TaxTMI 
TaxTMI 
2026 (9) TMI 2009
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....5.05.2025 passed by the National Company Law Tribunal, Division Bench, Court-1, Ahmedabad (Adjudicating Authority) in I.A./435 (AHM) 2025 in C.P. (IB) No. 123/NCLT/AHM/2022, whereby the issue relating to the treatment of the Appellant's claim towards outstanding Central Sales Tax ("CST") dues of Jay Formulations Private Limited/ Corporate Debtor & Respondent No.2 in the ongoing Corporate Insolvency Resolution Process ("CIRP") was adjudicated. CA Vinod T. Agrawal, Resolution Professional of the Corporate Debtor, is Respondent No.1, while Vishal Shah, Aquatic Remedies Limited, is the Successful Resolution Applicant & Respondent No. 3. This Appeal be henceforth referred to as First Appeal. 2. The Appellant had submitted its statutory tax claims before the Resolution Professional and thereafter filed I.A./435 (AHM) 2025 seeking recognition of its claim as a secured claim under the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the 'Code'). Aggrieved by the treatment of its CST dues in the Impugned Order, the Appellant has preferred the present Appeal under Section 61 of the Code and made the following prayers: RELIEFS SOUGHT A. YOUR LORDSHIPS MAY ....
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....bmitting its claims towards outstanding statutory dues and had filed its reply in the Resolution Plan proceedings. 4. This appeal arises from the approval of the Resolution Plan by the Impugned Order, particularly in relation to the treatment of the Appellant's claim towards outstanding CST dues, wherein the claim of the Appellant was treated as Operational Debt and treated accordingly in the approved Resolution Plan. The Appellant has made following prayers in the instant appeal: RELIEFS SOUGHT A. To allow the present Appeal; B. To quash and set aside the Impugned Order dated 05.05.2025 passed by the Hon'ble NCLT, Division Bench, Court-I, Ahmedabad in I.A./27(PLAN)/AHM/2024 in C.P. (IB) No. 123/NCLT/AHM/2022; C. To declare the status of the Appellant qua the unpaid CST dues as a secured creditor under Section 53(1)(b)(ii) of the Insolvency and Bankruptcy Code, 2016; D. To direct the Respondents to make payment in favour of the Appellant while distributing the amount, if any, which the Respondents were not entitled to get at the time of distribution, in view of the judgments in State Tax Officer v. Rainbow Papers Limited, (2023) 9 SCC....
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....er stay against recovery was granted on 16.02.2023, up to 30.06.2023, in proceedings preferred by the Corporate Debtor before the State Tax authorities. v. The Section 7 application filed by State Bank of India was admitted and Corporate Debtor was admitted in CIRP on 26.09.2023, and CA Vinod T. Agrawal was appointed as the Interim Resolution Professional. Pursuant to commencement of CIRP, Respondent No.1 issued a public announcement in Form A on 28.09.2023, inviting claims from creditors, with 10.10.2023 prescribed as the last date for submission of claims. vi. During the CIRP, the Appellant again attached the bank account of the Corporate Debtor on 05.10.2023 and, on 07.10.2023, submitted its claim for Rs. 1,82,47,705/- towards VAT/CST dues in Form B before Respondent No. 1. The claim was admitted by the Resolution Professional to the extent of Rs. 1,81,78,117/-. vii. The Appellant also submitted separate claims towards GST dues, including a claim of Rs. 8,30,90,029/- on 09.10.2023 and a further claim of Rs. 81,20,284/- on 14.02.2024. The claim records subsequently reflected the Government claims submitted during the CIRP and the amounts admitted by the....
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....T Act itself makes the State sales-tax machinery applicable for assessment, collection and enforcement of CST dues. 10. He further submits that the judgment in Rainbow Papers was subsequently considered by the Hon'ble Supreme Court in Sanjay Kumar Agarwal v. State Tax Officer (1) and Anr., (2024) 2 SCC 362, wherein the review petitions were dismissed. It is submitted that the review proceedings also considered the issue concerning the statutory charge and the waterfall mechanism under Section 53 of the Code. The Appellant therefore submits that the principle laid down in Rainbow Papers recognising the State as a secured creditor was not interfered with and was relied upon by the Appellant before the Adjudicating Authority. 11. Ld. Counsel submits that the principal issue is required to be determined by reading Section 9(2) of the CST Act, 1956 with Section 48 of the GVAT Act, 2003. It is his submission that Section 9(2) of the CST Act provides that the authorities empowered under the general sales-tax law of the appropriate State shall assess, reassess, collect and enforce payment of CST, interest and penalty as if such amounts were payable under the general sales-tax law of ....
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....perational debt. The Respondent submits that the classification was made on the basis of the statutory documents and supporting material furnished by the Appellant itself and that the treatment of the respective components is consistent with the governing statutory provisions and the decisions relied upon by the Respondent. 17. He submits that the SRA prepared the Resolution Plan on the basis of the information contained in the Information Memorandum shared by the RP. The Information Memorandum clearly reflected the admitted amount of Rs. 1,82,47,705 towards the outstanding dues of the State Tax Officer. The SRA accordingly formulated and submitted the Resolution Plan on the basis of the information available in the CIRP and in accordance with the applicable provisions of law. 18. He further submits that the Appellant's claim consisted of both GVAT and CST dues, and there is a material statutory distinction between the two. The GVAT dues are covered by Section 48 of the GVAT Act, which creates a statutory first charge. Consequently, the GVAT component was required to receive treatment consistent with the decision of the Hon'ble Supreme Court in State Tax Officer v. Rainbow Pa....
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....liance upon the judgment of this Appellate Tribunal in CA (AT) (Ins.) No. 495 of 2025, GST & Central Excise Angul Division, Rourkela GST Commissionerate v. Shri Dinesh Sood & Ors.,. In that matter, the GST and Central Excise Department had challenged the approval of a Resolution Plan contending that its excise duty claims had wrongly been treated as unsecured operational debt, rather than secured debt and had relied upon Rainbow Papers. This Appellate Tribunal rejected the contention, noting, inter alia, that no statutory charge was created under the Central Excise Act; and that Rainbow Papers was concerned with Section 48 of the GVAT Act, which expressly creates a first charge; and that the statute in question in that case did not contain a corresponding charge-creating provision. 24. Ld. Counsel submits that the Appellant itself has confined the controversy in the present Appeal to the treatment of CST dues as secured or unsecured. In paragraph 9 of the Appeal, the Appellant has specifically stated that the grievance concerns rejection of the CST dues as secured dues. The Appellant has not challenged the classification and treatment of the GVAT dues, which have been recognised....
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....present Appeal is confined to the treatment of the CST dues component amounting to Rs. 1,65,87,840/- as unsecured. The Appeal itself challenges the Impugned Order specifically on the ground that the Appellant was not treated as a "Secured Creditor" qua the CST dues. 31. The Appellant submits that Section 9(2) of the CST Act requires the authorities empowered under the general sales tax law of the appropriate State to assess, reassess, collect and enforce payment of CST as if the same were tax payable under the general sales tax law of that State. According to the Appellant, since the relevant State legislation in the present case is the GVAT Act, the provisions of Section 48 of the GVAT Act would also apply to CST dues. Section 48 of the GVAT Act creates a first charge on the property of the dealer. It is therefore submitted that a security interest stood created by operation of law and the Appellant was consequently entitled to be treated as a secured creditor under the Code. The Appellant relies principally upon State Tax Officer v. Rainbow Papers Ltd., (2023) 9 SCC 545 and Sanjay Kumar Agarwal v. State Tax Officer (1) and Anr., (2024) 2 SCC 362. 32. The Respondents, on the....
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....ding provisions relating to returns, provisional assessment, advance payment of tax, registration 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,] [Substituted by Act 61 of 1972, Section 6, for " refunds, penalties" (w.e.f. 1.4.1973). ] [charging or payment of interest,] [Inserted by Act 103 of 1976, Section 6 (retrospectively). ] compounding of offences and treatment of documents furnished by a dealer as confidential, shall apply accordingly." 34. Section 48 of the GVAT Act, on the other hand, expressly creates a first charge over the property of the dealer in respect of amounts payable to the Government. It is this express statutory first charge, which formed the foundation of the decision of the Hon'ble Supreme Court in Rainbow Papers. The Hon'ble Supreme Court considered the statutory charge under Section 48 of the ....
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....nder the general sales tax law of the State; and for this purpose they may exercise all or any of the powers they have under the general sales tax law of the State; and the provisions of such law, including provisions relating to returns, provisional assessment, advance payment of tax, registration 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. 11. Section 48 of the GVAT Act specifically provides that any amount payable by a dealer, the Government s....
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....ase. The statutory provisions relied upon by the Appellant in the present case are the same. The Appellant's claim to secured status for CST dues rests upon the same statutory route, namely Section 9(2) of the CST Act read with Section 48 of the GVAT Act. The reasoning adopted in Nitin Narang therefore directly answers the principal statutory question arising in the present Appeal. 40. This position has been further clarified by a subsequent amendment to the Insolvency and Bankruptcy Code, 2016. Parliament enacted the Insolvency and Bankruptcy Code (Amendment) Act, 2026, which came into effect w.e.f. 26.05.2026. The Amendment Act inserted an Explanation to Section 3(31) of the Code. The official text provides that, for removal of doubts, a security interest shall exist only where the right, title, interest or claim to property arises pursuant to an agreement or arrangement by the act of two or more parties, and that a security interest created merely by operation of any law for the time being in force is excluded. The said provision has been extracted below: "(31) 'security interest' means right, title or interest or a claim to property, created in favour of, or pro....