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

CIVIL APPEAL No. 7667/2021Supreme Court[2022] 12 S.C.R. 64126 August 2022Bench: 3 JudgesAuthor: N.V. RAMANA, J.K. MAHESHWARI, HIMA KOHLI26 pages
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What were the facts?

The appellant, Sundaresh Bhatt, Liquidator of ABG Shipyard (Corporate Debtor), appealed against an NCLAT order. The Corporate Debtor imported materials for shipbuilding, storing some in Customs Bonded Warehouses under an EPCG Scheme license. CIRP commenced on August 1, 2017, with a moratorium. The respondent (Customs Authority) issued demand notices for customs duty on March 29, 2019, and April 2-7, 2019, for non-fulfillment of export obligations, totaling over Rs. 17 crore. Liquidation commenced on April 25, 2019, with a fresh direction under Section 33(5) of the IBC. The respondent filed claims under IBC but later issued a notice under Section 72(1) of the Customs Act for Rs. 763.12 crore, claiming title over the goods due to non-payment of duties. The NCLT directed release of goods without duty payment, which the NCLAT overturned.

What did the Supreme Court hold?

The Supreme Court held that the IBC would prevail over the Customs Act to the extent that once a moratorium is imposed under Section 14 or 33(5) of the IBC, the Customs Authority's jurisdiction is limited to assessing and determining the quantum of customs duty and other levies. The authority does not possess the power to initiate recovery of dues through sale or confiscation as provided under the Customs Act. Following such assessment, the Customs Authority must submit its claims for customs dues as an operational debt, adhering strictly to the procedures and timelines stipulated in the IBC, before the adjudicating authority. The Court also noted that the IRP/RP/liquidator can secure the goods from the Customs Authority to be dealt with appropriately under the IBC. The NCLAT's interpretation of deemed transfer of title under Section 72 of the Customs Act was found to be in conflict with the IBC's moratorium and principles of natural justice. The appeal was allowed, and the NCLAT's order was set aside.

What were the issues?

1. Whether the provisions of the Insolvency and Bankruptcy Code, 2016 (IBC) would prevail over the Customs Act, and if so, to what extent? The assessee contended that the IBC, particularly the moratorium provisions, should prevail, restricting the Customs Authority's power to mere assessment of dues and requiring them to file claims under the IBC. The revenue argued that the NCLAT correctly held that the Customs Authorities were empowered to sell goods under Section 72 of the Customs Act to recover government dues, as the Corporate Debtor had abandoned the goods and lost its right to them. 2. Whether the respondent could claim title over the goods and issue a notice to sell the goods in terms of the Customs Act when the liquidation process has been initiated? The assessee argued that the moratorium under Sections 14 and 33(5) of the IBC prevented the initiation of recovery proceedings, rendering the Customs Act notices issued during this period invalid. The revenue contended that the Corporate Debtor's failure to pay duties and take possession implied abandonment, allowing the Customs Authority to proceed with recovery under the Customs Act, irrespective of the IBC proceedings.

Which sections of the Income-tax Act were involved?

Section 14,Section 33(5),Section 53,Section 238,Section 13(1)(a),Section 14(4),Section 60(5),Section 72(1),Section 72(2),Section 300A

AI-generated summary — verify with the full judgment below

A B C D E F G H 641 SUNDARESH BHATT, LIQUIDATOR OF ABG SHIPYARD v. CENTRAL BOARD OF INDIRECT TAXES AND CUSTOMS (Civil Appeal No. 7667 of 2021) AUGUST 26, 2022 [N. V. RAMANA, CJI, J. K. MAHESHWARI AND HIMA KOHLI, JJ.] Insolvency and Bankruptcy Code, 2016 – ss.14, 33(5), 53, 238 – Customs Act – Whether the provisions of the IBC would prevail over the Customs Act and if so, to what extent – Held: The IBC would prevail over the Customs Act to the extent that once moratorium is imposed in terms of ss.14 or 33(5) of the IBC as the case may be, the respondent authority only has a limited juri iction 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 – After such assessment, the respondent authority has to submit its claims (concerning customs dues/ /operational debt) in terms of the procedure laid down, in strict compliance of the time periods prescribed under the IBC, before the adjudicating authority – In any case, the IRP/RP/liquidator can immediately secure goods from the respondent authority to be dealt with appropriately, in

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