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Synopsis

The Supreme Court has held that in case of any conflict, the Insolvency and Bankruptcy Code will override the Customs Act.

A CJI Ramana led bench has observed 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 respondent authority does not have the power to initiate recovery of dues by means of sale/confiscation, as provided under the Customs Act."

The top court bench also comprising Justices JK Maheshwari and Hima Kohli has held that once moratorium is imposed in terms of Sections 14 or 33(5) of the IBC, as the case may be, the Central Board of Indirect Taxes and Customs only has a limited jurisdiction to assess/determine the quantum of customs duty and other levies.

It has been further clarified that the authority does not have the power to initiate recovery of dues by means of sale/confiscation, as provided under the Customs Act.

An appeal was filed under section 62(1) of the IBC against an order of the NCLAT whereby it had allowed the appeal filed by the respondent authority against the order of the NCLT, Ahmedabad directing the release of certain goods lying in the customs bonded warehouses without payment of custom duty and other levies.

After the initiation of CIRP, the respondent authority issued a notice to the Corporate Debtor regarding non-fulfillment of export obligations in terms of the EPCG license demanding customs duty of Rs. 17,13,989 with interest.

After the liquidation process was initiated, the respondent authority filed claims before the Liquidator for goods warehoused in both Gujarat and Maharashtra.

The IRP asked the authority to release the goods, but this was not done. Accordingly, the Liquidator approached the NCLT. 

NCLT considered Section 238 (Provisions of this Code to override other laws) of the IBC and held that the non-obstante clause in the IBC, being part of a subsequent law, shall have overriding effect on proceedings under the Customs Act. Further, looking to the waterfall mechanism under section 53 of the IBC, the NCLT held that distribution of proceedings from sale of liquidation of assets shall also prevail over the customs act provisions.

It was further held by NCLT that, as government dues, the claims by the respondent authority would have to be dealt with in accordance with Section 53 of the IBC.

Reliance was also place on a circular issued by the Central Board of Excise and Custom, bearing Circular No. 1053/02/2017 CX dated 10.03.2017 relating to Section 11E of the Central Excise Act, 1944 which clarified that dues under the Central Excise Act would have been first charged only after the dues under the provisions of the IBC are recovered. This decision was overturned by the NCLAT in the impugned judgment.

Top Court has held that NCLAT had not directly answered the question of law but had entered into the facts of the case to distinguish the applicability of IBC as compared to the Customs Act.

It has been further held that 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. The aforesaid provision notes that the custom authorities would have first charge on the assets of an assessee under the Customs Act, except with respect to cases under Section 529A of Companies Act 1956, Recovery of Debts Due to Banks and Financial Institutions Act 1993, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the IBC, 2016", the Top Court has held.

Case Title: SUNDARESH BHATT, LIQUIDATOR OF ABG SHIPYARD vs. CENTRAL BOARD OF INDIRECT TAXES AND CUSTOMS