SUPREME COURT ON RECOVERY OF CUSTOMS DUTY UNDER INSOLVENCY CODE

[Dr. Sanjiv Agarwal]

In SUNDARESH BHATT, LIQUIDATOR OF ABG SHIPYARD VERSUS CENTRAL BOARD OF INDIRECT TAXES AND CUSTOMS [2022 (8) TMI 1161 - SUPREME COURT],  the insolvency professional (Interim Resolution Professional and Liquidator) of corporate debtor, M/s ABG Shipyard Ltd. filed an appeal before the Supreme Court against the order of National Company Law Appellate Tribunal (NCLAT) to restrain the indirect tax authorities from recovery of tax dues on the basis that the IBC Code, 2016 over rides the provisions of the Customs Act, 1962.

In the instant case, on facts, the corporate debtor imported various materials for the purpose of constructing ships and some of these goods were stored in Custom Bonded Warehouses. The appellant (Insolvency Professional) was granted custody of those warehoused goods by National Company Law Tribunal (NCLT). Being aggrieved, the Revenue filed an appeal and NCLAT held that the Corporate Debtor had abandoned the goods much before the insolvency process was initiated, and as such the title of the goods had passed to the Customs Authorities.  The appellant (Resolution Professional) filed civil appeal before the Supreme Court against grant of custody of warehoused goods to Customs Authorities by the NCLAT. The question before Apex Court was to decide as to whether the IBC Code, 2016 will override Customs Act, 1962 or vice versa if there is any conflict between the two enactments.

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. The court is mandated to harmoniously read the two legislations, unless this Court finds a clear conflict in its operation.

The Apex Court noted that IBC Code, being a more recent law shall clearly override the Customs Law. The Apex Court observed and held that 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 a limited jurisdiction to assess/ determine the quantum of customs duty and other levies. The Customs Authority does not have power to initiate recovery of dues by means of sale / confiscation, as provided under the Customs Act.  Further, tax authorities does not have the power to initiate recovery of dues by means of sale / confiscation, as provided under the Customs Act.

The court further observed that 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 also clearly made out by a reading of Section 142A of the Customs Act.

It was held that the respondent tax authorities 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.

The Apex Court thus, concluded that :

1. 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.

2. 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.

3. 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.

The Supreme Court therefore, allowed the appeal and set aside the impugned order of NCLAT.