S. 9(2) of CST Act Creates no Statutory Charge: NCLAT Dismisses State Tax Officer Appeals, Rules CST Dues as Unsecured Debt [Read Order]

The National Company Law Appellate Tribunal (NCLAT) principal bench, New Delhi has ruled that section 9(2) of the Central Sales Tax Act, 1956 (CST Act) do not create any statutory charge over the assets fo the corporate debtor and thus ruled that dues under the same as unsecured debt but at the same time dues under Gujarat Value Added Tax Act, 2003 (GVAT Act) was held to be a secured debt.

Afcan Impex Pvt. Ltd., the respondent, was admitted to the Corporate Insolvency Resolution Process (CIRP) on 17 February 2021 under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC), based on an application by Bank of Maharashtra.

The Resolution Professional (RP) invited claims, and the State Tax Officer filed claims under the Gujarat Value Added Tax Act, 2003 (GVAT Act) and the CST Act.

While GVAT dues were admitted, the RP did not treat CST dues as secured. The resolution plan proposed partial payment of GVAT dues and a nominal payment towards CST dues, treating the latter as unsecured.

The NCLT approved the plan and partly allowed the State Tax Officer’s application, recognising GVAT dues as secured but rejecting CST dues as secured. Aggrieved, the officer filed appeals before NCLAT.

The appellant, the state tax officer, argued that CST dues should also be treated as secured. The appellant argued that section 9(2) of the CST Act provides that CST dues are to be assessed, collected, and enforced as if they were dues under the State VAT law. Further, the appellant argued that Section 48 of the GVAT Act creates a statutory first charge on the property of the dealer for VAT dues.

The appellant also relied on the Supreme Court’s ruling in State Tax Officer v. Rainbow Papers Ltd., (2023), where GVAT dues were held to constitute secured debt by operation of law.

The appellant further contended that Section 9(2) CST Act imports not only procedural machinery but also substantive rights, including the statutory charge under Section 48 GVAT Act. Therefore, CST dues should enjoy the same secured status.

The respondent, on the other hand, argued that Section 9(2) CST Act is purely a machinery provision for assessment and recovery, not for creating a statutory charge and unlike the GVAT Act, CST Act contains no provision equivalent to Section 48 creating a first charge.

It was further contended that the Rainbow Papers precedent applies only to GVAT dues, not CST dues. It was further argued that the resolution plan had already been implemented and payments made, making the appeals untenable.

NCLAT examined Section 9(2) of the CST Act and held that it only authorises state authorities to assess and recover CST dues using VAT machinery.

It does not create a substantive charge on assets. In contrast, Section 48 GVAT Act explicitly provides that VAT dues shall be the first charge on the property of the dealer, thereby creating a statutory security interest.

The two-member bench of Ashok Bhushan (Chairperson) and Barun Mitra (Technical Member) depended on the cases of State Tax Officer v. Premraj Ramratan Laddha (NCLAT, 2021) and State of Gujarat v. Sanjay Kumar Agarwal (Gujarat HC, 2024)

It was observed that provisions of Section 9 sub-section (2) cannot be read to mean that by virtue of said provision any charge can be created on the assets of the CD by operation of law.

It was observed Section 9 sub-section (2) refers to various provisions, which had been made applicable specially to recovery by CST Act as was applicable in the general sales tax laws, but the provision of creating first charge on the assets of the CD is absent in Section 9 sub-section (2), nor it can be impliedly imported with respect to dues under CST Act.

The Tribunal upheld the NCLT’s orders dated 30 September 2025 and dismissed both appeals.

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