NCLAT Chennai ruled that uncrystallised GST demands cannot be treated as secured creditor claims in insolvency proceedings.
Uncrystallised GST Demand Not a Secured Creditor Claim: NCLAT
NCLAT Chennai dismissed a ₹54.46 crore claim by the Karnataka GST Department in an insolvency proceeding, holding that uncrystallised tax assessments cannot be treated as secured creditor claims under the Insolvency and Bankruptcy Code, 2016. The tribunal emphasized that only crystallised, quantified liabilities can participate in distribution.
The department had relied on the charging provision in Section 79 of the CGST Act, which gives GST a first charge on assets. However, the tribunal ruled that such priority does not transform an uncertain or provisional demand into a secured claim within the IBC framework, which requires precise, verified claims.
“A claim seeking admission under Section 5(9) of IBC must be definite and not contingent or disputed.”
This decision clarifies the hierarchy of claims in liquidation. Practitioners representing tax authorities or financial creditors should distinguish between statutory charging clauses and actual secured status under IBC. Uncrystallised demands must undergo adjudication before claim admission.
