State Tax Officer 4 vs Ca Vinod T. Agrawal (Resolution ...

(Arising out of order dated 05.05.2025 passed by the National Company Law Tribunal, Ahmedabad Bench, Court-1 in I.A. No. 435(AHM)/ 2025 in CP (IB) No. 123/NCLT/AHM/2022)

In the matter of:

State Tax Officer (4) Having its address at: Office of the Assistant Commissioner of State Tax Unit-11, 2nd Floor, Bahumali Bhavan-2, Vastrapur, Ahmedabad, Gujarat - 380052. ...Appellant

Vs.

1. CA Vinod T. Agrawal (Resolution Professional of Jay Formulations Pvt. Ltd.) Having address at: 204, Wall Street-1, Near Gujarat College, Ellisbridge, 1 Ahmedabad, Gujarat - 380006

2. Jay Formulations Private Limited (Corporate Debtor) Having its address at: 13, 1st Floor, Harikrishna Complex, B/H. Dipalee Cinema, Ashram Road, Ahmedabad, Gujarat- 380009

3. Vishal Shah, Aquatic Remedies Limited (Successful Resolution Applicant) Having address at: 1208-1211, Cabin A, 12th Floor, Universal Majestic, P.L. Lokhande Marg, Chembur (W), Mumbai- 400043 ...Respondents Present: For Appellant: Mr. Hitesh P. Vachhani, Advocate.

For Respondents: Ms. Anjali Sharma, Mr. S.K. Sagar, Ms. Ragini Vinaik and Ms. Thangalunkim, Advocates.

Mr. Karan Valecha, Mr. Aayush Rathore, Advocate for R-1/RP.

Mr. Siddharth Sangal and Ms. Richa Mishra, Advocate for SBI.

WITH Company Appeal (AT) (Ins.) No. 1064 of 2025

(Arising out of order dated 05.05.2025 passed by the National Company Law Tribunal, Ahmedabad Bench, Court-I in I.A. No. 27(PLAN)/AHM)/2024 in CP (IB) No. 123/NCLT/AHM/2022)

In the matter of:

State Tax Officer (4) Having its address at: Office of the Assistant Commissioner of State Tax Unit-11, 2nd Floor, Bahumali Bhavan-2, Vastrapur, Ahmedabad, Gujarat - 380052. ...Appellant

Vs.

1. CA Vinod T. Agrawal (Resolution Professional of Jay Formulations Pvt. Ltd.) Having address at: 204, Wall Street-1, Near Gujarat College, Ellisbridge, 1 Ahmedabad, Gujarat - 380006

2. Jay Formulations Private Limited (Corporate Debtor) Having its address at: 13, 1st Floor, Harikrishna Complex,

Page 2 of 26 Company Appeal (AT) (Ins) Nos. 1050 & 1064 of 2025 B/H. Dipalee Cinema, Ashram Road, Ahmedabad, Gujarat- 380009

3. Vishal Shah, Aquatic Remedies Limited (Successful Resolution Applicant) Having address at: 1208-1211, Cabin A, 12th Floor, Universal Majestic, P.L. Lokhande Marg, Chembur (W), Mumbai- 400043 ...Respondents

Present: For Appellant: Mr. Hitesh P. Vachhani, Advocate.

For Respondents: Mr. Karan Valecha and Mr. Aayush Rathore, Advocate for R-1/RP.

Ms. Anjali Sharma, Mr. S.K. Sagar, Ms. Ragini Vinaik and Ms. Thangalunkim, Advocates for R3.

Mr. Siddharth Sangal and Ms. Richa Mishra, Advocate for SBI.

J U D G M EN T

(25th September, 2026)

INDEVAR PANDEY, MEMBER (T)

The instant Appeal No. CA (AT) (Ins.) No. 1050 of 2025 has been

preferred by the State Tax Officer (4)/Appellant, Ahmedabad, Gujrat,

against the Impugned Order dated 05.05.2025 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

Page 3 of 26 Company Appeal (AT) (Ins) Nos. 1050 & 1064 of 2025 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 BE PLEASED to allow the present Appeal;

B. YOUR LORDSHIPS MAY BE PLEASED to quash and set aside the impugned order dated 05.05.2025 passed by the Hon'ble National Company Law Tribunal, Division Bench, Court-I, Ahmedabad in I.A./27(PLAN)/AHM/2024 in C.P. (IB) No. 123/NCLT/AHM/2022;

C. YOUR LORDSHIPS MAY BE PLEASED to declare the status of the unpaid CST dues of the Appellant as a secured dues and the Appellant as a "Secured Creditor" under Section 53(1)(b)(ii) of the Insolvency and Bankruptcy Code, 2016;

D. YOUR LORDSHIPS MAY BE PLEASED to direct the Respondents to undertake for securing the payment in favour of the Appellant while distribution of payment, if any, which the Respondents were not entitled Page 4 of 26 Company Appeal (AT) (Ins) Nos. 1050 & 1064 of 2025 to at the time of distribution by virtue of pronouncement of State Tax Officer vs. Rainbow Papers Limited (2023) 9 SCC 545 and upheld by the Hon'ble Supreme Court in case of Sanjay Kumar Agarwal v. State Tax Officer (1) and Anr. (2024) 2 SCC 362;

E. IN THE ALTERNATE YOUR LORDSHIPS MAY BE PLEASED to reject and set aside the impugned order and direct for the liquidation of the Corporate Debtor since the impugned order is not as per the provisions of law for the time being in force, more particularly, in light of the law of the land as passed by the Hon'ble Supreme Court in case of Rainbow Papers' judgment which subsequently came to be upheld in Rainbow Papers' Review judgment; and

F. YOUR LORDSHIPS MAY BE PLEASED to grant any such other and further reliefs as may be deemed just, fit and proper in the interest of justice.

CA (AT) (Ins) No. 1064 of 2025

3. The second connected Appeal CA (AT) (Ins) No. 1064 of 2025 has been

preferred by the State Tax Officer (4), Office of the Assistant Commissioner

of State Tax, Unit-11, Ahmedabad ("Appellant") against the Impugned Order

dated 05.05.2025 passed by the National Company Law Tribunal, Division

Bench, Court-I, Ahmedabad (Adjudicating Authority) in

I.A./27(PLAN)/AHM/2024 in C.P.(IB) No. 123/NCLT/AHM/2022, whereby

the Resolution Plan submitted in respect of Jay Formulations Private

Limited ("Corporate Debtor/Respondent No. 2") by Vishal Shah, Aquatic

Remedies Limited ("Successful Resolution Applicant/Respondent No. 3")

was approved. CA Vinod T. Agrawal, Resolution Professional of the Corporate

Debtor, is Respondent No. 1. The Appellant had participated in the CIRP by

Page 5 of 26 Company Appeal (AT) (Ins) Nos. 1050 & 1064 of 2025 submitting 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 545 and Sanjay Kumar Agarwal v. State Tax Officer (1) and Anr., (2024) 2 SCC 362;

E. In the alternative, to quash and set aside the Impugned Order and direct liquidation of the Corporate Debtor, stating that the Impugned Order is not in accordance with the provisions of law; F. To grant such other and further reliefs as may be deemed just, fit and proper in the interest of justice. Page 6 of 26 Company Appeal (AT) (Ins) Nos. 1050 & 1064 of 2025 5. Both these Appeals arise out of the same CIRP proceedings of the

Corporate Debtor and involve similar issues relating to the categorisation of

the Appellant's claim and its subsequent treatment under the Resolution

Plan. Company Appeal (AT) (Ins.) No. 1050 of 2025 is being considered as the

main Appeal for the purpose of adjudication. The decision in the second

Company Appeal (AT) (Ins.) No. 1064 of 2025 would depend upon the decision

in the First Appeal.

Facts of the Case

6. Brief facts of the case relevant for deciding these appeals are as follows:

i. The Corporate Debtor (Jay Formulations Private Limited), was

engaged in the manufacture, supply and export of allopathic medicines

and pharmaceuticals, with its registered office at Ashram Road,

Ahmedabad and manufacturing plant at Bavla, Gujarat.

ii. The Corporate Debtor had outstanding statutory dues for Financial

Year 2014-15 under the Gujarat Value Added Tax Act, 2003 ("GVAT Act")

and the Central Sales Tax Act, 1956 ("CST Act"), aggregating to

Rs.1,82,47,705/-, pursuant to which assessment orders were passed by

the State Tax Department.

iii. On account of the unpaid tax dues, the Appellant initiated recovery

proceedings and, on 15.02.2021, attached the bank account of the

Corporate Debtor. The Corporate Debtor, thereafter preferred an appeal

before the Deputy Commissioner of State Tax, Division-1, Ahmedabad,

Page 7 of 26 Company Appeal (AT) (Ins) Nos. 1050 & 1064 of 2025 pursuant to which a stay against recovery was granted on 04.06.2021,

initially up to 04.06.2022.

iv. Meanwhile, State Bank of India, which had extended various credit

facilities to the Corporate Debtor since 2001, classified its account as an

NPA on 29.06.2021 and thereafter sought recovery of its outstanding

financial dues. The Bank subsequently initiated CIRP proceedings

against the Corporate Debtor under Section 7 of the Code by filing C.P.

(IB) No. 123/AHM/2022 before the Adjudicating Authority. During the

pendency of the insolvency proceedings, a further 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/-.

Page 8 of 26 Company Appeal (AT) (Ins) Nos. 1050 & 1064 of 2025 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 Resolution Professional.

viii. A further bank attachment was made by the Appellant on

12.02.2024 in respect of the unpaid tax dues, while the related tax

proceedings remained pending before the State Tax authorities.

ix. During the CIRP, Respondent No.1 filed I.A. (Plan) No. 27 of 2024 on

25.06.2024 seeking approval of the Resolution Plan submitted by

Respondent No.3, the Successful Resolution Applicant (SRA). The

Appellant filed its reply on 08.12.2024 in the said proceedings.

x. Thereafter, on 15.03.2025, the Appellant filed I.A./435 (AHM) 2025

in C.P. (IB) No. 123/NCLT/AHM/2022, seeking recognition of its claim

of Rs.2,00,15,482/- under the GVAT Act and CST Act as a secured claim

and appropriate consideration of the same under the Resolution Plan.

xi. The Adjudicating Authority passed the Impugned Order dated

05.05.2025 in I.A./435 (AHM) 2025, whereby the Appellant's claim in

respect of CST dues amounting to Rs. 1,65,87,840/- was not treated as

a secured claim under Section 53(1)(b)(ii) of the Code.

xii. Aggrieved by the aforesaid order, particularly the treatment of its CST

dues in the CIRP and Resolution Plan, the Appellant has preferred this

Appeal.

Page 9 of 26 Company Appeal (AT) (Ins) Nos. 1050 & 1064 of 2025 Submission of Appellant

7. Ld. Counsel submits that the present Appeal concerns the CST dues of

Rs. 1,65,87,840/- of the Corporate Debtor for FY 2014-15. The grievance of

the Appellant is that, despite the claim having been submitted during the

CIRP, the Appellant was not treated as a "Secured Creditor" in respect of the

CST dues under Section 53(1)(b)(ii) of the Code.

8. He submits that the issue is covered by the judgment of the Hon'ble

Supreme Court in State Tax Officer v. Rainbow Papers Limited, (2023) 9

SCC 545. It is submitted that the Hon'ble Supreme Court recognised that a

statutory charge created by operation of law can constitute a "security

interest" under Section 3(31) of the Code and consequently the concerned

State Tax Department can fall within the definition of "Secured Creditor"

under Section 3(30) of the Code.

9. Ld. Counsel submits that, in Rainbow Papers, the Hon'ble Supreme

Court considered the statutory first charge created under Section 48 of the

GVAT Act and held that such charge was not inconsistent with Section 53 of

the Code. The Appellant submits that the same principle is applicable to the

present CST dues because the CST 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

Page 10 of 26 Company Appeal (AT) (Ins) Nos. 1050 & 1064 of 2025 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 that State. The provision further permits the State authorities

to exercise the powers available under the State sales-tax law for such

purposes.

12. He submits that in Gujarat, the applicable general sales-tax legislation

is the GVAT Act, 2003, and Section 48 thereof provides that any amount

payable by a dealer towards tax, interest or penalty shall be a first charge on

the property of such dealer. Therefore, when Section 9(2) of the CST Act and

Section 48 of the GVAT Act are read together, the statutory machinery and

charge under the GVAT Act are applicable for enforcement of CST dues.

13. Appellant submits that the learned Adjudicating Authority erred in

holding that Section 9(2) of the CST Act does not create a statutory charge

equivalent to that under Section 48 of the GVAT Act. The Appellant's case is Page 11 of 26 Company Appeal (AT) (Ins) Nos. 1050 & 1064 of 2025 that Section 9(2) provides the statutory mechanism for enforcement of CST

dues through the State law, while Section 48 creates the first charge. The two

provisions therefore operate conjointly and are not required to be read in

isolation.

14. He submits that the said statutory first charge constitutes a "security

interest" under Section 3(31) of the Code, thereby making the Appellant a

"Secured Creditor" under Section 3(30). There is no exclusion in the definition

of "Secured Creditor" merely because the creditor happens to be a

Government authority or State Tax Department.

15. It is therefore submitted that the CST dues of Rs. 1,65,87,840/-, being

protected by the statutory charge arising under Section 9(2) of the CST Act

read with Section 48 of the GVAT Act, ought to have been treated as dues of

a Secured Creditor under Section 53(1)(b)(ii) of the Code, in accordance with

the principles laid down in Rainbow Papers and its review judgment.

Submissions of Respondent no.1/ Resolution Professional

16. Ld. Counsel for Respondent No.1/Resolution Professional submits that

the present Appeals arise out of the treatment accorded to the claim of the

Appellant/State Tax Officer in the CIRP of Jay Formulations Private Limited.

The controversy in the present Appeals is confined to the question whether

the dues claimed under the Central Sales Tax Act, 1956 ("CST Act") are

required to be treated as secured dues, notwithstanding that the Resolution

Professional has treated the GVAT component of the claim as secured and the

CST component as unsecured operational debt. The Respondent submits that

Page 12 of 26 Company Appeal (AT) (Ins) Nos. 1050 & 1064 of 2025 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 Papers Ltd.

19. Ld. Counsel submits that the CST dues stand on a different footing from

GVAT dues because the CST Act does not contain a provision equivalent to

Section 48 of the GVAT Act creating a first charge over the property of the

dealer. The Section 9(2) of the CST Act merely provides the machinery by

which CST is to be assessed, reassessed, collected and enforced. Under the

said provision, the authorities empowered under the general sales tax law of

the appropriate State may assess, reassess, collect and enforce payment of Page 13 of 26 Company Appeal (AT) (Ins) Nos. 1050 & 1064 of 2025 CST, as if the tax were payable under the general sales tax law of that State.

The provision also permits exercise of the powers available under the State

sales tax law for purposes of assessment and recovery.

20. It is submitted that Section 9(2), however, does not itself create a charge

upon the assets of the Corporate Debtor. Unlike Section 48 of the GVAT Act,

there is no express statutory language in Section 9(2) creating a first charge

over the property of the dealer in respect of CST dues. The expression "as if"

in Section 9(2) facilitates the adoption of the machinery and procedure for

assessment and recovery; it does not import a substantive statutory charge

which is absent from the CST Act.

21. It is his submission that the creation of a security interest is essential

for a claim to be treated as a secured claim under the Code. Such security

interest may arise through a contractual arrangement, such as mortgage or

hypothecation, or through a specific statutory provision creating such

interest. In the present case, there is no contractual security interest pleaded

or shown in respect of the CST dues and, more importantly, there is no

statutory provision in the CST Act creating a charge over the assets of the

Corporate Debtor.

22. Ld. Counsel relies upon the principle laid down in the Judgement of

Hon'ble Supreme Court in Paschimanchal Vidyut Vitran Nigam Ltd. v.

Raman Ispat Pvt. Ltd., that statutory dues cannot acquire the character of

secured dues, unless the statute under which the dues arise, contains an

express provision creating a charge over the assets of the Corporate Debtor.

In the present case, the CST Act contains no such charge-creating provision. Page 14 of 26 Company Appeal (AT) (Ins) Nos. 1050 & 1064 of 2025 Consequently, the treatment of the CST dues in the Resolution Plan as

government dues but unsecured operational debt is justified.

23. He further places reliance 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 as secured and dealt with accordingly

under the Resolution Plan. Thus, the scope of the present Appeals is confined

to the CST component.

Page 15 of 26 Company Appeal (AT) (Ins) Nos. 1050 & 1064 of 2025

25. He submits that the Resolution Professional classified the Appellant's

claim into secured and unsecured components strictly on the basis of the

documents submitted by the State Tax Officer along with Form B and its

supporting annexures. The Assessment Order and the Form B claim dated

07.10.2023 clearly distinguished between the GVAT dues, amounting to

approximately Rs.15.12 lakh, and the CST dues, amounting to approximately

Rs.1.67 crore.

26. However, it is submitted that the ratio of Rainbow Papers cannot be

mechanically extended to CST dues. The judgment in Rainbow Papers

proceeded upon the existence of Section 48 of the GVAT Act, which expressly

creates a first charge. There is no equivalent provision in the CST Act creating

a charge over the assets of the Corporate Debtor. Therefore, the statutory

foundation which existed in respect of GVAT dues is absent in respect of CST

dues.

27. Summing up his arguments Ld. Counsel submits that the precise issue

as to whether the dues of the State Tax Department under the Central Sales

Tax Act constitute secured debt has already been considered and answered

by this Tribunal in Company Appeal (AT) (Ins.) No. 1804 of 2025,

particularly in paragraphs 9, 11 and 22 of the judgment annexed with the

present submissions. The Respondent accordingly submits that the said

judgment directly supports the classification of CST dues as unsecured and

the treatment adopted by the Resolution Professional and reflected in the

Resolution Plan.

Page 16 of 26 Company Appeal (AT) (Ins) Nos. 1050 & 1064 of 2025 ANALYSIS AND FINDINGS

28. We have gone through the documents available on record and heard

the parties at length.

29. The issue for the determination in this case is whether the Central Sales

Tax ("CST") dues amounting to Rs.1,65,87,840/-, of the Appellant could be

treated as "Secured" by virtue of Section 9(2) of the Central Sales Tax Act,

1956 ("CST Act") read with Section 48 of the Gujarat Value Added Tax Act,

2003 ("GVAT Act").

30. There is no dispute that the Corporate Debtor had outstanding tax dues

for the financial year 2014-15 and that the Appellant submitted its claim

during the CIRP. The total claim submitted by the Appellant in Form-B was

Rs.1,82,47,705/-, comprising dues under the GVAT Act and the CST Act.

However, the 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

Page 17 of 26 Company Appeal (AT) (Ins) Nos. 1050 & 1064 of 2025 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 other hand, submit that there is a

fundamental distinction between Section 48 of the GVAT Act and Section 9(2)

of the CST Act. Section 48 expressly provides that the amount payable by a

dealer towards tax, interest or penalty shall be a first charge on the property

of the dealer. Section 9(2) of the CST Act does not contain any corresponding

provision creating a charge over the property of the dealer. According to the

Respondents, Section 9(2) merely adopts the machinery of the State sales tax

law for assessment, collection and enforcement of CST dues and does not

import the substantive first charge created under Section 48 of the GVAT Act.

33. Section 9(2) of the CST Act provides that the authorities empowered to

assess, reassess, collect and enforce payment of tax under the general sales

tax law of the appropriate State shall perform those functions in respect of

CST as if the CST were tax payable under the general sales tax law of that

State. The provision further permits such authorities to exercise the powers

available under the general sales tax law and makes applicable various

provisions relating to returns, assessment, recovery, appeals, reviews,

revisions, penalties, interest and other matters. However, the section does not

create a "charge" on the assets of the dealer. Section 9(2) of the Central Sales

Tax Act, 1956 is reproduced below:

Page 18 of 26

Company Appeal (AT) (Ins) Nos. 1050 & 1064 of 2025 "Section 9

(1) xxxx (2) Subject to the other provisions of this Act and the rules made thereunder, the authorities for the time being empowered to assess, re-

assess, collect and enforce payment of any tax under general sales tax law of the appropriate State shall, on behalf of the Government of India, assess, re-assess, collect and enforce payment of tax, including any [interest or penalty,] [Substituted by Act 10 of 2000, Section 119, for "

penalty" (w.e.f. 12.5.2000). ] payable by a dealer under this Act as if the tax or [interest or penalty,] [Substituted by Act 10 of 2000, Section 119, for " penalty" (w.e.f. 12.5.2000). ] payable by such a dealer under this Act is a tax or [interest or penalty,] [Substituted by Act 10 of 2000, Section 119, for " penalty" (w.e.f. 12.5.2000). ] payable under 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,] [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.

Page 19 of 26 Company Appeal (AT) (Ins) Nos. 1050 & 1064 of 2025 The Hon'ble Supreme Court considered the statutory charge under Section

48 of the GVAT Act and, under the law as it then stood, held that such security

interest could be created by operation of law and that the State could

consequently fall within the definition of a secured creditor.

35. The question in the present Appeal, however, is not whether Section 48

of the GVAT Act creates a first charge. It undoubtedly does. The question is

whether that substantive first charge can be said to arise in respect of CST

dues merely because Section 9(2) of the CST Act adopts the State's sales tax

machinery for collection and enforcement of CST.

36. This precise question has subsequently been considered by this

Tribunal in "State Tax Officer v. Nitin Narang, RP of Afcan Impex Pvt.

Ltd. & Ors., Company Appeal (AT) (Insolvency) Nos. 1804 & 1805 of

2025", decided on 07.01.2026. In that case also, the State Tax Officer's GVAT

dues had been accepted as secured, whereas the dispute concerned the CST

dues. The Appellant therein had also relied upon Section 9(2) of the CST Act

and contended that the entire mechanism of recovery under the State VAT

law, including the first charge, consequently became applicable to CST dues.

37. We take note of the relevant paras 9, 11 and 22 of the Nitin Narang

(Supra):

"9. There can be no quarrel to the proposition laid down by the Hon'ble Supreme Court in the above case. In the present cased also, the claim of the Appellant under GVAT Act has been accepted as secured creditor and with regard to which there is no dispute between the parties. The only issue which needs to be considered in the present case with regard to the dues of the Appellant under

Page 20 of 26 Company Appeal (AT) (Ins) Nos. 1050 & 1064 of 2025 the CST Act as secured creditor. The Appellant has pleaded reliance on the judgment of the Hon'ble Supreme Court and on Section 9 sub- section (2) of the CST Act. Section 9 subsection (2) of the CST Act provides as follows: "9(2) Subject to the other provisions of this Act and the rules made thereunder, the authorities for the time being empowered to assess, re-assess, collect and enforce payment of any tax under general sales tax law of the appropriate State shall, on behalf of the Government of India, assess re-assess, collect and enforce payment of tax, including any [interest or penalty,] payable by a dealer under this Act as if the tax or [interest or penalty] payable by such a dealer under this Act is a tax or [interest or penalty] payable under 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 shall have the first charge on the property of such dealer. Section 9 sub-section (2) clearly applies to machinery provision for recovery and enforcement of payment of tax, but it does not create any first charge on the assets of the CD. We, thus, are in agreement with the submission of the learned Counsel for the Respondent that Section 9 sub-section

Page 21 of 26 Company Appeal (AT) (Ins) Nos. 1050 & 1064 of 2025 (2) is a machinery provision and not a provision creating separate statutory charge unlike Section 48 of GVAT Act. The provision of Section 9 sub-section (2) expressly limited to procedural matters -

assessment, returns, recovery steps, appeals, penalties etc. and does not import any substantive rights of the State, much less a statutory first charge as created under Section 48 of the GVAT Act.

22. Section 9 sub-section (2) of the CST Act, which is sheet anchor submission of the Appellant has been noticed above. We have observed that provisions of Section 9 sub-section (2) cannot be read to mean that by virtue of said provision any charge can be created on the assets of the CD by operation of law. Although Section 9 sub- section (2) refers to various provisions, which had been made applicable specially to recovery by CST Act as was applicable in the general sales tax laws, but the provision of creating first charge on the assets of the CD is absent in Section 9 sub-section (2), nor it can be impliedly imported with respect to dues under CST Act. We, thus, are of the view that Adjudicating Authority did not commit any error in not accepting the claim of the Appellant insofar as central dues of CST Act are concerned. We, thus, are not persuaded to accept the submission of the Appellant that dues under CST Act has to be treated as secured debt."

38. We can see from the above that in Nitin Narang (Supra), this Appellate

Tribunal took note of the Judgement of Hon'ble SC in Rainbow Papers (Supra)

and after considering the provisions of Section 48 of the GVAT Act and Section

9(2) of CST Act, held that Section 9(2) of the CST Act is a machinery provision

and does not create a separate statutory charge in respect of CST dues. It

further held that the provision cannot be read as impliedly importing the

substantive first charge under Section 48 of the GVAT Act. The claim under

the CST Act was therefore not held to be secured debt.

Page 22 of 26 Company Appeal (AT) (Ins) Nos. 1050 & 1064 of 2025

39. The aforesaid decision is squarely applicable to the facts of the present

case. 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 provided for a secured creditor by a transaction which secures payment or performance of an obligation and includes mortgage, charge, hypothecation, assignment and encumbrance or any other agreement or arrangement securing payment or performance of any obligation or any other security interest:

Explanation--For the removal of doubts, it is hereby clarified that the security interest shall exist only if it creates a right, title or interest or a claim to a property pursuant to an

Page 23 of 26 Company Appeal (AT) (Ins) Nos. 1050 & 1064 of 2025 agreement or arrangement, by the act of two or more parties, and shall not include a security interest created merely by operation of any law for the time being in force;"

(Emphasis supplied)

41. The amendment is directly relevant because the Appellant does not rely

upon any mortgage, hypothecation, pledge, contractual charge or other

agreement or arrangement entered into with the Corporate Debtor. The

alleged security interest in the present case is claimed to arise entirely by

operation of statutory provisions, namely Section 9(2) of the CST Act. The

Explanation has been introduced "for the removal of doubts". A provision

which is clarificatory in nature does not ordinarily create a new law from the

date of its enactment; its purpose is to explain and make clear the meaning

of the existing statutory provision from the date of the enactment of the

statutory provision. Such a provision therefore operates retrospectively and

applies to pending proceedings, unless the statute expressly provides

otherwise. The mere fact that the clarification was enacted in 2026 does not

mean that we could ignore it while deciding a pending appeal arising from an

earlier order.

42. The 2026 amendment therefore operates as an additional statutory

consideration. Even assuming, for the sake of argument, that the operation

of Section 9(2) read with Section 48 could result in a charge arising by

operation of law, such an interest would still have to satisfy the definition of

"security interest" under the Code. Under the amended Section 3(31), an

interest created merely by operation of law is expressly excluded. This

distinction is important. The Appellant's tax claim itself is not in dispute Page 24 of 26 Company Appeal (AT) (Ins) Nos. 1050 & 1064 of 2025 merely because its secured status is rejected. The State Tax Officer continues

to have its admitted statutory claim against the Corporate Debtor

43. The present case, however, does not require the entire decision to rest

upon the retrospective application of the 2026 amendment. Even

independently of the amendment, the Appellant's claim encounters the

difficulty that Section 9(2) of the CST Act does not itself create a first charge

upon the property of the dealer. The issue has been already considered and

settled by this Appellate Tribunal in Nitin Narang (Supra), which had

considered the Rainbow Papers Judgement of Hon'ble SC and held that the

first-charge provision contained in Section 48 of the GVAT Act cannot be

impliedly imported into CST dues merely through Section 9(2) of the CST Act.

44. We also note that the Impugned Order was passed on 05.05.2025, at a

time when the 2026 amendment to Section 3(31) was not in force. The

Adjudicating Authority was therefore examining the matter under the law

then applicable. The Appellant had relied upon Rainbow Papers and

contended that the statutory charge arising through Section 9(2) read with

Section 48 was sufficient to confer secured status. The Adjudicating

Authority, however, distinguished the statutory first charge under Section 48

of the GVAT Act from the machinery provision contained in Section 9(2) of the

CST Act and declined to treat the CST dues as secured.

45. In view of the discussion in above paras, we are of the view that the

Appellant has an admitted and enforceable claim of Rs.1,65,87,840/- towards

CST dues, but such claim cannot be treated as a "Secured Debt" under the

Code. Once the claim under CST is not treated as "Secured Debt" the question Page 25 of 26 Company Appeal (AT) (Ins) Nos. 1050 & 1064 of 2025 of its treatment under Section 53(1)(b)(ii) of the code in the Resolution Plan

does not arise.

46. Based on the above, we find no error in the impugned order passed by

the Ld. Adjudicating Authority holding that the CST dues of Rs.1,65,87,840/-

could not be treated as "Secured Debt". Consequently, the claim of the

Appellant to be considered as Secured Creditor under Section 53(1)(b)(ii) of

the code in the Resolution Plan does not arise. Accordingly, both the Appeals

are dismissed. Pending IA's, if any, are closed. No order as to costs.

[Justice Sharad Kumar Sharma] Member (Judicial)

[Arun Baroka] Member (Technical)

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

Harleen/ Pragya (LRA)

Page 26 of 26 Company Appeal (AT) (Ins) Nos. 1050 & 1064 of 2025