Pranav B Prem

The National Company Law Appellate Tribunal (NCLAT), New Delhi, has dismissed an appeal filed by the GST & Central Excise Angul Division, challenging the rejection of its plea for recognition as a “secured creditor” in the Corporate Insolvency Resolution Process (CIRP) of Bindals Sponge Industries Ltd. The bench, comprising Justice Ashok Bhushan (Chairperson) and Arun Baroka (Technical Member), concluded that the statutory charge created under Section 11E of the Central Excise Act is not comparable to Section 48 of the Gujarat VAT Act, as interpreted in State Tax Officer v. Rainbow Papers Ltd [(2023) 9 SCC 545], and hence cannot be enforced in IBC proceedings.

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The CIRP against Bindals Sponge Industries Ltd. was initiated on May 11, 2018, following a petition under Section 7 of the IBC filed by Oriental Bank of Commerce. The GST department had filed a claim amounting to ₹24.26 crore as an operational creditor, comprising statutory dues under the Central Excise Act and the Finance Act. Although the claim was admitted by the Resolution Professional, the resolution plan approved by the Committee of Creditors (CoC) on November 12, 2019, allocated only 2.71% of the claim to the department. This led to objections being raised by the department in December 2019.

In September 2022, the Supreme Court delivered its judgment in Rainbow Papers, holding that dues under the Gujarat VAT Act constituted secured debt by virtue of Section 48 of that Act, which created an unconditional first charge over the property of the dealer. In light of this ruling, the resolution plan in the present case was modified in April 2024 to enhance the allocation to the State GST Department (Odisha) from 2.71% to 29.61%, considering the statutory charge under Section 55 of the Odisha VAT Act, which is similar to Section 48 of the Gujarat VAT Act.

However, no such enhancement was granted to the Central GST department. Aggrieved, the appellant filed IA No. 2537 of 2024 before the NCLT, seeking modification of the resolution plan and equal treatment with the State GST Department by relying on Rainbow Papers. The application was rejected by the Adjudicating Authority on January 21, 2025, leading to the present appeal.

Appearing for the appellant, Senior Standing Counsel Shri Prasenjeet Mohapatra argued that the Supreme Court’s ruling in Rainbow Papers was binding under Article 141 of the Constitution and that the dues owed by the GST department, being government dues, must be treated as secured debts under the IBC. He pointed out that the Supreme Court had also dismissed a review petition against its ruling in Rainbow Papers, reaffirming the status of such dues as secured.

In response, Senior Advocate Abhijeet Sinha, appearing for the resolution applicant, opposed the contention, distinguishing Section 11E of the Central Excise Act from Section 48 of the Gujarat VAT Act. He emphasized that Section 11E contains a saving clause which expressly acknowledges that the first charge it creates is subordinate to enactments such as the IBC, SARFAESI Act, RDDBFI Act, and the Companies Act. Thus, it cannot override the IBC's provisions on distribution of assets. The Resolution Professional also supported this view, submitting that the creation of a security interest by operation of law is not absolute and cannot apply where the statute itself provides for exceptions.

The Tribunal noted that the ratio of Rainbow Papers was based on the absence of any saving clause in Section 48 of the Gujarat VAT Act, which conferred a clear and unconditional first charge over the debtor’s property. In contrast, Section 11E of the Central Excise Act recognizes exceptions and explicitly defers to the IBC. The Tribunal observed: “Use of expression ‘save as otherwise provided’ clearly means that Section 11E does not create any first charge on the assets of the CD, which are being dealt with under the provisions of Insolvency and Bankruptcy Code, 2016.”

Relying further on the Supreme Court's decision in Sundaresh Bhatt v. CBIC [ (2023) 1 SCC 472], where Section 142A of the Customs Act (pari materia with Section 11E) was held to be subordinate to the IBC, the NCLAT reaffirmed that the legislative scheme of the IBC takes precedence over tax statutes that contain saving clauses. The Tribunal also referred to the Essar Steel judgment to clarify that equitable treatment under Section 30(2)(b) of the IBC applies only within classes of similarly situated creditors, and that secured and unsecured creditors can be treated differently.

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In the present case, the State GST Department was rightly treated as a secured creditor due to Section 55 of the Odisha VAT Act, which mirrors the Gujarat VAT Act. However, the Central GST department’s dues, covered under Section 11E of the Central Excise Act, do not enjoy such status due to the embedded saving clause. Accordingly, the Tribunal held that the judgment in Rainbow Papers could not be extended to central tax dues, and the NCLT's rejection of the modification request was upheld. The appeal was dismissed, and the Tribunal concluded that the Central GST department could not claim secured creditor status under the IBC for dues arising under Section 11E of the Central Excise Act.

Appearance

For Appellant: Mr. Prasenjeet Mohapatra, Sr. Standing Counsel, CGST

For Respondents: Shri Abhijeet Sinha, Sr. Advocate with Mr. Sanwal Tiberwal, Advocates for R-3, Mr. R.K. Srivastava, Advocate for R1.

Cause Title:  GST & Central Excise Angul Division, Rourkela GST Commissionerate V. Dinesh Sood 

Case No: Company Appeal (AT) (Insolvency) No. 495 of 2025

Coram: Justice Ashok Bhushan [Chairperson], Arun Baroka [Technical Member]