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2025 (1) TMI 1152 - AT - IBCApproval of Resolution Plan - It is submitted that the amount which has been earmarked to the Appellant is not in accordance with IBC and violates Section 30(2) - claim of the Appellant was treated as operational debt - waterfall mechanism - HELD THAT - The provisions of Section 11E of the Central Excise Act 1944 and Section 82 of the Central Goods and Services Tax Act 2017 clearly carves on exception with regard to provisions of Insolvency and Bankruptcy Code 2016. In Central Excise Act 1944 provision of Section 529A of the Companies Act 1956 was referred. The above provisions came for consideration before this Tribunal in THE ASSISTANT COMMISSIONER OF CENTRAL TAX VERSUS MR. SREENIVASA RAO RAVINUTHALA M/S RENGANAYAKI AGENCIES 2023 (8) TMI 193 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL CHENNAI where it was held that From the usage of the words save as provided in in Section 11E is in the nature of an exception intended to exclude the class of cases mentioned in Companies Act 1956 The Recovery of Debts due to Banks and Financial Institutions Act 1996 . SARFAESI Act 2002 and I B Code 2016 . The Secured Interest as defined under the Code excludes charges created by Operation of law. Section 11E of the Central Excise Act 1944 is distinct from the provisions of Gujrat VAT Act 2003 and therefore the decision in the matter of Sate Tax Officer v. Rainbow (Supra) cannot be made applicable to the facts of this case. Conclusion - There are no error treating the claim of the Appellant as operational debt and operational creditor is entitled for payment as per Section 30(2)(b) and present is not a case where it is contended that the amount which is offered to the Appellant is less than the liquidation value to which the Appellant would have been entitled in event of liquidation under Section 53(1) according to waterfall mechanism. There are no error in the order of the Adjudicating Authority approving the Resolution Plan. Appeal dismissed.
ISSUES PRESENTED and CONSIDERED
The core legal issue considered in this judgment is whether the claim of the Assistant Commissioner, CGST and Central Excise, Kadi Division, should be treated as a secured claim under the approved Resolution Plan for M/s. Cengres Tiles Limited. The Appellant challenges the treatment of their claim as an operational debt, asserting that it should be treated as a secured claim, similar to other secured creditors, based on precedents and statutory provisions. ISSUE-WISE DETAILED ANALYSIS Relevant Legal Framework and Precedents The Appellant's argument hinges on the interpretation of Section 11E of the Central Excise Act, 1944, and Section 82 of the Central Goods and Services Tax Act, 2017, which state that tax dues are to be the first charge on the property of the assessee. However, these provisions include exceptions for the Insolvency and Bankruptcy Code (IBC), 2016. The Appellant relies on the Supreme Court's judgment in "State Tax Officer vs. Rainbow Papers Limited" and "Sanjay Kumar Agarwal vs. State Tax Officer" to argue for secured status. Court's Interpretation and Reasoning The Tribunal examined the statutory provisions and prior judgments, particularly focusing on the exceptions noted in Section 11E of the Central Excise Act and Section 82 of the CGST Act. The Tribunal noted that these sections explicitly carve out exceptions for the IBC, thereby not granting secured status to such claims within insolvency proceedings. The Tribunal also referenced its previous decision in "The Assistant Commissioner of Central Tax, CGST Division vs. Mr. Sreenivasa Rao Ravinuthala," which clarified that the secured interest under the IBC excludes charges created by the operation of law, distinguishing it from the Gujarat VAT Act, which was central to the "Rainbow Papers" case. Key Evidence and Findings The Tribunal found that the statutory framework clearly delineates tax claims as operational debts within the context of the IBC, supported by prior judgments. The Tribunal also considered the ongoing appeal against a similar judgment by the Chennai Bench, which further supports the current interpretation. Application of Law to Facts The Tribunal applied the legal framework to the facts, determining that the Appellant's claim was correctly classified as an operational debt. The Tribunal emphasized that the Resolution Plan adhered to Section 30(2)(b) of the IBC, ensuring that operational creditors receive at least the liquidation value as per Section 53(1). Treatment of Competing Arguments The Appellant argued for secured status based on the interpretation of statutory provisions and Supreme Court precedents. The Respondent countered by emphasizing the explicit exceptions in the statutory language for the IBC and the Tribunal's prior rulings. The Tribunal sided with the Respondent, noting that the statutory exceptions and prior judgments clearly supported treating the claim as an operational debt. Conclusions The Tribunal concluded that there was no error in the Adjudicating Authority's decision to treat the Appellant's claim as an operational debt. The Resolution Plan was found to be compliant with the IBC, and the Appellant's claim did not qualify for secured status within the insolvency proceedings. SIGNIFICANT HOLDINGS The Tribunal affirmed that tax dues, under the context of the IBC, are to be treated as operational debts unless explicitly secured by statutory provisions that do not exempt the IBC. The decision reinforced the principle that the IBC's waterfall mechanism under Section 53(1) takes precedence in insolvency proceedings, ensuring operational creditors receive at least the liquidation value. The Tribunal dismissed the appeal, upholding the Adjudicating Authority's approval of the Resolution Plan, and confirmed that the Appellant's treatment as an operational creditor was consistent with the IBC and relevant legal precedents.
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