IBC Supremacy: Customs Act Recovery Blocked During Moratorium, Appeal Allowed, NCLAT Order Overturned.

The court ruled that the Insolvency and Bankruptcy Code (IBC) prevails over the Customs Act during a moratorium, preventing Customs Authorities from initiating recovery of customs duties through sale or confiscation of goods. The respondent's actions to sell goods during the liquidation process violated Sections 14 and 33(5) of the IBC. The appeal was allowed, setting aside the NCLAT's order, with no costs awarded.

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Issues Involved:
1. Whether the provisions of the Insolvency and Bankruptcy Code (IBC) would prevail over the Customs Act, and if so, to what extent.
2. Whether the respondent could claim title over the goods and issue notice to sell the goods in terms of the Customs Act when the liquidation process has been initiated.

Detailed Analysis:

1. Prevalence of IBC over the Customs Act:

Background and Facts:
The case involves a Corporate Debtor engaged in shipbuilding, which imported materials stored in Custom Bonded Warehouses. The Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor commenced on 01.08.2017, with a moratorium declared under Section 13(1)(a) of the IBC. Despite this, the respondent (Customs Authorities) issued demand notices for customs duties after the initiation of CIRP and during the liquidation process.

Legal Provisions and Arguments:
- The Customs Act mandates that warehoused goods cannot be released without payment of customs duties (Sections 45, 71, and 72).
- Section 142A of the Customs Act provides that customs dues have the first charge on the property, except in cases under the IBC.
- Section 238 of the IBC states that the provisions of the IBC override other laws in case of inconsistency.

Judgment Analysis:
The court held that the IBC, being a more recent statute, overrides the Customs Act. The demand notices issued by the respondent after the initiation of CIRP and during the liquidation moratorium were in violation of Sections 14 and 33(5) of the IBC. The respondent authority can only assess/determine the quantum of customs duty but cannot initiate recovery of dues by means of sale/confiscation during the moratorium period.

2. Title and Sale of Goods during Liquidation:

Background and Facts:
The Corporate Debtor had warehoused goods that were not cleared for home consumption or export. The respondent claimed that the Corporate Debtor had relinquished its title to these goods, allowing the Customs Authorities to sell the goods to recover dues.

Legal Provisions and Arguments:
- The NCLAT held that the goods were not the Corporate Debtor's assets as they were not claimed or cleared by the importer, thus relinquishing the title under Sections 48 and 72 of the Customs Act.
- The appellant argued that the Corporate Debtor retained ownership of the goods and that the respondent's actions violated the moratorium under the IBC.

Judgment Analysis:
The court found that the NCLAT's interpretation was incorrect. There was no adjudication or notice indicating that the goods were abandoned before the moratorium. The respondent's actions to sell the goods during the moratorium were in violation of Sections 14 and 33(5) of the IBC. The Customs Authorities could only determine the dues but not enforce recovery or sale of goods during the moratorium.

Conclusion:
The court concluded that:
1. The IBC prevails over the Customs Act to the extent that, once a moratorium is imposed, the Customs Authorities can only assess the quantum of customs duty but cannot initiate recovery through sale or confiscation.
2. The respondent cannot claim title over the goods and issue notice to sell them during the liquidation process.

Final Decision:
The appeal was allowed, and the impugned order and judgment of the NCLAT were set aside. There were no orders as to costs.

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