Introduction
The intersection of tax recovery mechanisms under the Central Goods and Services Tax Act, 2017 and the priority framework under the Insolvency and Bankruptcy Code, 2016 has generated recurring litigation. A frequent point of contention is whether a statutory first charge created under tax statutes automatically confers the status of a secured creditor in Corporate Insolvency Resolution Process (CIRP). In State Tax Officer v. Besto Tradelink Ltd., reported as (2026) 44 Centax 158 (NCLAT), a three-member Bench of the Hon’ble National Company Law Appellate Tribunal, New Delhi, examined this question in the context of Section 82 of the CGST Act, 2017. The judgment, delivered on 30 June 2026, affirms that the statutory charge under Section 82 cannot override the priority mechanism prescribed under the IBC and that the department’s claim was correctly treated as an unsecured operational debt.
Facts of the Matter
Corporate Insolvency Resolution Process was initiated against Saurashtra Specialities Private Limited (the Corporate Debtor) by an order dated 31 October 2022 passed by the Hon’ble National Company Law Tribunal, Ahmedabad Bench, on an application under Section 9 of the Insolvency and Bankruptcy Code, 2016 filed by an operational creditor. Public announcement was made and claims were invited. The State Tax Officer, Unit-92, Rajkot (the Appellant) filed its claim for outstanding GST dues aggregating approximately Rs. 83,05,820/- and asserted secured creditor status on the strength of the statutory first charge under Section 82 of the CGST Act, 2017. The Interim Resolution Professional, and subsequently the Resolution Professional, admitted the claim only as an unsecured operational debt. Despite repeated representations, the Resolution Professional declined to reclassify the claim as secured, distinguishing the Supreme Court’s decision in STO v. Rainbow Papers Ltd. on the ground that the statutory language of Section 82 of the CGST Act differs materially from Section 48 of the Gujarat Value Added Tax Act, 2003.
The Resolution Plan submitted by Besto Tradelink Limited (Successful Resolution Applicant) treated the Appellant’s claim as unsecured operational debt. The plan was approved by the Adjudicating Authority on 1 February 2024. The Appellant did not object before the Committee of Creditors or before the Adjudicating Authority at the stage of plan approval and preferred the present appeal only thereafter.
Issues
The principal issues that fell for determination were:
- Whether Section 82 of the CGST Act, 2017 confers the status of a secured creditor upon the State Tax Department in CIRP by virtue of the statutory first charge created thereunder?
- Whether the ratio of the Supreme Court in STO v. Rainbow Papers Ltd. is applicable to claims arising under the CGST Act?
- Whether the Appellant’s conduct in remaining silent throughout the resolution process disentitled it from challenging the treatment of its claim after the Resolution Plan had been fully implemented?
The Statutory Framework: Section 82 of the CGST Act versus Section 48 of the GVAT Act
The entire edifice of the Appellant’s case rested on the judgment of the Hon’ble Supreme Court in STO v. Rainbow Papers Ltd. (Civil Appeal No. 1661 of 2020). In that decision, the Court held that the State Tax Department under the Gujarat Value Added Tax Act, 2003 was entitled to be treated as a secured creditor by reason of Section 48 of that Act, which provides that any amount payable on account of tax, interest or penalty “shall be a first charge on the property of such dealer” and contains no subordination to the Insolvency and Bankruptcy Code.
Section 82 of the CGST Act, 2017, however, is differently worded. It reads: “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.” The critical phrase “save as otherwise provided in the Insolvency and Bankruptcy Code, 2016” was inserted by Parliament with full knowledge of the existence of the Code. The Hon’ble Tribunal held that this expression cannot be treated as surplusage. Every word employed by the legislature must be given effect. The first charge under Section 82 is therefore not absolute; it operates subject to the provisions of the IBC.
Consequently, once insolvency proceedings commence under the Code, the treatment of claims, determination of priorities and distribution of proceeds are governed exclusively by the statutory scheme of the Code, including the waterfall mechanism under Section 53. Government dues fall under Section 53(1)(e)(i) and do not automatically acquire the higher ranking of secured creditors under Section 53(1)(b)(ii).
Distinguishing Rainbow Papers Ltd.
The Hon’ble Tribunal observed that the statutory framework under consideration in Rainbow Papers was materially different. Section 48 of the GVAT Act creates a first charge simpliciter without any saving clause in favour of the IBC. Section 82 of the CGST Act, by contrast, expressly subordinates the charge to the Code. The Hon’ble Supreme Court itself, in Paschimanchal Vidyut Vitran Nigam Ltd. v. Raman Ispat (P.) Ltd. (Civil Appeal No. 7976 of 2019), has clarified that the judgment in Rainbow Papers must be confined to the facts of that case. The Hon’ble Tribunal therefore held that reliance on Rainbow Papers in the context of CGST claims is misplaced.
The same distinction had earlier been drawn by the Hon’ble Appellate Tribunal in Department of State Tax v. Zicom SaaS (P) Ltd. [Company Appeal (AT) (Ins.) No. 246 of 2022, decided 7 February 2023] and Department of State Tax v. Pranav Constructions Systems (P) Ltd. [Company Appeal (AT) (Ins.) No. 1945 of 2024, decided 14 November 2024]. In both decisions, similar claims by State Tax Departments seeking secured creditor status on the basis of statutory charge provisions were rejected. The present Bench followed those precedents.
Conduct of the Appellant and Acquiescence
An independent ground for dismissal of the appeal was the Appellant’s own conduct. The Interim Resolution Professional had, by email dated 24 November 2022, expressly communicated the reasons for treating the claim as unsecured operational debt. The Resolution Professional reiterated the same position by letter dated 15 April 2023. Despite full knowledge of the classification, the Appellant neither challenged the decision before the Adjudicating Authority nor raised any objection when the Resolution Plan was placed before the Committee of Creditors or when approval was sought from the Adjudicating Authority. The Hon’ble Tribunal characterised this prolonged silence as acquiescence. Having remained a silent spectator throughout the resolution process, the Appellant could not be permitted to challenge the treatment of its claim after the plan had been fully implemented, payments made to stakeholders, and the Monitoring Committee dissolved.
Updated Claims during Moratorium
A subsidiary contention of the Appellant was that during the moratorium period, scrutiny proceedings had resulted in additional tax liability and that the Resolution Professional had wrongly rejected the request to update the claim. The Hon’ble Tribunal held that in view of the moratorium operating under Section 14 of the Code, no scrutiny orders could have been passed imposing further liability upon the Corporate Debtor. The rejection of the additional claims was therefore upheld.
Holding
The Hon’ble Appellate Tribunal held that Section 82 of the CGST Act itself answers the controversy: the statutory charge cannot override the insolvency framework or alter the priority mechanism under the Code. The reliance on Rainbow Papers was held to be inapposite. The Appellant’s conduct disentitled it from discretionary relief. Since the Resolution Plan had been fully implemented, no infirmity was found in the order of the Adjudicating Authority. The appeal was dismissed with no order as to costs.
Significance
The judgment is a useful restatement of several principles that recur at the intersection of GST recovery and insolvency.
First, it draws a clear distinction between statutory charge provisions that are absolute (as in Section 48 of the GVAT Act) and those that are expressly subordinated to the IBC (as in Section 82 of the CGST Act). Revenue authorities cannot mechanically invoke Rainbow Papers without examining the precise statutory language of the taxing enactment under which the claim arises.
Secondly, the decision reinforces that the waterfall under Section 53 of the Code is exhaustive. Government dues, whether arising under CGST, SGST or other central and state statutes containing a saving clause in favour of the IBC, fall to be treated under Section 53(1)(e)(i) and do not automatically acquire secured status.
Thirdly, the Hon’ble Tribunal underscores the importance of timely challenge. Stakeholders who are aware of the treatment of their claims during CIRP must raise objections before the Committee of Creditors or the Adjudicating Authority at the appropriate stage. Prolonged silence followed by a post-implementation challenge is unlikely to succeed, particularly where the plan has been fully implemented and the Monitoring Committee dissolved.
For tax departments, the decision is a caution against assuming secured status solely on the basis of a statutory charge without carefully examining whether the relevant statute contains a subordination clause in favour of the IBC. For resolution professionals and successful resolution applicants, it affirms that classification of GST claims as unsecured operational debt is consistent with the statutory scheme and with the line of decisions beginning with Zicom SaaS and continued in Pranav Constructions.
AMLEGALS Remarks
State Tax Officer v. Besto Tradelink Ltd. is a carefully reasoned addition to the growing body of NCLAT jurisprudence clarifying the limited reach of Rainbow Papers in the GST context. By insisting that the express saving clause in Section 82 of the CGST Act must be given full effect, and by emphasising the consequences of stakeholder silence during the resolution process, the Hon’ble Appellate Tribunal has furnished practitioners with a clear template for both asserting and resisting claims of secured status founded on statutory tax charges. The decision will be of particular utility in pending and future CIRP proceedings where State or Central tax authorities seek reclassification of their claims on the strength of Section 82 or analogous provisions.
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