TaxTMI 
TaxTMI 
2021 (11) TMI 796
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....materials lying in the Customs Bonded Warehouses 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. ....
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....be released from the warehouse unless and until the import duties are paid. Reliance is placed on Sections 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 ....
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....orporate Debtor has actively or consciously relinquished title to the goods. [CIT, Bombay v. Rasiklal Manoklal (HUF) and Ors. (1989) 2 SCC 454 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 woul....
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....ry of taxes. [Governor-General in Council v. Shiromani Sugar Mills Ltd. 1946 SCC OnLine FC 5] and [Ludovico Sagrado Govela v. Cirila Rosa Maria Pinto and Ors. (2016) 9 SCC 615)]. d. The Appellant'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) ....
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....'ble Supreme Court has also affirmed the overriding effect of the Code in the cases of CIT v. Monnet Ispat and Energy Ltd. (2018) SCC Online SC 3465, Duncans Industries Ltd. v. A.J. Agrochem (2019) 9 SCC 725, wherein it was held that by 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 pr....
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....e Code. Consequently, the NCLT has the jurisdiction to entertain the Application of the Liquidator under S.60(5), since the right sought to be exercised is over the "property of the CD and the right sought to be enforced is not a "new right" but the "right to be not exercised" as per the case 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 Ap....
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.... not apply to this Appeal. ii) Similarly, the Hon'ble High Court of Andhra Pradesh in the case of Leo Edibles & Fats Ltd. v. The Tax Recovery Officer (Central) Income Tax Department, Hyderabad and Ors. 2018 SSC Online Hyd 193 (Para - 1, 13-19, 24 & 31) directed the Income Tax Authorities to file its Claim with the Liquidator 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. Accord....
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....ore, the Respondent Department cannot legally withhold the releasing of the material/goods, which are the property of the Corporate Debtor Company (in Liquidation) and impose a prerequisite condition for making payment of the customs duty by the Liquidator of the Corporate Debtor Company (under Liquidation) because the claims of the Respondent's Department have to be 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, t....
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.... not have secured the possession of the imported goods except by paying the Customs duty. The Resolution Professional/Liquidator who virtually represents the Company cannot stand better than the Corporate Debtor. 7.10 The Liquidator could take possession of only the Company's assets, which the Company itself could have obtained. The liquidation proceedings do not change the rights 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 Impo....
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....such information, permit him, previous to the entry thereof: (a) to examine the goods in the presence of an officer of customs, or (b) to deposit the goods in a public warehouse appointed under Section 57 without warehousing the same. (2) Save as otherwise permitted by the proper officer, a bill of entry shall include all the goods mentioned in the bill of lading or other receipt given by the carrier to the consignor. [(3) The importer 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: ....
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....in the case of assessment, reassessment or provisional assessment; or (c) in the case of deferred payment under the proviso to sub-section (1), from such due date as may be specified by rules made in this behalf, and if he fails to pay the duty within the time so specified, he shall pay interest on the duty not paid or short-paid till the date of its payment, at such rate, not less than ten per cent but not exceeding thirty-six per cent per annum, as may be fixed by the Central Government, by notification in the Official Gazette.] [Provided 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....
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.... entry for home consumption in respect of such goods has been presented in the prescribed form; [(b) the import duty, interest, fine and penalties payable in respect of such goods have been paid; and] (c) an order for clearance of such goods for home consumption has been made by the proper officer: [Provided that the Order referred to in Clause (c) may also be made electronically through the customs automated system on the basis of risk evaluation through appropriate selection criteria: Provided further that] the owner of any warehoused goods may, at any time before an order for clearance of goods for home consumption 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 a....
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.... sold in Liquidation are to be determined. The Customs Authorities claim to the chemicals in question, in which the Customs Authorities had a statutory right of detention and confiscation, had to be met before the chemicals could be validly sold as assets of the Company in Liquidation. The Claim of the Customs Authorities would, therefore, stand outside proceedings under Sections 529, 529A and 530 of the 1956 Act." 7.13 Further, Section 45 of the Customs Act lays down restrictions on custody and removal of imported goods. It provides that all imported goods unloaded in the customs area shall remain in the custody of such person as the Commissioner of Customs may approve until they are cleared for home consumption 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 unloadin....
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....: to ensure that NCLT alone has jurisdiction when it comes to applications and proceedings by or against a corporate debtor covered by the Code, making it clear that no other forum has jurisdiction to entertain or dispose of such applications or proceedings." Therefore, considering the text of Section 60(5)(c) and the interpretation of similar provisions in other insolvency related statutes, NCLT has jurisdiction to adjudicate disputes, which arise solely from or which relate to the insolvency of the corporate debtor. However, in doing so, we issue a note of caution to NCLT and NCLAT to ensure that they do not usurp the legitimate jurisdiction of other courts, tribunals and fora when the dispute is one which does not arise solely from 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....
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.... Respondent Liquidator has placed reliance on the judgement of the Hon'ble Supreme Court in the case of Gujarat Urja Vikas Nigam Ltd. v. Amit Gupta, (2021) 7 SCC 209: 2021 SCC OnLine SC 194 at page 262, wherein it is held that; "176. Given that the terms used in Section 60(5)(c) are of wide import, as recognised in a consistent line of authority, we hold that NCLT was empowered to restrain the Appellant from terminating PPA. However, our decision is premised upon a recognition of the centrality of PPA in the present case to the success of CIRP, in the factual matrix of this case, since it is the sole contract for the sale of electricity which was entered into by the corporate debtor. In doing so, we reiterate that NCLT would have been empowered to set aside the termination 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 clau....
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....otation. In P. Ramanatha Aiyar's Advanced Law Lexicon at p. 4047, it is stated: "Relinquish.-To give over possession or control of; to leave off." It envisages a conscious act i.e. an act where a person was aware of his right and then relinquishes the same. The same must be for the general benefit of the creditors. His action must lead to a conclusion that he, for one reason or the other, intended to stand in the queue for receiving money owed to him. It, however, does not stand obliterated only by the filing of an affidavit or proof of Claim with the Official Liquidator. Such a claim had been filed pursuant to a notice issued by the Official Liquidator. If the creditor does not respond to the said Notice, he would not be in a position to bring to the Notice of the Official Liquidator, 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 Appel....