Sales Tax Dues Must Be Treated as Secured Claims Under IBC: NCLT Ahmedabad Reaffirms

The National Company Law Tribunal (NCLT), Ahmedabad Bench, has recently reiterated that tax dues backed by a statutory charge must be treated as secured claims under the Insolvency and Bankruptcy Code.

It directed the resolution professional of Amul Industries Pvt. Ltd. to treat the Rs 6.64 crore Central Sales Tax (CST) claim of the Gujarat State Tax Officer as a secured debt.

The tribunal held that the resolution professional was wrong in classifying the sales tax dues as unsecured despite the statutory first charge under Section 48 of the Gujarat Value Added Tax Act.

The order was passed by a bench comprising Judicial Member Chitra Hankare and Technical Member Velamur G Venkata Chalapathy.

The ruling came in the Corporate Insolvency Resolution Process of Amul Industries Pvt. Ltd., which was admitted by the NCLT in April 2024 on a petition filed by Sundaram Fasteners Ltd.

Following the public announcement, the State Tax Officer filed a claim of Rs 8.19 crore towards dues under the Gujarat VAT Act and the Central Sales Tax Act for the pre-CIRP period, which was admitted as government dues.

After the resolution professional was appointed, the GVAT dues were treated as secured on the basis of Section 48 of the GVAT Act. However, the CST dues were classified as unsecured, leading the State Tax Officer to approach the tribunal.

The tax department relied on the Supreme Court's ruling in State Tax Officer v. Rainbow Papers Ltd (2023)., which held that Section 48 of the GVAT Act creates a statutory first charge and that such a charge entitles the State to be treated as a secured creditor under the Insolvency and Bankruptcy Code.

It argued that although CST is levied under a central law, it is assessed, administered and recovered by State authorities by applying the State sales tax machinery, and must therefore attract the same statutory charge.

Opposing the plea, the resolution professional argued that the definition of “tax” under Section 2(27) of the GVAT Act is limited to levies under that statute and does not extend to CST dues under a Central enactment.

It was contended that the CST Act only delegates the power to assess and recover tax and does not create any charge over the dealer's property. Reliance was placed on Paschimanchal Vidyut Nigam Ltd. v. Raman Ispat Pvt. Ltd. to submit that a statutory charge must be expressly created by law.

Rejecting the argument, the tribunal held that Section 9(2) of the CST Act, read with Section 48 of the GVAT Act, incorporates the entire enforcement framework of the State sales tax law and is not confined to procedural collection. It observed that denying the applicability of Section 48 to CST dues would create an 'enforcement void'.

Referring to Premraj Laddha, the tribunal observed that the resolution professional ought to have treated the State Government's claim as a secured debt.

Accordingly, the NCLT directed the resolution professional to classify the Rs 6.64 crore CST claim of the Gujarat State Tax Officer as a secured creditor claim. 

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