The import of Supreme Court Decisions in case of Paschimanchal Vidyut Vitran Nigam Ltd. versus Raman Ispat Private Limited & Ors. and State Tax Officer v. Rainbow Papers Ltd. is that statutory/government dues may constitute secured creditors consequent to specific provision under the applicable law creating a charge on the assets of the corporate debtor. The case of Rainbow Paper (earlier of the two decisions) dealt with Sec. 48 of the Gujarat VAT Act which contains specific provision to the effect that “any amount payable by a dealer or any other person on account of tax, interest or penalty for which he is liable to pay to the Government shall be a first charge on the property of such dealer, or as the case maybe, such person.” Similar provisions exist under Sec. 82 of the CGST Act, 2017 and Sec 142A of the Customs Act, 1962 and therefore dues under such laws would have the same fate. However, this may not imply an across-the-board application for all statutory dues, particularly under the Income Tax Act which does not appear to contain a similar provision for creating a charge over assets of the taxpayer against dues. The nature of statutory dues, whether secured or otherwise, will need to be determined on a case-to-case basis.
However, the aforesaid two decisions of the Apex Court appear to have created an ambiguity whether statutory dues, even where secured, should be regarded under the category of ‘secured creditor’ [Sec 53(1)(b)] or as a separate class of Government Dues [Sec. 53(1)(e)] as specifically provided in the liquidation waterfall. The ambiguity arises on account of contrary observations of the Court in the aforesaid orders.
In Paschimanchal Vidyut decision (later of the two decisions), the Court observed that: “The Gujarat Value Added Tax Act, 2003 no doubt creates a charge in respect of amounts due and payable or arrears. It would be possible to hold [in the absence of a specific enumeration of government dues as in the present case, in Section 53(1)(e)] that the State is to be treated as a ‘secured creditor’. However, the separate and distinct treatment of amounts payable to secured creditor on the one hand, and dues payable to the government on the other clearly signifies Parliament’s intention to treat the latter differently – and in the present case, having lower priority. As noticed earlier, this intention is also evident from a reading of the preamble to the Act itself.”