Assistant Commissioner Of State Tax vs Besto Tradelink Limited & Ors. & Ors

(Arising out of order dated 01.02.2024 passed by the National Company Law Tribunal, Ahmedabad Bench at Ahmedabad in I.A. No. 1467(AHM) of 2023 in CP (IB) No. 184 (AHM) of 2022)

In the matter of:

State Tax Officer -6 Unit -92, Rajkot Having its address at: Jilla Seva Sadan -2, Block No. 1, 4th Floor, Rajkot- 360001 ...Appellant

Vs.

1. Besto Tradelink Limited Having its registered office address at: 9th Floor, BD Patel House, Naranpura, Ahmedabad, Gujarat, India, 380014 ...Respondent No.1/SRA 2. Rishabh Chand Lodha (Insolvency Professional) Having its address at: E-5, Shraman Basant Vihar, Gandhi Nagar, Bhilwara, Rajasthan, 311001 ...Respondent No. 2/ RP 3. Saurashtra Specialities Private Limited Having address at: Survey No. 196, National Highway, 8-B, Navagram, Anandpur, Rajlot, Gujarat- 360003 ...Respondent No. 3/ Corporate Debtor Present:

For Appellant: Ms. Ritu Guru, Mr. Bhargav Dangar, Advocate

For Respondents: Ms. Shankari Mishra, Advocate for R-1.

Mr. Abhishek Naik, Ms. Gulafsha Kureshi, Mr. Bhavesh Bothra, Mr. Rishabh Chand Lodha, Advocates for R-2.

J U D G M EN T (30th June, 2026)

INDEVAR PANDEY, MEMBER (T)

The present appeal has been filed by State Tax Officer-6, Rajkot/

Appellant, who is aggrieved by the order dated 01.02.2024 passed by the Ld.

National Company Law Tribunal, Ahmedabad Bench (Adjudicating

Authority), in I.A. No. 1467(AHM) of 2023, in CP(IB) 184 (AHM) of 2022, in

the Corporate Insolvency Resolution Process (CIRP) proceedings of

Saurashtra Specialities Private Limited/Corporate Debtor (CD). The

Corporate Debtor is the Respondent No.3 herein. Ld. Adjudicating Authority

vide the impugned order allowed the application of the Resolution

Professional (RP)-Respondent No.2 herein, for approval of the Resolution

plan of CD submitted by Respondent No.1-Besto Tradelink Limited

(Successful Resolution Applicant). The Appellant is aggrieved by treatment

of its claim of outstanding GST dues from Corporate Debtor of

Rs.83,05,820/-, which were raised by the Appellant upon corporate debtor

for previous Assessment Years. The Appellant has been treated as

Operational Creditor in the Resolution Plan instead of Secured Operational

Creditor.

Page 2 of 21 Company Appeal (AT) (Ins.) No. 1451 of 2024 BRIEF FACTS OF THE CASE

The brief facts relevant to deciding the present appeal are as given below: -

i) The present Appeal has been preferred by the State Tax Officer, Unit-

92, Rajkot, assailing the order dated 01.02.2024 passed by the

Adjudicating Authority in IA No. 1467 of 2023 filed by the RP in CP (IB)

No. 184 of 2022, whereby the Resolution Plan of Corporate Debtor

submitted by SRA & Respondent No.1 (Besto Tradelink Limited) was

approved by the Ld. Adjudicating Authority.

ii) The Corporate Debtor was admitted into Corporate Insolvency

Resolution Process ("CIRP") vide order dated 31.10.2022 passed on an

application under Section 9 of the Insolvency and Bankruptcy Code,

2016 (herein after referred as "Code") filed by an Operational Creditor,

namely Aries Paper Company. Consequent upon commencement of

CIRP, Mr. Ashish Shah was appointed as Interim Resolution

Professional ("IRP"), who made public announcements and invited

claims from stakeholders.

iii) Appellant initially filed their claim on 12.11.2022, thereafter it revised

its claim on 21.11.2022 furnishing the details of the alleged security

interest / charge on the property of the Corporate Debtor. The IRP vide

email dated 24.11.2022 gave a detailed explanation to the Appellant

stating his reason for not considering the claim of the Appellant as the

"Secured Creditor". The claim of the Appellant was however admitted

for an amount of Rs.82,98,381/- in the category of "Operational

Unsecured Creditor".

Page 3 of 21 Company Appeal (AT) (Ins.) No. 1451 of 2024

iv) Subsequently, Rishabh Chand Lodha/Respondent No.2 was

appointed as the Resolution Professional of the Corporate Debtor.

The Respondent No.2 after receiving repeated representations from the

Appellant requesting its classification as a secured creditor, reiterated

the erstwhile IRP stand, vide Letter dated 15.04.2023 that there is a

clear legal distinction between the CGST Act and GVAT Act.

Furthermore, he informed the Appellant that the judgment of the

Hon'ble Supreme Court in "State Tax Officer v. Rainbow Papers

Ltd., (Civil Appeal No.1661 of 2020)" was rendered in the context of

Gujarat VAT Act, and not w.r.t the CGST Act. Accordingly, it was

reiterated that the claim of the Appellant would not be considered as a

secured creditor, and the ratio of Rainbow Papers (supra) cannot be

mechanically applied to GST claims.

v) The Adjudicating Authority, vide the impugned order dated 01.02.2024

approved the Resolution Plan and declared it binding on the Corporate

Debtor and all stakeholders. Aggrieved by the approval of the

Resolution Plan and the rejection of the tax demands claimed by the

State Tax Department, the Appellant has preferred the present Appeal

before this Appellate Tribunal.

Submissions of the Appellant

2. Learned Counsel for the Appellant submits that the Resolution

Professional and the Adjudicating Authority failed to recognize the Appellant

as a Secured Creditor despite the existence of a statutory first charge over

the assets of the Corporate Debtor. It is contended that Section 82 of the Page 4 of 21 Company Appeal (AT) (Ins.) No. 1451 of 2024 CGST Act creates a first charge upon the property of a taxable person in

respect of outstanding tax dues, which constitutes a "security interest" within

the meaning of Sections 3(30) and 3(31) of the Code. Since the definition of

"security interest" includes any right, title, interest, claim, charge or

encumbrance created by operation of law, the holder of such statutory charge

necessarily acquires the status of a Secured Creditor.

3. Learned Counsel further submits that the Resolution Professional

committed a serious error in treating the Appellant merely as an Operational

Creditor while overlooking the statutory charge existing in favour of the State

Tax Department. It is further submitted that a first charge had already been

created over the properties and bank accounts of the Corporate Debtor on

25.07.2022 and 14.10.2022, prior to commencement of CIRP and imposition

of moratorium under Section 14 of the Code. Consequently, the security

interest had crystallized before commencement of insolvency proceedings and

could not have been ignored while collating and admitting claims.

4. Learned Counsel contends that undue reliance has been placed upon

the expression "save as otherwise provided in the Insolvency and Bankruptcy

Code, 2016" occurring in Section 82 of the CGST Act. According to the

Appellant, the saving clause does not extinguish or nullify the statutory

charge, and neither the Resolution Professional nor the Adjudicating

Authority has identified any specific provision of the Code which expressly

overrides or invalidates the charge. In the absence of any direct inconsistency

between the two enactments, the statutory charge continues to subsist and

must be given full effect. The interpretation adopted by the Resolution

Page 5 of 21 Company Appeal (AT) (Ins.) No. 1451 of 2024 Professional renders Section 82 otiose and defeats the legislative intent

underlying the provision.

5. Learned Counsel next submits that the approved Resolution Plan is

contrary to Sections 30(2) and 31 of the Code. Under Section 30(2)(b), the

Resolution Professional is required to ensure that the Resolution Plan

provides for treatment of creditors in accordance with the statutory

framework. Once the statutory charge under Section 82 is recognized, the

Appellant falls within the category of Secured Creditors and is entitled to

treatment consistent with the priority contemplated under Section 53 of the

Code.

6. Appellant submitted that the Resolution Plan completely ignores the

secured nature of the Appellant's claim and fails to provide any meaningful

distribution towards the statutory dues payable to the State Tax Department.

The Committee of Creditors cannot exercise its commercial wisdom in a

manner that defeats mandatory statutory provisions, and commercial

wisdom operates only within the framework of the Code.

7. Learned Counsel further submits that the Hon'ble Supreme Court has

held that where a statutory first charge exists in favour of a Government

Authority, such authority is entitled to be treated as a Secured Creditor in

insolvency proceedings. Reliance is placed upon the judgment in State Tax

Officer v. Rainbow Papers Ltd., Civil Appeal No.1661 of 2020. According to the

Appellant, the principle laid down therein is directly applicable since Section

82 of the CGST Act creates a statutory first charge in favour of the

Government. The Adjudicating Authority approved the Resolution Plan

Page 6 of 21 Company Appeal (AT) (Ins.) No. 1451 of 2024 without properly appreciating the ratio of Rainbow Papers and thereby

committed a manifest error of law.

8. Apart from the issue of classification of the claim, Learned Counsel also

assails the action of the Resolution Professional in rejecting the updated

claim submitted by the Appellant. During the moratorium period, scrutiny

proceedings resulted in determination of additional tax liability of the

Corporate Debtor, whereupon the Appellant requested the Resolution

Professional to take the updated liability into account.

9. Learned Counsel submits that the Resolution Professional wrongly

refused to admit the updated claim on the premise that it arose during the

moratorium period. Assessment, adjudication, scrutiny or determination of

tax liability by a statutory authority does not amount to recovery proceedings

and therefore does not violate the moratorium under Section 14 of the Code.

Since no coercive recovery action was initiated and the tax authorities merely

quantified the liability, there was no legal impediment to considering the

updated claim. The rejection of the revised claim has caused substantial

prejudice to the Appellant and further vitiated the Resolution Plan.

10. In conclusion, Learned Counsel for the Appellant submits that the

Appellant is a Secured Creditor by virtue of the statutory first charge created

under Section 82 of the CGST Act; the Resolution Professional wrongly

classified the Appellant as an unsecured Operational Creditor; the Resolution

Plan violates Sections 30(2) and 31 of the Code by failing to recognize and

adequately provide for the Appellant's secured claim; the judgment in

Rainbow Papers squarely covers the controversy in favour of the Appellant;

Page 7 of 21 Company Appeal (AT) (Ins.) No. 1451 of 2024 the rejection of the updated claim during CIRP is legally unsustainable; and

the Impugned Order approving the Resolution Plan is liable to be set aside.

It is accordingly prayed that the Impugned Order be set aside, the Appellant

be declared a Secured Creditor under the Code, and appropriate directions

be issued for modification of the Resolution Plan and distribution mechanism

so as to duly recognize and satisfy the Appellant's statutory dues.

Submission of Respondent No. 1/SRA

11. Ld. Counsel for SRA submits that the Appellant was duly informed by

the erstwhile Interim Resolution Professional vide e-mail dated 24.11.2022

that its claim could not be treated as that of a "Secured Creditor". The reasons

for such determination were specifically communicated. Despite being aware

of the said determination, the Appellant did not avail the statutory remedy

available before the Adjudicating Authority and chose not to challenge the

categorization of its claim at the relevant stage.

12. Learned Counsel further submits that instead of pursuing the

appropriate legal remedy, the Appellant merely continued addressing

communications and representations to the Resolution Professional and

other stakeholders seeking recognition of its claim as that of a secured

creditor on the basis of the judgment of the Hon'ble Supreme Court in State

Tax Officer vs. Rainbow Papers Ltd., Civil Appeal No.1661 of 2020. According

to Respondent No.1, the Resolution Professional had consistently informed

the Appellant that the facts of the present case as well as the applicable

statutory provisions were distinguishable and therefore the said decision was

inapplicable.

Page 8 of 21 Company Appeal (AT) (Ins.) No. 1451 of 2024

13. It is further contended by the SRA that the Appellant never raised any

objection to the Resolution Plan submitted by Respondent No.1 despite being

fully aware that its claim had been treated as that of an unsecured

operational creditor. The Appellant also failed to object when the Resolution

Plan was under consideration before the Adjudicating Authority for approval.

14. Learned Counsel submits that the Resolution Plan has been fully

implemented. Payments envisaged under the approved Resolution Plan have

already been made to the stakeholders and the resolution process has

attained finality. It is argued that the Appellant's failure to challenge its

categorization at the appropriate stage has resulted in an irreversible

situation and therefore no equitable relief can now be granted.

15. Respondent No.1 further submits that the Resolution Professionals

correctly appreciated the legal position while examining the nature of the

Appellant's claim. It is argued that Section 82 of the Central Goods and

Services Tax Act, 2017 cannot be equated with Section 48 of the Gujarat

Value Added Tax Act, which was under consideration in Rainbow Papers.

Particular emphasis has been laid upon the language employed in Section 82

of the CGST Act, namely, "save as otherwise provided in the Insolvency and

Bankruptcy Code, 2016". According to the Respondent, the aforesaid

provision itself manifests the legislative intent that, where insolvency

proceedings are being conducted under the Insolvency and Bankruptcy Code,

2016, the provisions of the Code shall prevail notwithstanding any charge

purportedly created under the CGST Act.

Page 9 of 21 Company Appeal (AT) (Ins.) No. 1451 of 2024

16. It is submitted by the SRA that in view of the express statutory

exclusion contained in Section 82 of the CGST Act, the Appellant cannot

claim the status of a secured creditor merely on account of tax dues.

Therefore, the Appellant's reliance upon Section 82 of the CGST Act is stated

to be misplaced and legally untenable.

17. Ld. Counsel for SRA placed reliance upon the judgment of this

Appellate Tribunal in Department of State Tax through the Deputy

Commissioner of State Tax v. Pranav Constructions Systems Pvt. Ltd. & Anr.,

Company Appeal (AT) (Ins.) No.1945 of 2024, decided on 14.11.2024, and

Department of State Tax through the Deputy Commissioner of State Tax v.

Zicom SaaS Pvt. Ltd. & Anr., Company Appeal (AT) (Ins.) No.246 of 2022,

decided on 07.02.2023. In both the aforesaid decisions, similar claims of

Government Departments seeking treatment as secured creditors on the

basis of statutory charge provisions were rejected by this Tribunal.

18. Ld. counsel reiterated that the Adjudicating Authority has committed

no error while approving the Resolution Plan. The Resolution Plan was

examined in detail and found to be compliant with all requirements of the

Insolvency and Bankruptcy Code, 2016, including Section 30(2) thereof. The

Resolution Plan has been fully implemented and the Monitoring Committee

has already been dissolved, consequently, no interference with the Impugned

Order is warranted. He therefore prayed for dismissal of the appeal with

costs.

Page 10 of 21 Company Appeal (AT) (Ins.) No. 1451 of 2024 Submissions of Respondent No. 2/RP

19. Ld. Counsel for RP submitted that the Appellant has sought to

challenge the approved Resolution Plan by relying exclusively upon the

judgment of the Hon'ble Supreme Court in Rainbow Papers. According to the

Respondent, such reliance is entirely misplaced in view of the statutory

framework governing GST dues and the subsequent judicial pronouncements

clarifying the limited applicability of the said judgment.

20. Learned Counsel further submits that the ratio of Rainbow Papers

cannot be mechanically applied to the present case. It is pointed out that the

Hon'ble Supreme Court in Rainbow Papers was considering Section 48 of the

Gujarat Value Added Tax Act, 2003, which creates a first charge over the

property of the dealer without any qualification or subordination to the

Insolvency and Bankruptcy Code, 2016. In contrast, Section 82 of the Central

Goods and Services Tax Act, 2017 expressly provides that any first charge

created thereunder shall operate "save as otherwise provided in the

Insolvency and Bankruptcy Code, 2016". The aforesaid saving clause is of

decisive significance. The legislature, while enacting the CGST Act

subsequent to the enactment of the Insolvency and Bankruptcy Code,

consciously subordinated the statutory charge under Section 82 to the

overriding framework of the Code. Consequently, once insolvency

proceedings commence under the IBC, the treatment of claims and

distribution of proceeds are governed exclusively by the provisions of the

Code.

Page 11 of 21 Company Appeal (AT) (Ins.) No. 1451 of 2024

21. RP submitted that the express legislative recognition accorded to the

IBC in Section 82 of the CGST Act clearly demonstrates that the statutory

charge contemplated under the GST regime cannot override the insolvency

framework or alter the priority mechanism prescribed under the Code.

Accordingly, the Appellant's claim could not be treated as that of a secured

creditor merely by virtue of Section 82 of the CGST Act.

22. Learned Counsel further submits that the claim of the Appellant was

accordingly admitted as an operational debt and classified as an unsecured

operational claim. Such classification was first communicated by the

erstwhile Interim Resolution Professional and was subsequently reaffirmed

by Respondent No. 2 through letter dated 15.04.2023 after considering

repeated representations made by the Appellant.

23. RP further placed reliance upon the judgment of the Hon'ble Supreme

Court in "Paschimanchal Vidyut Vitran Nigam Ltd. v. Raman Ispat

Private Limited [Civil Appeal No. 7976 of 2019]", wherein it was observed

that the decision in Rainbow Papers must be confined to the facts of that

case. The aforesaid observation itself demonstrates that the Appellant cannot

seek automatic application of the ratio of Rainbow Papers to every statutory

charge provision contained in different taxing enactments.

24. RP further relies upon the judgment of this Appellate Tribunal in

"Department of State Tax v. Zicom SaaS Pvt. Ltd. & Anr., Company

Appeal (AT) (Ins.) No. 246 of 2022", wherein this Tribunal distinguished

Rainbow Papers and held that where the relevant taxing statute itself

acknowledges the operation of a Central enactment creating priority, the

Page 12 of 21 Company Appeal (AT) (Ins.) No. 1451 of 2024 provisions of the Insolvency and Bankruptcy Code would prevail. It is

submitted that this Tribunal specifically held that treatment of such

statutory dues as operational debt did not violate Section 30(2)(b) of the Code.

Reliance is also placed upon the subsequent decision of this Appellate

Tribunal in "Department of State Tax v. Pranav Constructions Systems

Pvt. Ltd. & Anr., Company Appeal (AT) (Ins.) No. 1945 of 2024", wherein

a similar claim by GST authorities seeking recognition as secured creditors

was rejected. On the basis of the aforesaid statutory provisions and judicial

precedents, the decision of the Resolution Professional to classify the

Appellant as an unsecured operational creditor was legally correct and

cannot be faulted.

25. Ld. Counsel submits that the conduct of the Appellant disentitles it

from any discretionary relief. The Appellant had filed its claim during the

Corporate Insolvency Resolution Process and had also furnished details of

the alleged statutory charge. The erstwhile Interim Resolution Professional,

by email dated 24.11.2022, expressly communicated the reasons for not

treating the Appellant as a secured creditor and admitted the claim under

the category of unsecured operational debt. RP submits that, despite having

complete knowledge of the decision taken by the Resolution Professional, the

Appellant never challenged the same before the Adjudicating Authority.

Instead, the Appellant merely continued to address representations and

correspondence seeking reconsideration of its claim.

26. Learned Counsel further submits that even after being informed about

approval of the Resolution Plan, the Appellant did not seek any immediate

Page 13 of 21 Company Appeal (AT) (Ins.) No. 1451 of 2024 relief before the Adjudicating Authority. Instead, it directly preferred the

present Appeal. Appellant thereby sought to bypass the statutory framework

contemplated under the Code and the settled principle that grievances

concerning actions of the Resolution Professional ought to be raised before

the Adjudicating Authority in the first instance. The Appellant remained a

silent spectator throughout the CIRP despite full knowledge of the treatment

accorded to its claim. Such prolonged inaction, according to the Respondent,

amounts to waiver, acquiescence and acceptance of the position adopted

during the resolution process.

27. The RP submits that the Adjudicating Authority, after examining the

Resolution Plan in detail, found the same to be feasible, viable and compliant

with all requirements of the Insolvency and Bankruptcy Code, 2016 and the

regulations framed thereunder, including Section 30(2) of the Code.

28. It is further submitted by the RP that the Resolution Plan has since

been fully implemented. Payments contemplated under the approved plan

have already been made and the Monitoring Committee constituted for

implementation of the Resolution Plan has also been dissolved pursuant to

orders of the Adjudicating Authority. Consequently, the resolution process

has attained finality and any interference at this stage would seriously

prejudice the sanctity and certainty of the insolvency framework.

29. Ld. Counsel further submits that the appeal is stated to be founded

upon an erroneous interpretation of Section 82 of the CGST Act, contrary to

binding precedents and further barred by the Appellant's own conduct,

Page 14 of 21 Company Appeal (AT) (Ins.) No. 1451 of 2024 acquiescence and delay. Accordingly, it is prayed that the Appeal be

dismissed with costs.

Analysis and Findings

30. We have gone through the records of the case and heard the Ld.

Counsel for the parties.

31. The only issue which arises for consideration in the present Appeal is

whether Section 82 of the CGST Act confers the status of a Secured Creditor

upon the Appellant which is a State Government Department.

32. The entire challenge of the Appellant rests upon the judgment of the

Hon'ble Supreme Court in Rainbow Papers (supra). The submission of the

Appellant is that by virtue of Section 82 of the CGST Act, a statutory first

charge stood created over the assets of the Corporate Debtor and

consequently the Appellant ought to have been treated as a secured creditor

in the CIRP. It is further contended that failure to accord such status renders

the approved Resolution Plan violative of Section 30(2)(b) of the Insolvency

and Bankruptcy Code, 2016.

33. Section 48 of the Gujarat Value Added Tax Act, 2003, which fell for

consideration before the Hon'ble Supreme Court in Rainbow Papers, reads as

follows:

"48. Notwithstanding anything to the contrary contained in any law for the time being in force, any amount payable by a dealer or any other person on account of tax, interest or penalty for which

Page 15 of 21 Company Appeal (AT) (Ins.) No. 1451 of 2024 he is liable to pay to the Government shall be a first charge on the property of such dealer..."

34. State Tax Department of Gujarat under the GVAT Act, 2003, charges

Value Added Tax (VAT) from the dealers registered with it for sale of goods by

them. As prescribed in the Section 48 of the GVAT Act, 2003 the dues of VAT

on account of tax, interest or penalty was to be the first charge upon the

property of such dealer. It was held in Rainbow Papers (supra) that in case of

distribution of assets of a Corporate Debtor in accordance with Section 53 of

the Code, which is done on the basis of categorisation of claims as prescribed

in Section 53, the State Tax Authority, Gujarat would be treated as secured

creditor on the basis of Section 48 of GVAT Act, 2003. This decision led to

consideration of claims of Gujarat Tax Department under Section 53(1)(b)(ii)

of the Code in CIRP and Liquidation Proceedings. Prior to the Rainbow (supra)

the dues of Gujarat Tax Department were lower in priority at Section

53(1)(e)(i) of Code, under which the dues of all Central & State Government

Departments were considered. Thus, the judgment in Rainbow (supra)

allowed treatment of Gujarat Tax Department as secured creditor in priority

over the dues of Central and other State Governments under the waterfall

mechanism provided in Section 53(1) of the Code.

35. The claim of the Appellant in the present case is on account of GST

dues under CGST Act, 2017 from the Corporate Debtor. The foundation of

the Appellant's argument is that Section 82 of the CGST Act is pari materia

with Section 48 of the Gujarat Value Added Tax Act, 2003 which was

considered by the Hon'ble Supreme Court in Rainbow Papers.

Page 16 of 21 Company Appeal (AT) (Ins.) No. 1451 of 2024

36. We now take a look at Section 82 of the CGST Act, 2017 which is

extracted below:

"82. Notwithstanding anything to the contrary contained in any law for the time being in force, save as otherwise provided in the Insolvency and Bankruptcy Code, 2016, any amount payable by a taxable person or any other person on account of tax, interest or penalty... shall be the first charge on the property..."

37. A plain reading of the aforesaid provisions demonstrates a material

and substantive distinction between the two enactments. While Section 48

of the GVAT Act creates a first charge simpliciter, Section 82 of the CGST Act

expressly incorporates the phrase "save as otherwise provided in the

Insolvency and Bankruptcy Code, 2016". The aforesaid expression cannot

be ignored while interpreting the scope and effect of Section 82. It is a settled

principle of statutory interpretation that every word employed by the

legislature must be assigned meaning and effect, which the legislature

intended. Courts cannot adopt an interpretation which renders any part of

the statute redundant or otiose.

38. The Parliament, while enacting the CGST Act in the year 2017, was

fully conscious of the existence and operation of the Insolvency and

Bankruptcy Code, 2016. It consciously incorporated a saving clause making

the statutory charge under Section 82 subject to the provisions of the Code.

The legislative intent is therefore explicit and unambiguous. The first charge

contemplated under Section 82 is not absolute. It operates subject to the

provisions of the Insolvency and Bankruptcy Code. Consequently, once

Page 17 of 21 Company Appeal (AT) (Ins.) No. 1451 of 2024 insolvency proceedings commence under the Code, the treatment of claims,

determination of priorities and distribution of proceeds are governed by the

statutory scheme of the Code.

39. The Hon'ble Supreme Court in Rainbow Papers was concerned only

with Section 48 of the Gujarat Value Added Tax Act, 2003, Section 82 of the

CGST Act 2017 containing an express saving clause in favour of the

Insolvency and Bankruptcy Code was not before the court. The statutory

framework involved in Rainbow Papers was therefore materially different from

the statutory framework governing the present Appeal.

40. We further notice that subsequent judicial pronouncements have

clarified the limited applicability of the judgment in Rainbow Papers. In

Paschimanchal Vidyut Vitran Nigam Ltd. v. Raman Ispat Private Limited, Civil

Appeal No.7976 of 2019, the Hon'ble Supreme Court observed that:

"The judgment in Rainbow Papers has to be confined to the facts of that case."

41. The claim of the Appellant to be treated as Secured Operational

Creditor here is based on interpretation of Section 82 of the CGST Act, 2017

which clearly states that the charge on the property shall be considered as

first charge but in case of treatment under IBC, 2016 the same would be

considered as per provisions of the Code. This means that the dues of the

Central or State Government would be treated in accordance with Section

53(1)(e)(i) in case of proceedings under the Code.

Page 18 of 21 Company Appeal (AT) (Ins.) No. 1451 of 2024

42. We are therefore of the considered opinion that Section 82 itself

furnishes the answer to the controversy raised by the Appellant. The

statutory charge contemplated therein cannot override the insolvency

framework nor can it alter the priority mechanism prescribed under the Code.

We are therefore of the considered view that the reliance placed by the

Appellant upon Rainbow Papers is misplaced and is not appliable to the facts

of the present case.

43. This Appellate Tribunal in "Department of State Tax v. Zicom Saas

Pvt. Ltd. & Anr., Company Appeal (AT) (Ins.) No.246 of 2022", while

considering a similar contention founded upon Rainbow Papers, held in

Paragraph 10 as follows:

"10. We thus are of the view that the Judgement of the Hon'ble Supreme Court in "Rainbow Paper Limited" relied by Learned Counsel for the Appellant is distinguishable. The Appellant having been treated as Operational Creditor allocation of amount in the Resolution Plan cannot be said to be in violation of Section 30 (2)(b). We thus are of the view that no ground has been made to interfere with the Impugned Order."

44. In the case of Department of State Tax vs. Zicom (supra) the claim was

filed by Maharashtra State Tax Department where a reliance was placed upon

judgment in Rainbow (supra). The Appellants had relied upon Section 37of

Maharashtra Value Added Tax Act, 2002, however, Section 37 specifically

uses the expression "subject to any provision regarding creation of first charge

in any Central Act." The provision itself contemplated that Section 37 was

subject to any provision in Central Act. Accordingly, this Tribunal refused to

Page 19 of 21 Company Appeal (AT) (Ins.) No. 1451 of 2024 consider Maharashtra Tax Department as Secured Creditor and its treatment

as "operational creditor" was held to be valid.

45. The ratio laid down in the aforesaid judgment squarely applies to the

facts of the present case as Section 82 of the CGST Act, 2017 clearly states

that "save as otherwise provided in the Insolvency and Bankruptcy Code,

2016" means IBC will prevail over CGST Act and the claim of Appellant has

to be treated as under operational Debt as State Government dues.

46. We also take notice of the subsequent judgment of this Appellate

Tribunal in "Department of State Tax v. Pranav Constructions Systems

Pvt. Ltd. & Anr., Company Appeal (AT) (Ins.) No.1945 of 2024", wherein

a similar claim seeking recognition of GST dues as secured debt was rejected.

47. We have seen from the records that both IRP and RP had at different

times informed the Appellant that they were to be treated as unsecured

operational creditor and that the Rainbow Papers (supra) was not applicable

to the facts of the case which related to GST Claims and not the VAT Claims

which are covered by judgment in Rainbow Papers (supra).

48. The Appellant also did not raise any objection when the Resolution Plan

was placed before the Committee of Creditors. It did not filed any objection

before the Adjudicating Authority, when approval of the Resolution Plan was

sought. Even after approval of the Resolution Plan, the Appellant did not seek

any immediate remedy before the Adjudicating Authority and instead chose

to file the present Appeal. The conduct of the Appellant clearly demonstrates

that it remained a silent spectator throughout the resolution process despite

being fully aware of the treatment accorded to its claim. Page 20 of 21 Company Appeal (AT) (Ins.) No. 1451 of 2024

49. Another issue raised by the Appellant is that during the moratorium

period, scrutiny proceedings resulted in additional tax liability of the

corporate debtor for which the Appellant requested the RP to update the

liability and update the claim of the department. However, the RP rejected

such updated claim.

50. We are of the view that in view of the moratorium operating during the

CIRP proceedings no scrutiny orders could have been passed by the Appellant

imposing further liability upon the Corporate Debtor. We find no infirmity in

the decision of the RP rejecting such additional claims.

51. We further note that the resolution plan has been fully implemented.

Payments to all creditors as per resolution plan have been made. The

Monitoring Committee constituted for implementation of resolution plan has

already been dissolved.

52. In view of the findings above, we do not find any infirmity in the

impugned order. The Appeal is dismissed. Pending IAs, if any, are closed. No

order as to costs.

[Justice N. Seshasayee] Member (Judicial)

[Arun Baroka] Member (Technical)

[Indevar Pandey] Member (Technical) Place: New Delhi Harleen

Page 21 of 21 Company Appeal (AT) (Ins.) No. 1451 of 2024