2020 (1) TMI 1661 - AT - VAT and Sales Tax

Recovery of dues - priority of dues - appellant is Secured Operational Creditor or not, being State Tax Officer from the Office of Assistant Commissioner of State Tax in Gujarat - appellant submits that she is not claiming on the basis of first charge but the Security this Section creates - HELD THAT - This Tribunal has already taken a view with regard to this Section in TOURISM FINANCE CORPORATION OF INDIA LTD., VIRAG ENTERPRISE, STATE TAX OFFICER (1) , REGIONAL PROVIDENT FUND COMMISSIONER-I, AHMEDABAD VERSUS RAINBOW PAPERS LTD., RAMCHANDRA D. CHAUDHARY, RP OF RAINBOW PAPERS LTD., RAMCHANDRA D. CHOUDHARY 2019 (12) TMI 1490 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI has held that Section 48 cannot prevail over Section 53. Therefore, the Appellant - 'State Tax Officer- (1)' do not come within the meaning of 'Secured Creditor' as defined under Section 3(30) read with Section 3(31) of the 'I B Code'. Considering the Judgment already passed by this Tribunal and which is of a larger Bench, it appears that the present Appeal cannot be allowed in view of the view taken by this Tribunal in the matter of Tourism Finance Corporation - appeal dismissed.

Summary

Issues:
1. Appeal filed by State Tax Officer against Order of Adjudicating Authority regarding VAT.
2. Treatment of State Tax Officer as Secured Creditor.
3. Interpretation of Section 48 of Gujarat VAT Act, 2003.
4. Conflict between Section 48 of Gujarat VAT Act and Section 238 of Insolvency and Bankruptcy Code, 2016 (IBC).
5. Precedent set by National Company Law Appellate Tribunal in a similar case.

Issue 1: Appeal against Order of Adjudicating Authority regarding VAT
The Appellate Tribunal heard the appeal filed by the State Tax Officer against the Order dated 13th September, 2019 passed by the Adjudicating Authority. The appeal was related to VAT (Value Added Tax) and involved the treatment of the State Tax Officer's claim in the insolvency proceedings of Mekaster Engineering Ltd. The Adjudicating Authority directed the Resolution Professional to consider the claim but did not accept the State Tax Officer's request to be treated as a Secured Creditor.

Issue 2: Treatment of State Tax Officer as Secured Creditor
The State Tax Officer argued that they should be considered a Secured Operational Creditor based on Section 48 of the Gujarat VAT Act, 2003. They contended that the provision creates a security interest in their favor, even though they were not claiming a first charge. The State Tax Officer emphasized that there was no conflict between Section 48 of the Gujarat VAT Act and the provisions of the Insolvency and Bankruptcy Code, 2016 (IBC).

Issue 3: Interpretation of Section 48 of Gujarat VAT Act, 2003
The learned Counsel for the Appellant referred to Section 48 of the Gujarat VAT Act, 2003, which establishes that tax payable by a dealer shall be a first charge on the property of the dealer. The State Tax Officer argued that this provision should entitle them to be treated as a Secured Operational Creditor, relying on the security interest created by this section.

Issue 4: Conflict between Section 48 of Gujarat VAT Act and Section 238 of IBC
The Respondent's Counsel contended that Section 238 of the Insolvency and Bankruptcy Code, 2016, which states that the provisions of the Code shall override other laws, including Section 48 of the Gujarat VAT Act. Citing a previous judgment by the Tribunal, the Respondent's Counsel argued that the State Tax Officer could not be considered a Secured Creditor under the IBC, based on the overriding effect of Section 238.

Issue 5: Precedent set by National Company Law Appellate Tribunal
The Tribunal cited a previous judgment in the matter of "Tourism Finance Corporation of India Ltd. Vs. Rainbow Papers Ltd. & Ors." dated 19.12.2019, where it was held that the Government cannot claim a first charge over the property of the Corporate Debtor. The Tribunal concluded that the State Tax Officer did not fall within the definition of a Secured Creditor under the IBC. Based on this precedent, the Tribunal dismissed the present Appeal, aligning with the view taken in the earlier case.

In conclusion, the Appellate Tribunal dismissed the Appeal filed by the State Tax Officer, emphasizing the precedence set by a previous judgment and the overriding effect of Section 238 of the Insolvency and Bankruptcy Code, 2016, on conflicting provisions of other laws.