Big Breaking: Landmark Judgment by NCLT - Delhi
Resolution Plan upheld: The Department's tax dues are treated as operational debt, not secured, under the IBC framework.
GST/IDT Department's statutory dues do not have preferential treatment
ver secured creditors under the IBC framework.
Thoughts, Insight and Research by: Abhishek Raja Ram, 9810638155
Facts of the Case
• The case arises from an appeal by the Department against the National Company Law Tribunal (NCLT) Ahmedabad's approval of the Resolution Plan for Cengres Tiles Ltd., dated 13.09.2023.
• The Assessee was the Resolution Professional (RP) responsible for administering the insolvency process.
• The Department's admitted claim of ₹11,76,90,942/- was reduced to ₹1,00,000/- under the approved Resolution Plan.
• The Department contended that this treatment was contrary to law as they should have been recognized as secured creditors under Section 30(2) of the Insolvency and Bankruptcy Code, 2016 (IBC).
Timeline:
• NCLT Order: 13.09.2023
• Appeal to NCLAT: Filed in 2024
• Resolution Plan Approval: By RP for operational creditors
Issue
Should the Department's claim be treated as a secured operational debt under the IBC, thereby entitle them to higher priority in payment?
Department's Argument
• The claim ought to be treated as secured debt under Section 82 of the CGST Act, 2017, akin to the interpretation in "State Tax Officer v. Rainbow Papers Ltd."
• Their reduced payment of ₹1,00,000/- is not in line with statutory protections.
Assessee's Argument:
• Claims by the Department were appropriately treated as operational debt.
• Under Section 11E of the Central Excise Act, 1944, such claims are not classified as secured debts in cases governed by the IBC.
Precedent Analysis
a) State Tax Officer v. Rainbow Papers Ltd. (2023) 9 SCC 545
• Held that certain tax dues were secured debts under the Gujarat VAT Act, 2003.
• Not applied here as CGST Act references IBC exceptions.
b) Assistant Commissioner of Central Tax v. Mr. Sreenivasa Rao Ravinuthala
• Affirmed: Claims by operational creditors under IBC exclude statutory first charge by law.
c) Department of State Tax v. Zicom Saas Pvt. Ltd.
• Similar principle upheld; statutory dues treated as operational debts.
Court Judgment
• The NCLAT dismissed the Department's appeal.
• It upheld the NCLT's order, noting that the statutory dues are treated as operational debts under the IBC waterfall mechanism.
• The claim was correctly valued under Section 30(2) and Section 53(1).
Title: Assistant Commissioner CGST vs Pradeep Kabra Resolution Professional of Cengres Tiles Ltd.
Court: NATIONAL COMPANY LAW APPELLATE TRIBUNAL, Principal Bench, Delhi
Citation: Company Appeal (AT) (Insolvency) No. 844 of 2024
Dated: 23-Jan-2025