The Supreme Court had held that the Insolvency and Bankruptcy Code (IBC) will prevail over the Customs Act.
The bench comprising Chief Justice N.V. Ramana, Justices JK Maheshwari and Hima Kohli observed that the customs authority can only determine the quantum of duties and levies but cannot initiate recovery proceedings.
While pronouncing the judgement, CJI Ramana stated that once moratorium under IBC is declared, Customs authorities have only limited jurisdiction to assess the quantum and they cannot take steps to recover the dues.
The court stated that after such assessment, customs authorities had the option to approach the adjudicating authority, claiming the customs dues as operational debt under IBC. IRP can take steps to secure the property.
In this case, the Apex Court bench was considering an appeal against NCLAT order in which it held that the goods lying in the customs bonded warehouse were not the Corporate Debtor’s assets as they were neither claimed by the Corporate Debtor after their import, nor were the bills of entry cleared for some of the said goods.
The first issue raised in this appeal was whether the provisions of the IBC would prevail over the Customs Act, and if so, to what extent?
The court held thus: The IBC would prevail over The Customs Act, to the extent that once moratorium is imposed in terms of Sections 14 or 33(5) of the IBC as the case may be, the respondent authority only has 35 a limited jurisdiction to assess/determine the quantum of customs duty and other levies. The respondent authority does not have the power to initiate recovery of dues by means of sale/confiscation, as provided under the Customs Act.
Another issue was whether the respondent -Customs authority – could claim title over the goods and issue notice to sell the goods in terms of the Customs Act when the liquidation process has been initiated? The bench answered this issue as follows:
- Once moratorium is imposed in terms of Sections 14 or 33(5) of the IBC as the case may be, the respondent authority only has a limited jurisdiction to assess/determine the quantum of customs duty and other levies. The respondent authority does not have the power to initiate recovery of dues by means of sale/confiscation, as provided under the Customs Act.
- After such assessment, the respondent authority has to submit its claims (concerning customs dues/operational debt) in terms of the procedure laid down, in strict compliance of the time periods prescribed under the IBC, before the adjudicating authority.
- In any case, the IRP/RP/liquidator can immediately secure goods from the respondent authority to be dealt with appropriately, in terms of the IBC.
Allowing the appeal, the court observed:
The 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.
The interpretation provided by the NCLAT, regarding the deemed transfer of title of the goods from the assessee to the Customs Authority under Section 72 of the Customs Act, would fly in the face of Section 14 of the IBC, read with Sections 25 and 33(5). Moreover, such deemed transfer cannot be countenanced in law as the same would be in breach of Article 300A of the Constitution, as properties are deemed to be transferred to the Customs Authority without there being adequate hearing or any adjudication of any form. Such an interpretation cannot be accepted by this court.”
Case details
Sundaresh Bhatt, Liquidator of ABG Shipyard vs Central Board of Indirect Taxes and Customs | 2022(SC) 715 | CA 7667 of 2021 | 26 August 2022 |