NCLAT Rules, Govt Authority Can't Seek Status Of Secured Operational Creditor Based On Dues Arising From HPGST Or CGST Acts
Pranav B Prem
In a crucial ruling, the National Company Law Appellate Tribunal (NCLAT), New Delhi, comprising Justice Ashok Bhushan (Judicial Member), Mr. Barun Mitra (Technical Member), Mr. Arun Baroka (Technical Member), has held that statutory dues under the Himachal Pradesh Goods and Services Tax Act (HPGST) or Central Goods and Services Tax Act (CGST) cannot be treated as secured debts in insolvency proceedings. Therefore, a government authority cannot claim the status of a secured Operational Creditor based on such dues. The judgment came in an appeal filed by the Joint Commissioner of State Taxes & Excise (SEZ), Himachal Pradesh, challenging the NCLT’s refusal to recall its earlier order approving the resolution plan for M/s Radiant Castings Pvt. Ltd.
Background
The corporate debtor was admitted into Corporate Insolvency Resolution Process (CIRP), and the appellant, representing the Himachal Pradesh GST Department, submitted a claim of ₹2.61 crore. The Resolution Professional (RP) duly admitted the claim. Subsequently, a resolution plan submitted by the successful resolution applicant was approved by the Committee of Creditors (CoC) with 70.02% votes and later approved by the NCLT on August 30, 2023.
Under the plan, only ₹6.45 lakh was allocated to all government dues, and the appellant received just ₹50,309 against its admitted claim. The department contended that this treatment was unjust and inequitable, particularly when secured financial creditors were allotted 100% of their claims. It was also argued that an additional claim of ₹13.60 crore on account of tax arrears had been communicated to the RP, which was not considered in the resolution plan.
Submissions and Tribunal's Findings
The appellant claimed that its dues should be prioritized on the ground that the State is entitled to revenue for discharging sovereign functions. It relied on the Supreme Court’s judgment in Rainbow Papers [Civil Appeal No. 1661 of 2020] and argued that the tax department has a first charge under Section 82 of the CGST/HPGST Act.
On the other hand, the respondents, including the RP and the corporate debtor, countered that the appellant had only submitted claims amounting to ₹2.61 crore. The alleged tax arrears of ₹13.60 crore were never formally filed. It was emphasized that no written objections were raised earlier regarding the appellant’s treatment as an Operational Creditor, nor was any challenge made to the approved plan.
The Tribunal held that the Appellant failed to act diligently in submitting their complete claims. While the department referred to two communications sent to the RP regarding the additional ₹13.60 crore, these were found vague and lacking proper documentation or justification for delay. The NCLAT observed: “The Appellant cannot be seen to take advantage of their own inaction and laxity… Allowing the belated claims of the Appellant will open flood gates of the multiple such claims.” Further, the Tribunal emphasized that the recall power cannot be used as a substitute for review. The Appellant had not pleaded that the order was without jurisdiction, that it was passed without notice, or that it was obtained by fraud—conditions necessary to invoke recall jurisdiction.
On Claim of Secured Creditor Status
Rejecting the appellant’s reliance on the Rainbow Papers decision, the Tribunal clarified that the said case involved the Gujarat VAT Act (GVAT), which contained an overriding clause. In contrast, the HPGST and CGST Acts do not override the Insolvency and Bankruptcy Code (IBC). Section 82 of the CGST Act expressly subordinates GST dues to IBC provisions.
The Tribunal cited the Supreme Court’s judgment in Paschimanchal Vidyut Vitran Nigam Ltd [C.A. No. 7976 of 2019] to reinforce that statutory dues under HPGST and CGST cannot be treated as secured debts under IBC. Since the Appellant was an Operational Creditor governed by Section 53(1)(e)(i) of the IBC waterfall mechanism, and since the amount disbursed exceeded their liquidation value entitlement, no prejudice was caused. “There is no valid basis for the Appellant to make similar claim under the HPGST/CGST Act to be a secured Operational Creditor as under the GVAT.”
The NCLAT further highlighted the necessity of finality in the resolution process, emphasizing that any late claims or challenges would jeopardize the implementation of the resolution plan, contrary to the intent of IBC.
Verdict
Finding no merit in the recall application or the appeal, the Tribunal upheld the NCLT's order and reiterated that statutory dues under HPGST or CGST cannot be treated as secured debt for the purposes of CIRP. The Tribunal also found that the appellant had received more than its minimum entitlement under Section 53 of the IBC and thus could not assert further claims. Accordingly, the appeal was dismissed with no order as to costs.
Appearance
For Appellant: Ms. Mandakini Singh and Ms. Ashima Mandla, Advocates.
For Respondent: Mr. Vikram Singh Baid, Advocate for Respondent No.1. Mr. Adarsh Tripathi, Advocate for Respondent No.2.
Cause Title: Joint Commissioner of State Taxes & Excise V. M/s Radiant Castings Private Limited and Ors.
Case No: Company Appeal (AT) (Insolvency) No. 684 of 2025
Coram: Justice Ashok Bhushan [Judicial Member], Mr. Barun Mitra [Technical Member], Mr. Arun Baroka [Technical Member]
