(3) of the Companies Act, 2013- wherein a question of creation of charge comes into play under the liquidation process for being taken into account by the liquidator which provisions are read as fo....
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....e laws with respect to any of the matters enumerated in List 1, and the legislature of any State has exclusive power to make laws for any such State with respect to any of the matters enumerated in List II and both Parliament and the legislature of a State have power to make laws with respect to any of the matters enumerated in List III. ii) Entry 54 of List II empowers the State legislature to enact a legislation relating to taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List 1. iii) Entry 92A of List 1 empowers the Parliament to enact a legislation relating to taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce. iv) With reference to tax on sale or purchase taking place in the course of inter-state trade or commerce, even though the legislation is by the Centre, the tax so collected is fully assigned to the State within which that tax is leviable. v) Ld. Senior Counsel submitted that the taxes under entry 92A List I are not only fully assigned to states but the actual administration and collec....
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.... CST Act and submitted that in light of the same, all provisions under the General Sales Tax law including provisions dealing with recovery of tax will be applicable for levy and collection of taxes under the CST Act. Accordingly. Section 26 of the HPVAT Act creating first charge will also apply for demand raised under the CST Act. 15. We shall first refer to section 17 (3), (4) & (6) of the Central Sales Tax Act, 1956 which provides the following: "(3) The liquidator shall not part with any of the assets of the company or the properties in his hands until he has been notified by the appropriate authority under sub-section (2) and on being so notified, shall set aside an amount equal to the amount notified and, until he so sets aside such amount, shall not part with any of the assets of the company or the properties in his hands: Provided that nothing contained in this sub- section shall debar the liquidator from parting with such assets or properties in compliance with any order of a court or for the purpose of the payment of the tax payable by the company under this Act or for making any payment to secured creditors whose debts are entitled under law to....
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....is being observed by the Hon'ble Supreme Court in the said judgment: The Rainbow (Supra) has been upheld by the Hon'ble Court in Review Petition (2024) 2 SCC 362. Hon'ble Supreme Court is the superior court of law which gives directions and which is to be implemented by the State or any authority. Therefore, the judgment delivered in the Review Petition holds greater significance. 16. Therefore, this Hon'ble Appellate Tribunal shall consider all the above facts and law points and thereafter may allow the appeal of the Appellant. Submissions of R1-Liquidator 17. The short legal question before this Hon'ble Tribunal is whether a subsequent statutory lien claimed by the State Tax Department in 2019 can override a prior registered security interest created in favor of a financial creditor in 2012, where the secured creditor has exercised its statutory rights under Section 52 of the Insolvency and Bankruptcy Code, 2016. The Respondent contends that such lien cannot defeat a prior perfected security interest nor obstruct enforcement under Section 52 IBC. 18. The dispute must be examined within the framework of the IBC and settled Supreme Court jurisprudence and al....
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....he company and nothing beyond. But is aggrieved by certain findings of the Hon'ble NCLT, which were unfounded and uncalled for as in paras 8, 9(c), 9(d) and 9(j) of the Impugned Judgment as noted herein: • The Liquidator failed to consider the State Tax Department as a secured creditor. • The Liquidator handed over possession of secured assets to the financial creditor without proper verification. • The Liquidator did not perform proper due diligence regarding encumbrances. • The Liquidator took contradictory positions after the Rainbow Papers judgment. • The Liquidator exceeded his authority in relation to sale of secured assets. 25. On the allegation that Liquidator ignored State Tax claim as secured creditor, it is claimed as incorrect. The State Tax Department submitted its claim during liquidation. The claim was duly admitted by the Liquidator. At the time of admission, the claim was treated as Operational Creditor, which was the consistent legal position prevailing prior to the judgment in State Tax Officer vs Rainbow Papers Ltd (2022). After the Rainbow Papers judgment, the Liquidator reclassified the St....
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....ve the issue as it Liquidator wrote to the State Tax Department requesting removal of lien, approached the Appellate Authority of the State Tax Department as directed by NCLT, filed application before NCLT seeking removal of lien, after dismissal of that application, directed the secured creditor to approach the Tribunal as required under Section 52(5), informed stakeholders and SCC members about developments. Thus, the Liquidator has acted diligently and transparently. 31. The fundamental principle of secured transactions is that a prior perfected security interest prevails over a subsequent charge. This principle has been recognized repeatedly by courts. The bank's charge is prior in time, registered under Companies Act and is legally perfected. On the other hand, the State Tax lien was subsequent in time, not registered with ROC and not disclosed in claim. Therefore, the Bank's charge should prevail as upheld by the Hon'ble NCLT, Ahmedabad Bench. 32. Further, Section 52 IBC gives secured creditors two options: a) Relinquish security interest and join liquidation estate, or realize security interest outside liquidation. The secured creditor exercised the second ....
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....ainst Respondent No. 1 and the observations recorded in the impugned order dated 30.07.2024 passed by the Respondent No. 1 - Liquidator prays that: 1. Dismiss the Appeal. 2. Record that Respondent No. 1, the Liquidator has acted bonafide and strictly in accordance with the provisions of the Insolvency and Bankruptcy Code, 2016 and the applicable Regulations while discharging his statutory duties in the liquidation process of the Corporate Debtor. 3. Clarify that the Liquidator has neither acted beyond his authority nor committed any procedural irregularity in facilitating the exercise of rights of the secured creditor under Section 52 of the Insolvency and Bankruptcy Code, 2016. 4. Expunge the adverse observations made against the Liquidator in paragraphs 8 and 9(c), 9(d) and 9(j) of the order dated 30.07.2024 passed by the Hon'ble NCLT Ahmedabad, inasmuch as the said observations are not borne out from the record and may prejudice the professional standing of the Liquidator. 5. Declare that no adverse inference or liability shall attach to the Liquidator on account of the observations made in the impugned order, the Liquidator havin....
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....r's property and bank account-established under Sections 9(2) of the CST Act, 1956, and 48 of the GVAT Act, 2003-creates such a security interest prior to CIRP initiation. Thus, the appellant meets the criteria of a secured creditor. 41.7. There is no proviso in the IB Code that overrides Section 9(2) of the CST Act, 1956, nor is there anything stated in the IB Code that is contrary to the provisions of Section 9(2) of the CST Act. 41.8. This ensures the first charge created under Section 9(2) CST Act, read with Section 48 GVAT Act, remains effective and unimpacted by the IB Code. Thus, the appellant retains its secured creditor status. 41.9. The Liquidator (Respondent No. 1) failed to recognize that the appellant holds a charge over the corporate debtor's property under the Gujarat Value Added Tax Act, 2003.This charge arises by operation of Section 48 GVAT Act, 2003, read with Section 9(2) CST Act, 1956. The term "charge" as defined under the Insolvency and Bankruptcy Code, 2016 fully encompasses the appellant's claim, confirming its status as a secured creditor. 41.10. Respondent No. 1 (the Liquidator) failed to consider Section 53(1)(b)(ii) of the IB Code. Under thi....
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....ommunication to the Talati dated 20th August 2019. We find that the Bank charge was created in the year 2012, and the so-called lien created by the State tax department was in the year 2019. Therefore, the chronological priority clearly rests with the Bank. 43. In this case, the CIRP had commenced on 27th January 2020 and the liquidation commenced on 2nd November 2020. The secured creditor filed its claim in Form D and expressly stated that it will not relinquish the security interest as per the statutory election done by it under Section 52(1)(b) of the Code. The liquidator verified the security interest as required under section 52(3) and possession of the secured asset was handed over to enable the realization by the secured creditor. However, the State Tax Department had not declared their lien in their claim, and the secured creditor-FC-Bank came to know about the lien only when they approached Talati to realize its security interest. Accordingly, the liquidator permitted the enforcement of the security interest. Thus, we cannot find any fault in such action by the liquidator to perform its statutory duty. 44. We also note that the State Tax Department submitted its clai....
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....the corporate debtor and thereby would rank higher in the order of payment specified in section 53 of the Code. Further as the ratio of stake holding of the appellant in the corporate debtor is much higher than the present respondent no.4. Consequently, the amount that the appellant should receive in case of the liquidation of the corporate debtor should have been at par with what the other secured creditors of the corporate debtor had received. The creation of a statutory charge over the assets of the tax defaulter does not in any manner violate or militate against any provision of the code. 47. For better appreciation we extract section 48 of the Transfer Of Property Act, 1882 as follows: Priority of rights created by transfer.-Where a person purports to create by transfer at different times rights in or over the same immoveable property, and such rights cannot all exist or be exercised to their full extent together, each later created right shall, in the absence of a special contract or reservation binding the earlier transferees, be subject to the rights previously created. 48. The plain reading of Section 48 indicates that the appellant doesn't have any spec....
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....and to be read with section 9 (2) of the CST Act. The liquidator brings to our notice that the claim of the appellant was duly admitted by the liquidator. At the time of admission, the claim was treated as an operational creditor, which was the legal position prevailing prior to the judgement in Sales Tax State Tax Officer vs Rainbow Papers Limited (2020-22). It also brings to our notice that after the Rainbow Papers judgement, the liquidator re-classified the State Tax Department as a secured operational creditor and informed the department through email dated 31-12-2022. The liquidator has also brought to our notice that the purported lien was not disclosed in the claim form filed by the State Tax Department. Furthermore, it was also not registered with the Registrar of Companies. The existence of this lien was discovered only when the secured creditor approached the Talati while attempting enforcement of its security interest. We further note that the secured creditor, a financial creditor, had already disclosed its interest in not relinquishing its charge and realizing on its own as per the mechanism under the Insolvency Code. We also note that the charge of the bank was create....
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....ted earlier and was also registered with the Registrar of Companies, and which has also elected to realize its security interest as per the Code. 55. The appellant has also relied upon the judgement in the case of IFCI Ltd. versus Commercial Tax Officer, wherein the Division Bench of the Hon'ble High Court of Delhi in WP(C) 337 of 2011 has come to the conclusion that a charge created under section 9(1) and 9(3) read with section 9(2) of CST Act will have priority to collect tax which is to be read with section 50 of the RST Act and therefore the dues under CST Act are to be considered as Secured dues. The issue before the Hon'ble High Court of Delhi was that whether the dues under the CST Act provided under the State Sales Tax Act would equally apply to the Central Sales Tax Act to be collected under the CST Act or not, and that the dues have to be considered under the category of Secured Creditor or not. The question involved in the case was whether a charge by operation of law has been created under the CST Act and the Hon'ble High Court came to the conclusion that a charge stands created. Thus, the priority given under section 50 of the RST Act to the recovery ....