Sundaresh Bhatt, Liquidator of ABG Shipyard vs Central Board of Indirect Taxes and Customs
CA 7667 of 2021
Facts:
1.ABG Shipyard (“Corporate Debtor”) was in the business of shipbuilding prior to the initiation of corporate insolvency proceedings against it. As a part of its business enterprise, it used to regularly import various materials for the purpose of constructing ships which were to be exported on completion. Some of these goods were stored by the Corporate Debtor in Custom Bonded Warehouses in Gujarat and Container Freight Stations in Maharashtra. Bills of entry for warehousing were submitted at the relevant time.
2.On 01.08.2017, the National Company Law Tribunal, Ahmedabad (“NCLT”) passed an order commencing the Corporate Insolvency Resolution Process (“CIRP”) against the Corporate Debtor and declaring moratorium.
3.On 21.08.2017, the appellant informed the respondent of the initiation of CIRP and sought custody of the warehoused goods and requested the respondent not to dispose of or auction the same. On 29.03.2019, the respondent for the first time, issued a notice to the Corporate Debtor regarding non-fulfilment of export obligations in terms of the EPCG license demanding customs duty of Rs. 17,13,989/- with interest. From 02.04.2019 to 07.04.2019, the respondent issued five different demand notices to the Corporate Debtor regarding non-fulfillment of export obligations
4. On 25.04.2019, the NCLT passed an order commencing liquidation against the Corporate Debtor under Section 33(2) of the IBC. Respondent filed claims before the appellant for goods warehoused in both Gujarat and Maharashtra on 20.05.2019, 27.05.2019 and 29.05.2019 under the IBC. On 27.06.2019, the appellant informed the respondent through its officers that liquidation proceedings had commenced against the Corporate Debtor and that the goods were to be released to the appellant.
5.appellant filed I.A. No. 474 of 2019 before the NCLT under Section 60(5) of the IBC seeking a direction against the Respondent to release the warehoused goods. on 11.07.2019, the respondent issued a notice to the Corporate Debtor under Section 72(1) of the Customs Act for custom dues amounting to Rs. 763,12,72,645/on 2531 Bills of entries
6.NCLT allowed the appeal however on 04.03.2021, the respondent filed an appeal before NCLAT challenging the order dated 25.02.2020 passed by the NCLT. On 22.11.2021, the NCLAT passed the impugned order, whereby it allowed the appeal filed by the respondent and set aside the directions of the NCLT requiring the respondent to release the warehoused goods.
7.Appellant is challenging the order of NCLAT.
Issue: Whether the provisions of the IBC would prevail over the Customs Act, and if so to what extent?
Arguments:
For Appellants:
1.Learned senior Counsel argued that Corporate Debtor is the owner of the goods referring to section 48 of the custom act which states that it only applies to goods which are neither cleared nor warehoused by the importer. This Section, however, is not applicable to the present case as the notice issued and Form C filed by the respondent are in relation to warehoused goods. Thus, the notice issued by the respondent under Section 72 of the Customs Act and the consequent Form C does not in any manner attract Section 48 of the Customs Act
2.The respondent, by issuing notice under Section 72 of the Customs Act and filing its claim with the liquidator, has admitted that the Corporate Debtor is the owner. Neither Sections 72 nor 48 of the Customs Act signifies any transfer to the respondent.
3.He further argued that respondent’s custody of the Corporate Debtor’s goods is in violation of Sections 14 and 33 of the IBC.
For Respondent:
1.Learned ASG argued that goods left in the Custom Bonded Warehouse are not the assets of the Corporate Debtor. This is because these goods were never claimed after being imported. As per the record, the goods were imported between the years 2012 and 2015, and the Corporate Debtor started the liquidation process in 2019.
2. The liquidator can take into his possession only the assets of the Corporate Debtor as under Section 35(1)(b) of the IBC. However, in the present case, the warehoused goods cannot be termed as assets of the Corporate Debtor, until and unless the same are legally cleared from the warehouses
3.Corporate Debtor has abandoned the imported goods for several years, refused to pay the import duties and other charges, and has not taken any effort to take possession of the goods for several years. Consequently, the Corporate Debtor has lost its right to the warehoused goods, and hence under Section 72 of the Customs Act, the government authorities are fully authorized to recover the dues.
Decision: IBC prevails over custom act.
Rationale:
1.Supreme Court noted that NCLAT has not directly answered this question of law. Rather, it has entered into the facts of the case to distinguish the applicability of the IBC as compared to the Customs Act.
2.It noted that IBC, being the more recent statute, clearly overrides the Customs Act. This is clearly made out by a reading of Section 142A of the Customs Act. The aforesaid provision notes that the Custom Authorities would have first charge on the assets of an assessee under the Customs Act, except with respect to cases under Section 529A of Companies Act 1956, Recovery of Debts Due to Banks and Financial Institutions Act 1993, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the IBC, 2016. Accordingly, such an exception created under the Customs Act is duly acknowledged under Section 238 of the IBC as well.
3.In case of conflict it is the IBC who will prevail over custom act. Demand notices to seek enforcement of custom dues during the moratorium period would clearly violate the provisions of Sections 14 or 33(5) of the IBC, as the case may be. This is because the demand notices are an initiation of legal proceedings against the Corporate Debtor
4.The authorities can only take steps to determine the tax, interest, fines or any penalty which is due. However, the authority cannot enforce a claim for recovery or levy of interest on the tax due during the period of moratorium.
5.NCLAT, by deciding the question of passing of title from the Corporate Debtor to the respondent authority, has clearly ignored the mandate of Section 72(2) of the Customs Act relating to sale. This interpretation of the NCLAT clearly ignores the effects of the moratorium under Sections 14 and 33(5) of the IBC. The fact is that the duty demand notice and notice under Section 72(2) of the Customs Act, were issued during the moratorium period, which has been completely ignored by NCLAT and has resulted in rendering the moratorium otiose.
Order copy:
