GST Dues Don’t Confer Secured Operational Creditor Status: NCLAT

GST Dues Don’t Confer Secured Operational Creditor Status: NCLAT

Introduction

The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, has held that GST dues arising under the Himachal Pradesh GST Act (HPGST) and the Central GST Act (CGST) cannot be treated as secured operational debt in insolvency proceedings. Therefore, the government authority cannot claim the status of a secured operational creditor based on such dues.

Factual Background

The Appellant, the Joint Commissioner of State Taxes & Excise, challenged an NCLT order that dismissed its application to recall the approval of the Resolution Plan. The Appellant argued that the resolution plan was unjust and inequitable in how it treated government dues.

Procedural Background

After the NCLT dismissed the recall plea, the Appellant moved the NCLAT, contending that State debt deserves priority, citing the principle that the State needs revenue to discharge sovereign functions.

Issues

The primary issue was whether a government authority could seek secured creditor status for GST dues under the IBC.

Contentions of the Parties

Appellant’s Contentions:

• The government was entitled to priority treatment for its statutory dues.
• The plan was inequitable for ignoring this.

Respondent’s Contentions:

• The government never filed its full claim for Rs. 13.60 crore within the process.
• It always knew its status was only that of an operational creditor and never sought secured status during the CIRP.

Reasoning & Analysis

The bench of Justice Ashok Bhushan, Mr. Barun Mitra, and Mr. Arun Baroka found that the Appellant failed to file its claims in time. Allowing late claims would derail the CIRP’s timeline and undermine commercial certainty.

The Tribunal emphasized that under Section 82 of the CGST Act, tax dues are first charge “subject to provisions of the IBC,” and the non-obstante clause in Section 238 of the IBC overrides inconsistent provisions. Hence, GST dues cannot create secured creditor status in CIRP.

Implications

The ruling clarifies that government authorities cannot seek priority as secured creditors solely on the basis of GST dues and must adhere to the IBC’s waterfall under Section 53.

Outcome

The NCLAT dismissed the appeal, holding that the Appellant had already received more than what it was entitled to under Section 53 of the IBC and that the resolution plan did not contravene any IBC provisions.

In this case, the Appellant was represented by Ms. Mandakini Singh and Ms. Ashima Mandla, Advocates. The Respondent was represented by Mr. Vikram Singh Baid, Advocate for Respondent No.1, and Mr. Adarsh Tripathi, Advocate for Respondent No.2.