In the case of Sundaresh Bhatt v. CBITC, the Supreme Court a Bench of Chief Justice of India NV Ramana, Justices JK Maheshwari, and Justice Hima Kohli held on Friday that once a moratorium is executed, the provisions of the Insolvency and Bankruptcy Code (IBC) would take precedence over the Customs Act.
The Central Board of Indirect Taxes and Customs (CBIC) was also determined to have limited authority to determine customs and be unable to begin the recovery of debt in such circumstances by the court.
“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.”
According to the National Company Law Appellate Tribunal (NCLAT) ruling that was the subject of the appeal, the liquidator’s desire to take possession of items from the customs warehouses that had not yet been paid for in full by way of customs duty was in violation of the Customs Act.
In admitting the appeals of a judgement by the National Company Law Tribunal in Ahmedabad, the NCLAT had come to the conclusion that the assets located in the Customs bonded warehouses could not be regarded as belonging to the corporate debtor.
After considering Section 238 of the IBC, the NCLT determined that the non-obstante clause has precedence over procedures under the Customs Act.
For the appellant-liquidator, Senior Advocate Arvind Datar argued that the respondent had chosen to have its debts handled by the IBC by presenting claims under Section 38 of the IBC.
The products are still owned by the corporate debtor, he continued.
It was asserted that because the relevant statutory charge is expressly subordinate to the IBC, the respondent could not have exercised rights under the Customs Act.
The respondents’ additional solicitor general (ASG), KM Nataraj, stated that the subject commodities were abandoned without paying the required import levies after being imported but never claimed.
The Bench observed that it was confronted with the following two legal issues:
a) If and to what extent the IBC’s provisions would take precedence over the Customs Act.
b) When the liquidation procedure has begun, could the respondent assert ownership of the items and give notice to sell them in accordance with the Customs Act?
The Bench initially observed that the respondent’s demand notifications were
“plainly in the teeth of Section 14 of the IBC as they were issued after the initiation of the CIRP proceedings … [and] clearly violate the provisions of Sections 14 or 33(5) of the IBC, as the case may be”.
It was determined that as the liquidation process had already begun, the respondent could not have asserted ownership of the commodities or given notice to sell them in accordance with the Customs Act.
The respondent authority must present its claims regarding customs dues/operational debt to the adjudicating authority strictly in accordance with the procedure outlined in the IBC after the resolution professional’s assessment, the Bench ordered.
“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 Court held