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TMI Blog2021 (11) TMI 796X X X X Extracts X X X X X X X X Extracts X X X X ..... n overriding effect on the other proceedings of the Customs and Central Excise Act. The Adjudicating Authority held that provisions of Section 53 of the Code prescribe the Order of priority for distribution of proceeds from the sale of liquidation assets, which shall prevail over the provisions of Section 11(e) of the Central Excise Act and other provisions of the Customs Act - the Respondent Department cannot legally withhold the releasing of the material/goods, which are the property of the Corporate Debtor Company (in Liquidation) and impose a prerequisite condition for making payment of the customs duty by the Liquidator of the Corporate Debtor Company (under Liquidation) because the claims of the Respondent's Department have to be treated as a Government Dues and needs to be dealt with under the waterfall mechanism provided under Section 53 of the Insolvency and Bankruptcy Code, 2016. The Liquidator could take possession of only the Company's assets, which the Company itself could have obtained. The liquidation proceedings do not change the rights in this regard, and Customs Duty needs to be paid for the release of the goods by the importer. In the circumstances, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dated:- 22-11-2021 - [Justice M. Venugopal] Member (Judicial), [Mr. V. P. Singh] Member (Technical) And [Dr. Ashok Kumar Mishra] Member (Technical) For the Appellant : Mr Abhishek Rana and Mr Ajit Sharma, Advocates For the Respondent : Mr Abhishek Sharma, Ms Anjali Sharma and Ms Ashly Cherian, Advocates JUDGMENT ( Virtual Mode ) [Per; V. P. Singh, Member (T)] 1. The present Appeal emanates from the Order dated February 25, 2020, passed by the Adjudicating Authority/National Company Law Tribunal, Ahmedabad Bench, Ahmedabad in IA No. 474 of 2019 in Company Petition (IB) No.53/NCLT/AHM/2017, whereby the Adjudicating Authority had issued directions to the Appellant to allow removal of the materials lying in the Customs Bonded Warehouses without payment of Customs Duty under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (in short 'I B Code'). 2. The Parties are represented by their original status in the Company Petition for the sake of convenience. 3. BRIEF FACTS The brief facts of the case are as follows: 3.1 The Adjudicating Authority/National Company Law Tribunal, Ahmedabad Bench had disposed of the Application, being n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f imported warehoused goods, which have been lying in a warehouse from 2005 onwards. It is submitted that the warehoused goods do not belong to the debtor. Hence Liquidator cannot take control of the same. 4.2 Before commencement of liquidation proceedings, the debtor itself could not have taken possession of the imported warehoused goods except by paying the applicable customs duty after an order clearing the goods for consumption was passed by Customs u/s 68 71 of Customs Act, 1962. Thus, the Official Liquidator cannot be in a better position than the debtor itself. 4.3 The Customs Act, 1962 is a complete code in itself, under that it is provided that goods that are once warehoused cannot be released from the warehouse unless and until the import duties are paid. Reliance is placed on Sections 45, 47(2), 68, 71 and 72 of the Customs Act, 4.4 The principle enunciated in the judgement of Division Bench of Calcutta High Court in Collector of Customs Dytron India Ltd. (1999 (108) ELT 342 (Cal.)] squarely applies to the present case even though the judgment was rendered in the context of Companies Act, 1956 since it interpreted provisions of the Customs Act, 1962 vis-a-vis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es the ownership of the Corporate Debtor about the warehoused goods. Neither Section 48 nor Section 72 of the Customs Act signifies any transfer of title or vesting property in Appellant as alleged in the present Appeal. d) Relinquishment of title under the Customs Act is governed by Sections 23(2) of the Act and proviso to Section 68 of the Act. These provisions reinforce that relinquishment is purely the prerogative of the owner. The Corporate Debtor has never relinquished title to the goods either under Customs Act or under the Code. No communications in this regard have also been made to the Appellant. The Appellant has not produced any shred of evidence to show that the Corporate Debtor has actively or consciously relinquished title to the goods. [CIT, Bombay v. Rasiklal Manoklal (HUF) and Ors. (1989) 2 SCC 454 and [ICICI Bank Ltd. v. SIDCO Leathers and Ors (2006) 10 SCC 452)]. e) Even if some of the assets/goods are not in possession of the Corporate Debtor, it does not amount to relinquishment of rights over the said goods in any manner whatsoever. (Encore Asset Reconstruction Company Pvt. Ltd vs Ms Charu Sandeep Desai Ors. (Company Appeal (AT) (Insolvency) No. 719 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it cannot recover any of the Appellant's alleged dues against the Corporate Debtor. [Kaledonia Jute Fibres Pvt. Ltd. v. Axis Nirman Industries Ltd. (2021) 2 SCC 403]; [Deepak Cochhar v. Indusind Bank Ltd. 2006 SCC OnLine Bom 368) and (Unilever Industries Private Limited Another v. Kwality Limited 2018 SCC OnLine Cal 5978)]. c. Further, under Section 33 (5) of the Code, which squarely applies upon the passing of an order of Liquidation, no suit or other legal proceeding shall be instituted by or against the Corporate Debtor . The term legal proceedings for a moratorium in Liquidation, will include proceedings for recovery of taxes. [Governor-General in Council v. Shiromani Sugar Mills Ltd. 1946 SCC OnLine FC 5] and [Ludovico Sagrado Govela v. Cirila Rosa Maria Pinto and Ors. (2016) 9 SCC 615)]. d. The Appellant's purported and continued custody of the Corporate Debtor's goods violates Sections 14 and 33 of Code. Section 14(1)(a) of the Code expressly prohibits the institution or continuation of proceedings against the Corporate Debtor during the moratorium period, i.e., the period between the insolvency commencement date and the completion of the Insolvenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thorities, will be arbitrary and place it in an unequal position. Moreover, the Hon'ble Supreme Court in the case of Swiss Ribbons specifically held that the Liquidator is the sole adjudicator of claims of all creditors, which can be challenged before the Adjudicating Authority. Therefore, the Appellant cannot decide its claims in the overreach of the Liquidator and place itself above other creditors. 5.5 CODE TO SUPERSEDE AND OVERRIDES THE CUSTOMS ACT a. Section 238 of the Code provides that its provisions shall have a superseding effect notwithstanding any law inconsistent with the Code. The Hon'ble Supreme Court has also affirmed the overriding effect of the Code in the cases of CIT v. Monnet Ispat and Energy Ltd. (2018) SCC Online SC 3465, Duncans Industries Ltd. v. A.J. Agrochem (2019) 9 SCC 725, wherein it was held that by Section 238, the provisions of the Code would override anything inconsistent contained in any other law. A similar observation has been made by this Hon'ble Appellate Tribunal in the case of Om Prakash Agrawal v. CIT (TDS)(Company Appeal (AT) Insolvency No. 624 of 2020). b. For argument sake, if it is considered that the Appellant has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hrough the Resolution Professional, take a bypass and go before the NCLT for the enforcement of such a right . [Para 40). e) In the instant case, the goods of the Cororate Debtor (in short 'CD') are Warehoused at the Customs Bonded Warehouse (admitted by the Appellant at Para 7(1) of the Appeal) and as such is the property of the CD in terms of S.3(27). Moreover, the Appellant does not deny that the CD has imported these goods. The Respondent thus has a right over the Goods (even if they are not in possession of the CD) as per S.18(f)(ii) r/w S.36 (3)(b) of the Code. Consequently, the NCLT has the jurisdiction to entertain the Application of the Liquidator under S.60(5), since the right sought to be exercised is over the property of the CD and the right sought to be enforced is not a new right but the right to be not exercised as per the case of Embassy Properties (supra) specifically in Para 44. f) Appellant has not taken any steps since 2014 to take into possession and confiscate the Goods under the Customs Act. They have sought to enforce this right after the Order of Liquidation was passed in July 2019, which cannot be permitted since the Appellant has alrea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal, in Commissioner of Customs (Preventive), West Bengal v. Ram Swarup Industries Ltd. Ors. 2019 SCC Online NCLAT 371 [Para 3-9 and 15-24] restrained the Customs Authorities from selling the assets of that CD and had directed the officers to hand over the assets to the RP, after referring to the provisions of the Customs Act and the decision of the Calcutta High Court in Collector of Customs v. Dytron (India) Ltd (also relied upon by the Appellant in the present case). The Appellant has failed to plead how the decision of Ram Swarup does not apply to this Appeal. ii) Similarly, the Hon'ble High Court of Andhra Pradesh in the case of Leo Edibles Fats Ltd. v. The Tax Recovery Officer (Central) Income Tax Department, Hyderabad and Ors. 2018 SSC Online Hyd 193 (Para - 1, 13-19, 24 31) directed the Income Tax Authorities to file its Claim with the Liquidator and further directed the IT authorities to lift the Order of attachment over the goods of the CD. iii) The Appellant does not dispute the CD's ownership of these Goods in various warehouses and CFSs in any manner whatsoever. The Appellant's claims were made before the Respondent on the assumption that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irtue of Section 238 of the Code being a subsequent law, the proceeding contained therein shall have an overriding effect on the other proceedings of the Customs and Central Excise Act. 7.2 Based on the above, the Adjudicating Authority held that provisions of Section 53 of the Code prescribe the Order of priority for distribution of proceeds from the sale of liquidation assets, which shall prevail over the provisions of Section 11(e) of the Central Excise Act and other provisions of the Customs Act. 7.3 Therefore, the Respondent Department cannot legally withhold the releasing of the material/goods, which are the property of the Corporate Debtor Company (in Liquidation) and impose a prerequisite condition for making payment of the customs duty by the Liquidator of the Corporate Debtor Company (under Liquidation) because the claims of the Respondent's Department have to be treated as a Government Dues and needs to be dealt with under the waterfall mechanism provided under Section 53 of the Insolvency and Bankruptcy Code, 2016. 7.4 It is essential to mention that the goods lying in the Customs bonded warehouses are not the Corporate Debtor's assets since it never cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicable charges. 7.9 The Liquidator intends to possess the uncleared goods from the customs warehouses without upfront payment of custom duty is flawed. In the context of identifying the goods or properties of the Company, 'imported goods', subject to levy of Customs, stand on a different footing. The customs duty is more a consequence of importing the goods than the importer's liability to pay it. Even before initiating the Corporate Insolvency Resolution Process, the Corporate Debtor Company could not have secured the possession of the imported goods except by paying the Customs duty. The Resolution Professional/Liquidator who virtually represents the Company cannot stand better than the Corporate Debtor. 7.10 The Liquidator could take possession of only the Company's assets, which the Company itself could have obtained. The liquidation proceedings do not change the rights in this regard, and Customs Duty needs to be paid for the release of the goods by the importer. In the circumstances as stated above, the materials lying in the customs bonded warehouses can not be treated as 'Assets of the Corporate Debtor'. Thus, the Liquidator cannot claim go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Customs may, in cases where it is not feasible to make entry by presenting electronically [on the customs automated system], allow an entry to be presented in any other manner: Provided further that] if the importer makes and subscribes to a declaration before the proper officer, to the effect that he is unable for want of full information to furnish all the particulars of the goods required under this sub-section, the proper officer may, pending the production of such information, permit him, previous to the entry thereof: (a) to examine the goods in the presence of an officer of customs, or (b) to deposit the goods in a public warehouse appointed under Section 57 without warehousing the same. (2) Save as otherwise permitted by the proper officer, a bill of entry shall include all the goods mentioned in the bill of lading or other receipt given by the carrier to the consignor. [(3) The importer shall present the bill of entry under sub-section (1) [before the end of the day (including holidays) preceding the day] on which the aircraft or vessel or vehicle carrying the goods arrives at a customs station at which such goods are to be cleared ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial Gazette, permit certain class of importers to make deferred payment of said duty or any charges in such manner as may be provided by rules.] [(2) [The importer shall pay the import duty- (a) on the date of presentation of the bill of entry in the case of self-assessment; or (b) within one day (excluding holidays) from the date on which the bill of entry is returned to him by the proper officer for payment of duty in the case of assessment, reassessment or provisional assessment; or (c) in the case of deferred payment under the proviso to sub-section (1), from such due date as may be specified by rules made in this behalf, and if he fails to pay the duty within the time so specified, he shall pay interest on the duty not paid or short-paid till the date of its payment, at such rate, not less than ten per cent but not exceeding thirty-six per cent per annum, as may be fixed by the Central Government, by notification in the Official Gazette.] [Provided that the Central Government may, by notification in the Official Gazette, specify the class or classes of importers who shall pay such duty electronically: Provided further that] where the bill o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted to be stored in a public warehouse under this section: Provided further that the Principal Commissioner of Customs or Commissioner of Customs may extend the period of storage for a further period not exceeding thirty days at a time.] 68. Clearance of warehoused goods for home consumption. Any warehoused goods may be cleared from the warehouse] for home consumption, if- (a) a bill of entry for home consumption in respect of such goods has been presented in the prescribed form; [(b) the import duty, interest, fine and penalties payable in respect of such goods have been paid; and] (c) an order for clearance of such goods for home consumption has been made by the proper officer: [Provided that the Order referred to in Clause (c) may also be made electronically through the customs automated system on the basis of risk evaluation through appropriate selection criteria: Provided further that] the owner of any warehoused goods may, at any time before an order for clearance of goods for home consumption has been made in respect of such goods, relinquish his title to the goods upon payment of 295[* * *] penalties that may be payable in respect of the goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to say the assets would form a part of the assets of the Company available for distribution by virtue of Liquidation subject to payment of the Customs Duties and interest etc. The provisions of Sections 529 and 530A of the Companies Act, 1956 apply to situations where the Claim of creditors in respect of the sale proceeds of the assets of the Company sold in Liquidation are to be determined. The Customs Authorities claim to the chemicals in question, in which the Customs Authorities had a statutory right of detention and confiscation, had to be met before the chemicals could be validly sold as assets of the Company in Liquidation. The Claim of the Customs Authorities would, therefore, stand outside proceedings under Sections 529, 529A and 530 of the 1956 Act. 7.13 Further, Section 45 of the Customs Act lays down restrictions on custody and removal of imported goods. It provides that all imported goods unloaded in the customs area shall remain in the custody of such person as the Commissioner of Customs may approve until they are cleared for home consumption or warehoused or transhipped. Section 47 of the Customs Act provides that if any goods are entered for home consumpt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... single unified umbrella with the object of speeding up of the insolvency process. The principle was reiterated in ArcelorMittal [ArcelorMittal (India) (P) Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1] where this Court held that : (SCC p. 88, para 84) 84. The non obstante Clause in Section 60(5) is designed for a different purpose : to ensure that NCLT alone has jurisdiction when it comes to applications and proceedings by or against a corporate debtor covered by the Code, making it clear that no other forum has jurisdiction to entertain or dispose of such applications or proceedings. Therefore, considering the text of Section 60(5)(c) and the interpretation of similar provisions in other insolvency related statutes, NCLT has jurisdiction to adjudicate disputes, which arise solely from or which relate to the insolvency of the corporate debtor. However, in doing so, we issue a note of caution to NCLT and NCLAT to ensure that they do not usurp the legitimate jurisdiction of other courts, tribunals and fora when the dispute is one which does not arise solely from or relate to the insolvency of the corporate debtor. The nexus with the insolvency of the corporate debtor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncy Resolution Process, the Corporate Debtor Company could not have secured the possession of the imported goods except by paying the customs duty. The Resolution Professional/Liquidator, who virtually represents the Company, cannot stand on a better footing than the Corporate Debtor itself. 7.17 The learned Counsel for the Respondent Liquidator has placed reliance on the judgement of the Hon'ble Supreme Court in the case of Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta, (2021) 7 SCC 209: 2021 SCC OnLine SC 194 at page 262, wherein it is held that; 176. Given that the terms used in Section 60(5)(c) are of wide import, as recognised in a consistent line of authority, we hold that NCLT was empowered to restrain the Appellant from terminating PPA. However, our decision is premised upon a recognition of the centrality of PPA in the present case to the success of CIRP, in the factual matrix of this case, since it is the sole contract for the sale of electricity which was entered into by the corporate debtor. In doing so, we reiterate that NCLT would have been empowered to set aside the termination of PPA in this case because the termination took place solely on the ground of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted it to the jurisdiction of the Liquidator. Hon'ble Supreme Court in case of ICICI Bank Ltd. v. SIDCO Leathers Ltd., (2006) 10 SCC 452: 2006 SCC OnLine SC 498 at page 469 clarified the position of law regarding relinquishment of right which is as under; 53. The expression relinquish has a different connotation. In P. Ramanatha Aiyar's Advanced Law Lexicon at p. 4047, it is stated: Relinquish.-To give over possession or control of; to leave off. It envisages a conscious act i.e. an act where a person was aware of his right and then relinquishes the same. The same must be for the general benefit of the creditors. His action must lead to a conclusion that he, for one reason or the other, intended to stand in the queue for receiving money owed to him. It, however, does not stand obliterated only by the filing of an affidavit or proof of Claim with the Official Liquidator. Such a claim had been filed pursuant to a notice issued by the Official Liquidator. If the creditor does not respond to the said Notice, he would not be in a position to bring to the Notice of the Official Liquidator, the existence of his right. 7.20 In the instant case, the Appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... importing them. Undisputedly the containers were imported between 2012 to 2015. The CIRP was initiated against the Corporate Debtor in 2017, and the liquidation order was passed in April 25, 2019. Therefore the assets lying in the Customs bonded warehouses cannot be considered assets of the Corporate Debtor. The Liquidator intends to possess the uncleared goods from the customs warehouses without upfront payment of Customs duty, which is against the statutory provisions of the Customs Act, 1962. Therefore, the imported goods subject to levy of Customs stand on a different footing than the goods /assets, not in the Corporate Debtor's possession. Therefore the assets lying in the Customs bonded warehouses cannot be considered assets of the Corporate Debtor. 7.25 Based on the above discussion, we believe that the Adjudicating Authority committed an error in directing the release of goods without paying customs duty and other applicable charges. Thus Appeal deserves to be allowed. ORDER The Appeal is allowed - no Order as to costs. Impugned Order dated February 25, 2020, passed by the Adjudicating Authority/National Company Law Tribunal, Ahmedabad Bench, Ahmedabad in IA N ..... X X X X Extracts X X X X X X X X Extracts X X X X
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