Assignment Of Tax Dues By GST Dept Doesn't Violate Article 265 Or GST Act If CIRP Has Been Initiated: NCLAT New Delhi

The corporate debtor was admitted into CIRP, and Ms. Dilip Mehta was appointed as the interim resolution professional, later confirmed as the resolution professional in furtherance to a section 10 application.

The assistant commissioner of the Central GST and Excise Division (respondent no. 2 herein) submitted its claim for the amount due of Rs. 78,852,896. The RP informed the commissioner via email that it has admitted a claim of Rs. 2,71,44,043. And the commissioner was appointed as the member of the CoC with a voting share of 12.76%. During the process the RP was replaced, and CITOC Ventures Pvt. Ltd. (respondent 1 herein) paid the entire amount of Rs. 27,218,885 in respect of the entire admitted claim of respondent no. 2.

Respondent no. 1 sent the debt assignment agreement to the RP, who addressed the same to the CoC via an email. Thereafter, the RP filed an application before the adjudicating authority for modification in the composition of the CoC, which was accepted by the tribunal.

It was only after two months of the transaction that the appellant and some other members wrote an email to the RP, alleging that the assignment was not permissible under the law. Therefore, the appellant filed an application before the adjudicating authority to challenge the validity and legality of the debt assignment deed.

It was only before the passing of the impugned order that the resolution plan submitted by the respondent no. 4 was approved by 67.79% vote shares. However, the adjudicating authority rejected the application, observing that as per Regulation 28, RP has not committed any error in transferring the debt. Therefore, the applicant preferred the present appeal.

The appellant submitted that the debt assignment agreement is not merely a settlement of GST dues but the transfer of all the rights of the GST department upon the respondent. 1. Also, there is no provision in the GST Act that allows the collection of tax by a private party.

The appellant further argued that the dues are a tax in nature, which cannot be collected by a private individual or a company. It referred to Article 265 of the Constitution, which provides that the tax should not be imposed save by authority of law. And the imposition and collection of tax is a sovereign function, and its delegation is in contravention with section 23 of the Indian Contract Act.

Per contra, the respondent argued that the nature of the amount has changed from the tax to the debt, and it became an operational debt as per section 5(21) of the IBC. And the respondent no. 2 became the operational creditor.

Observations of the NCLAT

The NCLAT observed that when the corporate debtor had not entered into CIRP, tax collection must be done directly by the GST authority as per the statutory scheme. However, once the CIRP of the corporate debtor was initiated and a moratorium was imposed, the execution of the recovery order was prohibited.

The bench further observed that after the initiation of the CIRP, the tax dues became operational debt, and the GST authority became the operational creditor. And, as per section 5(20) IBC, the operational creditor is empowered to assign its admitted debt. Therefore, the assignment agreement is legally valid.

The bench further opined that the tax department's assignment of debt needs to be examined more closely, as it includes the discount rate also. This also raises the issue that at the time of assignment, the amount to be collected or tax receivables can be reduced based on this discount.

Accordingly, the appeal was dismissed.

Case Name: Ellison Oil Field Services Pvt. Ltd., CITOC Ventures Pvt. Ltd. & Ors.

Case No.: Comp. App. (AT) (Ins) No. 1876 of 2024 & I.A. No. 6923 of 2024

Coram: Rakesh Kumar Jain (Member-Judicial) and Mr. Naresh Salecha (Member-Technical)

Order Date: 17.09.2025

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