NCLAT Ruling: Status of Unpaid CST Dues under IBC and Interpretation of Section 9(2) of CST Act
The classification of statutory dues within the Insolvency and Bankruptcy Code, 2016 (IBC) hierarchy has been a subject of intense judicial scrutiny. A pivotal question often arises regarding the distinction between debts owed under State enactments versus Central enactments. Recently, the National Company Law Appellate Tribunal (NCLAT), Delhi, delivered a significant judgment in the matter of State Tax Officer Vs Nitin Narang, clarifying the position of dues arising under the Central Sales Tax Act, 1956 (CST Act).
The Appellate Tribunal held that the provisions of Section 9(2) of the CST Act do not create a statutory charge on the assets of the Corporate Debtor by operation of law. Consequently, unpaid CST dues are to be treated as unsecured debts, distinguishing them from State Value Added Tax (VAT) dues which may carry a statutory first charge.
Factual Matrix of the Dispute
The legal controversy originated from the Corporate Insolvency Resolution Process (CIRP) of the Corporate Debtor, M/s Afcan Impex Pvt. Ltd. The insolvency proceedings were initiated following an admission order dated 17.02.2021, based on an application filed by the Bank of Maharashtra under Section 7 of the Insolvency and Bankruptcy Code, 2016.
Following the public announcement made by the Resolution Professional (RP) on 23.02.2021, the Appellant (State Tax Officer) submitted a claim in Form-B on 19.04.2021. This claim encompassed dues arising under both the Gujarat Value Added Tax Act, 2003 (GVAT Act) and the Central Sales Tax Act, 1956.
The Conflict Regarding "Secured" Status
Initially, the Resolution Professional provisionally accepted the claim but did not categorize the State Tax Officer as a "secured creditor." The Appellant, via a letter dated 10.03.2023, requested the RP to upgrade their status to that of a secured creditor, citing the landmark Supreme Court judgment in Rainbow Papers Pvt. Ltd.
The RP rejected this request on 03.04.2023, noting that the Committee of Creditors (CoC) had already approved a Resolution Plan. Concurrently, the State Tax Department had attached the assets of the Corporate Debtor. The RP successfully moved an application (IA No. 1513 of 2024) to remove this attachment, with the Adjudicating Authority passing an order to that effect on 06.12.2024.
Subsequently, the Appellant filed IA No. 447 of 2025, seeking a directive that their total claim of Rs. 5,80,64,381/- (comprising both GVAT and CST dues) be treated as secured debt.
The Adjudicating Authority’s Decision
On 30.09.2025, the Adjudicating Authority (NCLT) approved the Resolution Plan. In a parallel order regarding the Appellant's application, the NCLT created a distinction:
- GVAT Dues: Accepted as "secured claims" based on the statutory charge created under the GVAT Act.
- CST Dues: Classified as "unsecured claims."