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2022 (8) TMI 1161 - SC - Insolvency and BankruptcyCIRP - Recovery of customs duty - adjudication of Bill of entry after initiation of Corporate Insolvency process - Release of certain goods lying in the Customs Bonded Warehouses without payment of custom duty and other levies - waterfall mechanism under Section 53 of the IBC - priority of IBC over the Customs Act - Power of respondent to 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. HELD THAT - In the present case, the Corporate Debtor as part of its business used to regularly import and warehoused goods in the custom bonded warehouses from at least 2011. As has already been mentioned above, the CIRP process commenced against the Corporate Debtor on 01.08.2017 by the order of the NCLT. It appears from the record that no notices were issued by the respondent against the Corporate Debtor with respect to the warehoused goods prior to initiation of the CIRP. In fact, all the duty demand notices issued by the respondent were from March 2019 onwards. It is in this context that it is necessary for us to ascertain whether the IBC overrides the Customs Act or vice-versa. Insolvency and Bankruptcy Code came into force in India from 28.05.2016 to combine provisions relating to insolvency found across different statutes into a single comprehensive instrument. Under the earlier legal regime, different statutes were resulting in multiple parallel proceedings, which inevitably resulted in uncertainty for the creditors over their recovery. One of the objectives behind the enactment of the IBC was to end the conflict between different statutes. One of the motivations of imposing a moratorium is for Section 14(1)(a), (b), and (c) of the IBC to form a shield that protects pecuniary attacks against the Corporate Debtor. This is done in order to provide the Corporate Debtor with breathing space, to allow it to continue as a going concern and rehabilitate itself. Any contrary interpretation would crack this shield and would have adverse consequences on the objective sought to be achieved - the 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. It is to be noted that the Customs Act and the IBC act in their own spheres. In case of any conflict, the IBC overrides the Customs Act. In present context, this Court has to ascertain as to whether there is a conflict in the operation of two different statutes in the given circumstances. As the first effort, this Court is mandated to harmoniously read the two legislations, unless this Court finds a clear conflict in its operation. Thus, the respondent could only initiate assessment or reassessment of the duties and other levies. They cannot transgress such boundary and proceed to initiate recovery in violation of Sections 14 or 33(5) of the IBC. The interim resolution professional, resolution professional or the liquidator, as the case may be, has an obligation to ensure that assessment is legal and he has been provided with sufficient power to question any assessment, if he finds the same to be excessive. It is thus concluded that - i) 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. ii) 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. iii) 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. Appeal allowed.
Issues Involved:
1. Whether the provisions of the Insolvency and Bankruptcy Code (IBC) would prevail over the Customs Act, and if so, to what extent. 2. Whether the respondent 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. Detailed Analysis: 1. Prevalence of IBC over the Customs Act: Background and Facts: The case involves a Corporate Debtor engaged in shipbuilding, which imported materials stored in Custom Bonded Warehouses. The Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor commenced on 01.08.2017, with a moratorium declared under Section 13(1)(a) of the IBC. Despite this, the respondent (Customs Authorities) issued demand notices for customs duties after the initiation of CIRP and during the liquidation process. Legal Provisions and Arguments: - The Customs Act mandates that warehoused goods cannot be released without payment of customs duties (Sections 45, 71, and 72). - Section 142A of the Customs Act provides that customs dues have the first charge on the property, except in cases under the IBC. - Section 238 of the IBC states that the provisions of the IBC override other laws in case of inconsistency. Judgment Analysis: The court held that the IBC, being a more recent statute, overrides the Customs Act. The demand notices issued by the respondent after the initiation of CIRP and during the liquidation moratorium were in violation of Sections 14 and 33(5) of the IBC. The respondent authority can only assess/determine the quantum of customs duty but cannot initiate recovery of dues by means of sale/confiscation during the moratorium period. 2. Title and Sale of Goods during Liquidation: Background and Facts: The Corporate Debtor had warehoused goods that were not cleared for home consumption or export. The respondent claimed that the Corporate Debtor had relinquished its title to these goods, allowing the Customs Authorities to sell the goods to recover dues. Legal Provisions and Arguments: - The NCLAT held that the goods were not the Corporate Debtor's assets as they were not claimed or cleared by the importer, thus relinquishing the title under Sections 48 and 72 of the Customs Act. - The appellant argued that the Corporate Debtor retained ownership of the goods and that the respondent's actions violated the moratorium under the IBC. Judgment Analysis: The court found that the NCLAT's interpretation was incorrect. There was no adjudication or notice indicating that the goods were abandoned before the moratorium. The respondent's actions to sell the goods during the moratorium were in violation of Sections 14 and 33(5) of the IBC. The Customs Authorities could only determine the dues but not enforce recovery or sale of goods during the moratorium. Conclusion: The court concluded that: 1. The IBC prevails over the Customs Act to the extent that, once a moratorium is imposed, the Customs Authorities can only assess the quantum of customs duty but cannot initiate recovery through sale or confiscation. 2. The respondent cannot claim title over the goods and issue notice to sell them during the liquidation process. Final Decision: The appeal was allowed, and the impugned order and judgment of the NCLAT were set aside. There were no orders as to costs.
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