TaxTMI 
TaxTMI 
TaxTMI 
2021 (11) TMI 796
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....ses without payment of Customs Duty under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (in short 'I&B Code'). 2. The Parties are represented by their original status in the Company Petition for the sake of convenience. 3. BRIEF FACTS The brief facts of the case are as follows: 3.1 The Adjudicating Authority/National Company Law Tribunal, Ahmedabad Bench had disposed of the Application, being numbered as IA 474 of 2019 in CP (IB) No. 53/NCLT/AHM/2017 filed by Liquidator of the Corporate Debtor, ABG Shipyard, with the following order directions; i) "The Respondents are directed to allow the applicant-liquidator to remove the Material, which is lying in the Customs Bonded Warehouses without any condition, demur and/or payment of Customs Duty. ii) The Respondents are at liberty to lodge its Claim with the Applicant-Liquidator with regard to the Customs Duty charges payable on the release of Material, which form part of the assets of the Corporate Debtor company in Liquidation), before the Liquidator under the provisions of Insolvency and Bankruptcy Code, 2016 and in accordance with law. iii) The Customs Department shall allow removal of goods/material wit....
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....ctions 45, 47(2), 68, 71 and 72 of the Customs Act, 4.4 The principle enunciated in the judgement of Division Bench of Calcutta High Court in Collector of Customs Dytron India Ltd. (1999 (108) ELT 342 (Cal.)] squarely applies to the present case even though the judgment was rendered in the context of Companies Act, 1956 since it interpreted provisions of the Customs Act, 1962 vis-a-vis claims of the Liquidator. Based on the above judgement, it is contended that the goods can be released to the Liquidator only after the customs duty is paid. 4.5 It is settled law that a legal question can be raised even at the appellate stage, and as such, the issue of whether the debtor has clear and perfect title over the warehoused goods under Customs Act, 1962, being a legal issue, has been validly raised in the Appeal filed by the Appellant. 4.6 As such, it is most respectfully prayed that this Hon'ble Tribunal may be pleased to set aside the impugned Order. 5. Respondent/Liquidator's Submission 5.1 Respondent submits its reply on every issue raised in the Appeal, which is as follows; 5.2 CORPORATE DEBTOR IS THE OWNER OF THE GOODS a) The Appellant refers to Sections 48 and 72 o....
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.... and [ICICI Bank Ltd. v. SIDCO Leathers and Ors (2006) 10 SCC 452)]. e) Even if some of the assets/goods are not in possession of the Corporate Debtor, it does not amount to relinquishment of rights over the said goods in any manner whatsoever. (Encore Asset Reconstruction Company Pvt. Ltd vs Ms Charu Sandeep Desai & Ors. (Company Appeal (AT) (Insolvency) No. 719 of 2018)]. f) By submitting a Claim (under Section 38 of the Code), the Appellant has subjected its statutory dues to be governed by the Code's provisions and, more specifically, to the priority of distribution provided under Section 53 of the Code. Furthermore, the Claim filed by the Appellant is based on the premise of ownership of these goods. Therefore it is clear that the Corporate Debtor has not lost the ownership rights over the goods. g) Assuming without admitting, even the Respondent/Liquidator could not have, after the commencement of CIRP and Liquidation process, relinquished the title of the goods in favour of the Appellant. Such action would cause prejudice to the creditors of the Corporate Debtor and would violate his duties under Section 35 of the Code and the common law Anti-Deprivation Rule. (Guj....
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....9;s purported and continued custody of the Corporate Debtor's goods violates Sections 14 and 33 of Code. Section 14(1)(a) of the Code expressly prohibits the institution or continuation of proceedings against the Corporate Debtor during the moratorium period, i.e., the period between the insolvency commencement date and the completion of the Insolvency Resolution Process or until an order of Liquidation is passed under Section 33 of the Code, whichever is earlier. Further, Section 14(1)(c) of the Code also expressly prohibits any action for the foreclosure, recovery or enforcement of any security interest against the Corporate Debtor in respect of its property.[CIT v. Monnet Ispat and Energy Ltd. (2018 SCC OnLine SC 3465)], [National Plywood Industries Ltd. v. Union of India (2020 (3) GLT 345)) and Dishnet Wireless Limited & Another v. The Deputy Commissioner of Income Tax & Anr. (2013 SCC OnLine Mad 3701]. 5.4 APPELLANT SEEKING PRIORITY IN SETTLEMENT OF DUES a) Distribution of all debts, including alleged claims of Appellant, are to be governed by the Code alone, being a special law enacted for this purpose. In Liquidation, the priority of debts shall be governed by the law....
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....y Section 238, the provisions of the Code would override anything inconsistent contained in any other law. A similar observation has been made by this Hon'ble Appellate Tribunal in the case of Om Prakash Agrawal v. CIT (TDS)(Company Appeal (AT) Insolvency No. 624 of 2020). b. For argument sake, if it is considered that the Appellant has a right to proceed under Sections 48, 72, 142 and 142A of the Customs Act, then also it will not be applicable because of the overriding effect of Sec 238 of the I&B Code. There is an apparent inconsistency between the provisions of the Customs Act and the I&B Code. Because the Customs Act allow the Appellant to initiate recovery proceedings against the Corporate Debtor by putting to sale the assets of the Corporate Debtor in the custody of the Appellant. This is in contravention to the Code as it expressly bars initiation or continuation of any such proceedings under Sections 14 and 33 and does not provide any priority to the Appellant's debt under Section 53 of the Code. c. When two special statutes contain non-obstante provisions, the later statute must prevail. Thus, the Appellant cannot bypass the mandatory requirements of the Code ....
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....e of Embassy Properties (supra) specifically in Para 44. f) Appellant has not taken any steps since 2014 to take into possession and confiscate the Goods under the Customs Act. They have sought to enforce this right after the Order of Liquidation was passed in July 2019, which cannot be permitted since the Appellant has already filed its Claim for the duty payable by the CD. Any payment received by the Appellant from the removal/ sale of the goods of the CD would amount to a preference being given to the Appellant over the other creditors and breach of the waterfall for payment of dues provided under S.53 of the Code. The Appellant will be paid twice - first, by selling the assets of the CD and second, when they receive the amounts in terms of S.53.If this is permitted, the Appellant will receive more than the FC's, whose dues are around 21,000 crores, compared to the dues of the Appellant, which is about 769 crores. g) Hon'ble Supreme Court in Embassy Properties at Para 36 recognises the exception that once the dues of the Government Authority is crystallised, they have to be paid as per the Code. Accordingly, the government dues have been finalised in the present case....
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....tor and further directed the IT authorities to lift the Order of attachment over the goods of the CD. iii) The Appellant does not dispute the CD's ownership of these Goods in various warehouses and CFSs in any manner whatsoever. The Appellant's claims were made before the Respondent on the assumption that the Goods belonged to the CD. Assuming without admitting that any loss of title occurs by deeming fiction under the Customs Act, this deeming fiction cannot be extended to other statutes, such as the I & B Code. A deeming fiction under one statute cannot be extended to other statutes. [Para - 6 State of Maharashtra v Laljit Rajshi Shah (2002) 2 SCC 699)] and (Para - 18, Meghraj Biscuits Industries Ltd. Vs. Commissioner of C. Ex., UP (2007 (210) ELT 161 (SC)]. iv) Even the Customs Act recognises the primacy of the Code. Accordingly, as per S.142A (non-obstante Clause) of the Customs Act, the statutory charge of the Appellant is expressly subordinate and subject to the provisions of the Code (see S.238 of the Code) and cannot be resorted to for the recovery of any of the Appellant's alleged dues against the Corporate Debtor. v) The Appellant has not relied on a sin....
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....e treated as a Government Dues and needs to be dealt with under the waterfall mechanism provided under Section 53 of the Insolvency and Bankruptcy Code, 2016. 7.4 It is essential to mention that the goods lying in the Customs bonded warehouses are not the Corporate Debtor's assets since it never claimed them after importing them. Although the containers were imported between 2012 to 2015, the Corporate Debtor entered the liquidation process on April 25 2019. In this long span of about four years, the Corporate Debtor never cleared the bills of entry for some of the said goods. 7.5 Given the definition of 'imported goods' under Section 1 (25) of the Customs Act, 1962', goods brought into India from a place outside India but do not include goods cleared for home consumption. In the present case, the goods lying in various CFS imported by Corporate Debtors are not cleared for home consumption. The Customs Act 1962 provides a procedure to import goods into India. However, Section 45 states that all imported goods shall remain in the port area unless cleared for import. 7.6 Admittedly, in the instant case, the containers were not cleared after import. Section 46 (3) m....
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....ghts in this regard, and Customs Duty needs to be paid for the release of the goods by the importer. In the circumstances as stated above, the materials lying in the customs bonded warehouses can not be treated as 'Assets of the Corporate Debtor'. Thus, the Liquidator cannot claim goods without payment of Customs dues to settle claims of the secured creditors. Section 142 of the Customs Act deals with the provision to settle the claims of Customs by proceeding against the materials lying uncleared/unclaimed in the warehouses since liabilities under the Customs Act are the first charge under Section 142 A of the Customs Act. 7.11 Before taking a decision, it is also necessary to go through the relevant provisions of Customs Act 1962, which are given below for ready reference; Clearance of Imported Goods 45. Restrictions on custody and removal of imported goods.- (1) Save as otherwise provided in any law for the time being in force, all imported goods unloaded in a customs area shall remain in the custody of such person as may be approved by the Principal Commissioner of Customs or Commissioner of Customs until they are cleared for home consumption or are warehoused or are....
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....rter shall present the bill of entry under sub-section (1) [before the end of the day (including holidays) preceding the day] on which the aircraft or vessel or vehicle carrying the goods arrives at a customs station at which such goods are to be cleared for home consumption or Warehousing: [Provided that the Board may, in such cases as it may deem fit, prescribe different time limits for presentation of the bill of entry, which shall not be later than the end of the day of such arrival: Provided further that] a bill of entry may be presented [at any time not exceeding thirty days prior to] the expected arrival of the aircraft or vessel or vehicle by which the goods have been shipped for importation into India: [Provided also that] where the bill of entry is not presented within the time so specified and the proper officer is satisfied that there was no sufficient cause for such delay, the importer shall pay such charges for late presentation of the bill of entry as may be prescribed.] (4) The importer while presenting a bill of entry shall [* * *] make and subscribe to a declaration as to the truth of the contents of such bill of entry and shall, in support of such declar....
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....vided that the Central Government may, by notification in the Official Gazette, specify the class or classes of importers who shall pay such duty electronically: Provided further that] where the bill of entry is returned for payment of duty before the commencement of the Customs (Amendment) Act, 1991 and the importer has not paid such duty before such commencement, the date of return of such bill of entry to him shall be deemed to be the date of such commencement for the purpose of this section:] [Provided also that] if the Board is satisfied that it is necessary in the public interest so to do, it may, by Order for reasons to be recorded, waive the whole or part of any interest payable under this section.] 48. Procedure in case of goods not cleared, warehoused, or transhipped within [thirty days] 255 after unloading.-If any goods brought into India from a place outside India are not cleared for home consumption or warehoused or transhipped within [thirty days] from the date of the unloading thereof at a customs station or within such further time as the proper officer may allow or if the title to any imported goods is relinquished, such goods may, after Notice to the impo....
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....tion has been made in respect of such goods, relinquish his title to the goods upon payment of 295[* * *] penalties that may be payable in respect of the goods and upon such relinquishment, he shall not be liable to pay duty thereon:] [Provided also that] the owner of any such warehoused goods shall not be allowed to relinquish his title to such goods regarding which an offence appears to have been committed under this Act or any other law for the time being in force.] 71. Goods not to be taken out of warehouse except as provided by this Act.-No warehoused goods shall be taken out of a warehouse except on clearance for home consumption or [export], or for removal to another warehouse, or as otherwise, provided by this Act. 72. Goods improperly removed from warehouse, etc.-(1) In any of the following cases, that is to say,- (a) where any warehoused goods are removed from a warehouse in contravention of Section 71; (b) where any warehoused goods have not been removed from a warehouse at the expiration of the period during which such goods are permitted under Section 61 to remain in a warehouse; (c) [* * *] (d) where any goods in respect of which a bond has been ex....
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....onsumption or warehoused or transhipped. Section 47 of the Customs Act provides that if any goods are entered for home consumption and the importer has paid the import duty, if any assessed thereon and any charges payable in respect of the same, then only the proper officer may make an order permitting clearance of the goods for home consumption. Section 48 of the Customs Act lays down the provision if goods are not cleared, warehoused, or transhipped within 30 days after unloading. It provides that if goods are not cleared for home consumption or warehoused or transhipped within 30 days from the date of unloading thereof at the customs station, or within such other time, as the proper officer may allow, such goods may after notice to the importer and with the permission of the proper officer, be sold by the person having the custody thereof. Finally, section 71 of the Act lays down the restriction that no good shall be taken out of the warehouse except provided under the Act. 7.14 Based on the statutory provisions of the Customs Act, 1962, it is clear that the goods imported for home consumption cannot be removed from the custody of the customs without paying the import duty and ....
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....om or relate to the insolvency of the corporate debtor. The nexus with the insolvency of the corporate debtor must exist. **** 77. Reliance has also been placed on the judgment of this Court in Embassy Property [Embassy Property Developments (P) Ltd. v. State of Karnataka, (2020) 13 SCC 308] , where this Court held that NCLT and NCLAT did not have jurisdiction over a dispute arising under the Mines and Minerals (Development and Regulation) Act, 1957, in relation to the refusal of the State of Karnataka to extend a mining lease. The primary consideration which weighed with this Court while coming to its decision was that NCLT cannot have jurisdiction on matters of public law. This Court held: (SCC p. 331, para 37) "37. Clause (c) of sub-section (5) of Section 60 is very broad in its sweep, in that it speaks about any question of law or fact, arising out of or in relation to insolvency resolution. But a decision taken by the Government or a statutory authority in relation to a matter which is in the realm of public law, cannot, by any stretch of imagination, be brought within the fold of the phrase "arising out of or in relation to the insolvency resolution" appearing in Claus....
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....rmination of PPA in this case because the termination took place solely on the ground of insolvency. The jurisdiction of NCLT under Section 60(5)(c) of IBC cannot be invoked in matters where a termination may take place on grounds unrelated to the insolvency of the corporate debtor. Even more crucially, it cannot even be invoked in the event of a legitimate termination of a contract based on an ipso facto clause like Article 9.2.1(e) herein, if such termination will not have the effect of making certain the death of the corporate debtor. As such, in all future cases, NCLT would have to be wary of setting aside valid contractual terminations which would merely dilute the value of the corporate debtor, and not push it to its corporate death by virtue of it being the corporate debtor's sole contract (as was the case in this matter's unique factual matrix). 177. The terms of our intervention in the present case are limited. Judicial intervention should not create a fertile ground for the revival of the regime under Section 22 of SICA which provided for suspension of wide-ranging contracts. Section 22 of the SICA cannot be brought in through the back door. The basis of our in....
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....or, the existence of his right." 7.20 In the instant case, the Appellant has filed its Claim before the Liquidator in response to the Notice issued by the Liquidator. Given the law laid down by the Hon'ble Supreme Court in the above-mentioned case, it is clear that by submission of Claim in response to the Notice issued by the Liquidator, it can not be presumed that the Appellant had relinquished its right over the property and submitted to the jurisdiction of the Liquidator. The Claim is filed in an effort to realise its dues. Still, it will not amount to relinquishment of its right over the Warehoused goods under its custody for which Appellant has every right to sell those goods for the realisation of the Government dues. 7.21 The learned Counsel for the Respondent further emphasised Section 238 of the Code, which provides that it shall have an overriding effect notwithstanding any law inconsistent with the Code. The Appellant's contention is not sustainable on the ground that Sections 48, 72, 142 and 142 A of the Customs Act is inconsistent with Sections 14 and 33 of the I&B Code. Because it allows the Appellant to initiate recovery proceedings against the Corporate ....