SUNDARESH BHATT, LIQUIDTOR OF ABG SHIPYARD VS. CENTRAL BOARD OF DIRECT TAXES (CASE SUMMARY)
There are various instances wherein the Corporate Debtor’s assets are under attachment/possession of Tax Authorities during CIRP or Liquidation and Tax Authorities are reluctant to release these assets to IRP/ The Supreme Court in Sundaresh Bhatt, Liquidator of ABG Shipyard Vs. Central Board of Indirect Taxes (Civil Appeal No. 7667/2021) has settled this issue. The Supreme Court has held that after initiation of moratorium, the custom authorities had only limited jurisdiction to assess/determine the quantum of customs duty and other levies and after such assessment can file claim. Further, IRP/RP/Liquidator can immediately secure goods to be dealt with appropriately in terms of IBC.
BRIEF FACTS
Liquidation Proceedings have been initiated against ABG Shipyard (Corporate Debtor) vide order dated April 25, 2019.
Certain materials imported by Corporate Debtor were lying in customs bonded warehouses. These materials were to be used for construction and building of ships, which were to be exported after manufacturing was complete. The Corporate Debtor availed the benefits available to it under the Export Promotion Capital Goods Scheme (EPCG Scheme) with respect to the said materials. Since the Corporate Debtor failed to submit an Export Obligation Discharge Certificate (EODC) and thereby comply with its obligations in respect of the EPCG License, Custom Authorities had issued various notices to the Corporate Debtor, interalia directing the Corporate Debtor to pay the applicable customs duty failing which proceeding for recovery of the customs duty would be initiated under Section 142 of the Custom Act.
The Liquidator filed an IA No. 474/2019 in CP (IB)No. 53/NCLT/AHM/2017 before NCLT, Ahmadabad Bench seeking direction to the Custom Authority to allow removal of material which was lying in the custom Bonded warehouses, which was allowed. The Custom Authorities aggrieved by the said order file an appeal before the NCLAT, which was allowed by the NCLAT and order of the NCLT was set aside. The Liquidator filed an appeal before the Supreme Court, which was allowed by the Supreme Court.
FINDING OF THE SURPEME COURT
The Liquidator filed an appeal bearing No. 7667 of 2021 before the Supreme Court, where the appeal was allowed and order of the NCLAT was set aside.
The Supreme Court observed that IBC being more recent statute overrides the Customs Act. This is clearly made out by reading of Section 142 A of the Customs Act. The aforesaid provisions notes that the Customs Authority could have first charge on the assets of an assessee under the Customs Act, except with respect to cases under Section 529A of the 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.
Custom Act and IBC act in their own spheres. In case of any conflict, the IBC overrides the Customs Act.
The Supreme Court held that demand notices to seek enforcement of custom duties during the moratorium period would clearly violate the provisions of Section 14 or 33 (5) of the IBC. Demand Notices are initiation of legal proceedings against the Corporate Debtor and same are not permissible under Section 14 of the Code.
The Supreme Court relying upon S. V. Kondaskar Vs. V. M. Deshpande (AIR 1972 SC 878) held that the authorities can only take steps to determine the tax, interest, fines or any penalty which is due. However, the authority cannot enforce a claim for recovery or levy of interest on the tax due during the period of moratorium.
The Supreme Court also held that the Custom Act and IBC can be read in harmonious manner wherein authorities under the Customs Act have a limited jurisdiction to determine the quantum of operational debt in order to stake claim in terms of Section 53 of the IBC before the Liquidator. However, Custom Authorities do not have the power to execute its claim beyond the ambit of Section 53 of IBC. The Supreme Court also held that there has not been any abandonment of goods which would authorize the Customs Authorities to initiate the adjudicatory process to transfer the title to themselves. Before any goods can be declared to have been “abandoned” the same must be adjudged by some authority after due notice. The position cannot be assumed or deemed.
_________________________________________
Mukesh Kumar Suman is an advocate and legal author based at Delhi. He regularly appears before various Judicial Forums including NCLT, NCLAT, High Courts and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.