Claims Arising Under Section 11E Of Central Excise Act Cannot Be Treated As Secured Debt: NCLAT

It also held that “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 'Gujarat VAT Act, 2003' and therefore the decision in the matter of 'State Tax Officer v. Rainbow', (Supra) cannot be made applicable to the facts of this case.”

Brief Facts:

This appeal has been filed against an order passed by the NCLT by which a resolution plan was approved.

The appellant submitted that the amount which has been earmarked for the appellant is less than what was admitted therefore the plan clearly violates the provisions of the IBC particularly section 30(2). It was also argued that the secured operational creditors have been paid the higher amount in the resolution plan. The appellant ought to have been treated as secured operational creditor and ought to have been given the same treatment as was given to other secured creditors.. Reliance was placed on the Supreme Court judgment in State Tax Officer vs. Rainbow Papers Limited. (2023).

Per contra, the respondent submitted that the claim of the appellant has been treated as operational debt. It was also argued that the appellant has been paid in accordance with the same treatment. It was also argued that statutory provisions regulating the dues of the Central Excise does not recognize the claims of such dues as secured dues.

Observations:

The tribunal noted that in the Supreme Court in Rainbow Papers Limited (supra) while interpreting section 48 of the Gujarat Value Added Tax Act held that the dues of the State Tax Officer were secured debt.

It further noted that the NCLAT in the Assistant Commissioner of Central Tax, CGST Division vs. Mr. Sreenivasa Rao Ravinuthala (2021) while interpreting section 11E of the Central Excise Act, 1944 held that on a bare perusal of this provision, it is clear that it carves out an exception to the provisions of the IBC therefore any claims arising out of the Central Excise Act will have to be dealt with as per the scheme of the IBC.

It was held that “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 'Gujarat VAT Act, 2003' and therefore the decision in the matter of 'State Tax Officer v. Rainbow', (Supra) cannot be made applicable to the facts of this case.”

The tribunal concluded that no error was committed by the Adjudicating Authority in treating the claim of the appellant as operational debt and operational creditor is entitled for payment as per section 30(2)(b) of the IBC.

Accordingly, the present appeal was dismissed.

Case Title: 'Assistant Commissioner CGST & Central Excise, Kadi Division Vs. Pradeep Kabra, RP of Cengres Tiles Ltd.'

Case Number: Company Appeal (AT) (Ins) No. 844 of 2024

Judgment Date: 23/1/2025

For Appellant Ms. Anushree Narain, SSC with Mr. Anks Kumar, Advocate.

For Respondent Mr. Ravi Raghunath