Sundaresh Bhatt vs Central Board Of Indirect Taxes
Date of Order:
26 August 2022
Mr. CJI N.V. Ramana, Mr. Justice J.K. Maheshwari, and Ms. Justice Hima Kohli
Appellant- Sundaresh Bhatt, Liquidator of ABG shipyard
Respondent - Central Board of Indirect Taxes and Customs
The Customs Act of 1962 is an Act of the Parliament of India. It provides for the levy and collection of customs duties, the prevention of smuggling, and the administration of matters relating to customs. The Act consists of 104 sections divided into 8 chapters. This Act is also known as the Customs Act and applies to all parts of India. The Act was enacted to consolidate and amend the law relating to customs duties and other dues and matters connected with the import and export of goods. It also provides for the detention, seizure, and confiscation of goods imported into or exported from India. These goods are liable for duty or prohibited from being imported or exported.
The Insolvency and Bankruptcy Code, 2016 is a significant piece of legislation that seeks to consolidate and amend insolvency and bankruptcy laws in India. It provides a framework for the resolution of the insolvency and bankruptcy of individuals, companies, limited liability partnerships, and other legal persons. The code was passed by the Parliament of India on 11th May 2016 and came into effect on 1st December 2016.
Insolvency and Bankruptcy Code, 2016
- Section 13(1)(a)
- Section 14
- Section 33(5)
- Section 238
Customs Act, 1962
- Section 72
- Section 142 A
- ABG Shipyard (the "Corporate Debtor") engaged in shipbuilding and imported materials for construction and exported the ship upon completion.
- The corporate debtor stored these goods in warehouses in Gujarat and Maharashtra.
- He also availed the benefit of the EPCG Scheme and was granted a license concerning warehoused goods.
- National Company Law Tribunal, Ahmedabad initiated insolvency proceedings against the corporate debtor on 01.08.2017. NCLT declared a moratorium under Section 13(1)(a) of the IBC in the same order.
- The appellant, Interim Resolution Professional obtained custody of the goods in the warehouse. It requested the respondent not to conduct an auction or dispose of the goods in any manner.
- The respondent then issued demand notices to the appellant regarding the corporate debtor’s non-fulfillment of export requirements under EPCG licensing.
- An order was issued for the commencement of liquidation proceedings against the corporate debtor.
- The moratorium under Section 13(1)(a) ceased to have effect by the application of Section 14(4) of the IBC.
- However a direction was issued under Section 33(5) of the IBC to bar any suit or proceeding by or against the corporate debtor.
- The respondent issued a notice to the Corporate Debtor under Section 72(1) of the Customs Act for claiming custom dues amounting to Rs. 763,12,72,645
- The NCLT passed an order after considering the appellant's application, directing the respondent to release all goods from the warehouse.
- The respondent challenged the NCLT order before the NCLAT and the appeal was allowed.
- Dissatisfied by the NCLAT decision, the appellant filed the present appeal before the Supreme Court of India.
- Will the Insolvency and Bankruptcy Code, 2016 prevail over the Customs Act, 1962?
- Can the respondent claim title to the goods and issue a notice to sell them under the Customs Act when the liquidation process commences?
ARGUMENTS ADVANCED BY THE APPELLANT
- Mr. Arvind Datar represented the appellant in this case.
- According to the counsel, the corporate debtor is the owner of the goods.
- The counsel contended that the notice issued by the respondent under section 72 of the Customs Act admits the corporate debtor's ownership of the goods. It doesn’t imply any transfer to the respondents.
- It was further submitted that the respondent's statutory charge under Section 142A of the Customs Act is visibly inferior to the IBC. Therefore, he couldn’t have exercised his rights under the Customs Act.
ARGUMENTS ADVANCED BY THE RESPONDENT
- K.M. Nataraj, learned Additional Solicitor General of India represented the respondents in the present case.
- The learned counsel submitted that the goods were never claimed after import and hence they’re not assets of the corporate debtor.
- The counsel pointed out that regardless of the various demand notices issued by the respondent, the corporate debtor never cleared the bills of entry for part of the goods and ignored all the material in the warehouse.
- It was further submitted that the government authorities had all rights to recover the dues under Section 72 of the Customs Act as the corporate debtor had abandoned the imported goods, refused the payment of import duties and other charges, and had not tried to take possession of the goods for many years.
- The Supreme Court set aside the impugned NLCAT order and allowed the appeal.
- The court ruled that once a moratorium is imposed under Sections 14 or 33(5) of the IBC, the respondent authority will possess only minimal jurisdiction to ascertain the quantum of customs duty and other levies. Hence, it was concluded that the IBC would prevail over the Customs Act to an extent.
- The court held that the NCLAT interpretation regarding the title of goods was ignorant of Section 72(2) of the Customs Act. It was noted that the demand notices were issued during the moratorium period and the NCLAT failed to view the effects of the moratorium.
- Reliance was placed on the case Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta, [(2021) 7 SCC 209] to submit that a harmonious balance should be maintained between the jurisdiction of the NCLT under the IBC and the potential encroachment on the legitimate jurisdiction of other authorities.
- The bench consisting of Mr. CJI N.V. Ramana, Mr. Justice J.K. Maheshwari, and Ms. Justice Hima Kohli observed that the Customs Act and the IBC Act are in their own spheres. In case of conflict, the IBC overrides the Customs Act.
The case at hand deals with two significant legislations, the Insolvency and Bankruptcy Code, of 2016, and the Customs Act, of 1962. The Customs Act of 1962 is comprehensive legislation that governs the import and export of goods. The Insolvency and Bankruptcy Code, 2016 is a single, unified code introduced to deal with bankruptcy and insolvency. This famous judgment clarified the issue regarding the conflict in the operation of two different statutes. If any conflict occurs in the application of both legislations, the IBC prevails over the Customs Act. The court adopted a very balanced approach in its decision and reiterated the intent behind the moratorium under CIRP.