NCLAT Upholds Assignment of GST Dues Under IBC; Rejects Challenge to Sovereign Nature of Tax Recovery

The National Company Law Appellate Tribunal (NCLAT), New Delhi, by its judgment dated September 17, 2025, in Company Appeal (AT) (Insolvency) No. 1876 of 2024 with I.A. No. 6923 of 2024, Ellison Oil Field Services Pvt. Ltd. vs CITOC Ventures Pvt. Ltd. & Ors., has upheld the assignment of GST dues by tax authorities during insolvency proceedings, rejecting challenges based on the sovereign character of taxation powers.

The subject matter concerned Principal Commissioner of Central Tax, CGST Mumbai East Commissionerate, which was represented by Anurag Ojha, Advocate-on-Record and Senior Standing Counsel (Indirect Taxes and Customs). The Appeal was heard by Special Bench of NCLAT Comprising of Justice Rakesh Kumar Jain and Shri Naresh Salecha for three days.

Background and Proceedings

The matter arose from a dispute concerning the permissibility of assignment of tax dues under the Insolvency and Bankruptcy Code, 2016 (IBC), particularly when such dues originate under the Central Goods and Services Tax Act, 2017 (CGST Act).

The appeal before the NCLAT questioned the legality of an assignment deed executed by GST authorities, transferring tax receivables categorized as “operational debt” during the Corporate Insolvency Resolution Process (CIRP). The case involved extensive hearings over three days—September 12, 16, and 17, 2025—wherein the Revenue was represented by Anurag Ojha.

While the detailed composition of the Bench was not specified in the circulated note, the Tribunal delivered a reasoned judgment addressing the core legal issues arising from the appeal.

Appellant’s Key Contentions

The appellant raised multiple constitutional and statutory objections to the assignment of tax dues, including: sovereign powers of taxation, including collection, cannot be assigned in the absence of explicit statutory authorization under the CGST Act. The assignment amounts to impermissible delegation of sovereign functions and violates Articles 265 and 299 of the Constitution of India. The assignment deed is void under Section 23 of the Indian Contract Act, 1872, being opposed to public policy. The government dues under Section 53 of the IBC are treated distinctly and cannot be equated with private operational debts.

Department’s Submissions

The department, represented by Ojha, advanced detailed arguments emphasizing the legislative scheme and judicial interpretation of the IBC. It was contended that upon commencement of CIRP, tax dues are recharacterized as “operational debt,” and tax authorities become “operational creditors.” Under Section 238 of the IBC, the Code overrides all inconsistent provisions of other laws, including tax statutes. Rule 28 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, expressly permits assignment or transfer of debt. Assignment of debt does not amount to delegation of sovereign powers, as only the receivable is transferred, not enforcement authority.

There is no statutory prohibition under the CGST Act, Finance Act, 1994, or IBC against such assignment.

The department further relied on constitutional principles, including Article 265, and precedents such as Govind Saran Ganga Saran v. CST and Ghanshyam Mishra & Sons v. Edelweiss Asset Reconstruction, to argue that the insolvency framework redefines the nature of claims and creditor rights.

To counter the application of section 23 of Contract Act, five limbs of submissions were addressed, predominantly bordering into the fact that in instant case in absence of specific or implied prohibition either under CGST Act/Finance Act, 1994 or IBC prohibiting assignment of operational debt, no case for imputation of illegality is made out. Reliance was placed on BOI Finance Ltd v Custodian (1997) 10 SCC 488 and English law principle that Not every illegality/ immorality connected with an agreement will result in unenforceability. For section 23 to apply, either the ‘object’ or the consideration’ of the agreement has to be unlawful. Accordingly, the term object or consideration of an agreement’ in section 23 is crucial because it determines when an illegality will be sufficiently connected to an agreement to result in its non- enforcement. The term ‘object . . . of an agreement’ has been interpreted as the purpose or design behind an agreement. Parties to an otherwise legitimate agreement will find that it is unenforceable if their purpose or design was to facilitate illegality. There is no pleadings in appeal to the effect that object or consideration forassignment of debt suffers from any illegality. The Court has, by its own, analysed the pleaded case of appellant. Ojha persuaded the Court to view the appeal as a repercussion of jilted failure of appellant in procuring assignment first.

His submissions are acceptance. The implications of judgment is immense enabling Revenue to realize its full dues by assignments in CIR Process which is often not realizable or negligible.

Tribunal’s Findings

The NCLAT rejected the appeal and upheld the assignment of GST dues. Tax dues, once subsumed under CIRP, are to be treated as operational debt without distinction between government and private creditors. Assignment of such debt is legally permissible under the IBC framework.

Section 238 of the IBC overrides any contrary implications under tax statutes. The appellant failed to establish any illegality under Section 23 of the Contract Act, as no contravention of law, fraud, or public policy violation was demonstrated.

The Tribunal observed that accepting the appellant’s arguments would undermine the IBC framework, particularly the moratorium under Section 14 and the “clean slate” principle recognized by the Supreme Court.

Observations on Constitutional and Contractual Issues

On the issue of Article 299, the Tribunal accepted the Revenue’s position that statutory contracts arising under legislative frameworks do not require compliance with formalities applicable to executive contracts.

Regarding public policy, the Tribunal held that assignment of debt enhances the prospects of recovery and aligns with the objectives of the IBC, including maximization of asset value and balancing stakeholder interests.

Obiter Observations

In its observations, the Tribunal also noted concerns regarding the treatment of Income Tax dues in the resolution process. It recorded that, in the present case, despite substantial admitted claims, the Income Tax Department received no allocation under the approved resolution plan, effectively resulting in a complete write-off.

Additionally, the Tribunal cautioned that while assignment of debt is permissible, any assignment at a discount must be undertaken with due diligence, proper approvals, and a clear focus on public interest.