TaxTMI 
TaxTMI 
2022 (8) TMI 1161
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....ebtor") was in the business of shipbuilding prior to the initiation of corporate insolvency proceedings against it. As a part of its business enterprise, it used to regularly import various materials for the purpose of constructing ships which were to be exported on completion. Some of these goods were stored by the Corporate Debtor in Custom Bonded Warehouses in Gujarat and Container Freight Stations in Maharashtra. Bills of entry for warehousing were submitted at the relevant time. The Corporate Debtor also took the benefit of an Export Promotion Capital Goods Scheme ("EPCG Scheme") and was granted a license under the said scheme ("EPCG License") with respect to the said warehoused goods. 3 On 01.08.2017, the National Company Law Tribunal, Ahmedabad ("NCLT") passed an order commencing the Corporate Insolvency Resolution Process ("CIRP") against the Corporate Debtor, and the appellant was appointed as the Interim Resolution Professional. In the same order, the NCLT also declared a moratorium under Section 13(1)(a) of the IBC. 4 On 21.08.2017, the appellant informed the respondent of the initiation of CIRP and sought custody of the warehoused goods and requested the responden....
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....g to the Corporate Debtor on 01.07.2019. 8 At this juncture, for the first time on 11.07.2019, the respondent issued a notice to the Corporate Debtor under Section 72(1) of the Customs Act for custom dues amounting to Rs. 763,12,72,645/on 2531 Bills of entries. The respondent filed a concurrent claim for the said amount before the appellant under the IBC. Details of the amount claimed by the respondent before the appellant are as follows: S. NO. DATE DETAILS OF CLAIMS FILED BY RESPONDENT BEFORE APPELLANT UNDER FORM C CLAIMED AMOUNT (PLUS INTEREST AS APPLICABLE) 1. 20.05.2019 Nonfulfilment of obligations under 11 EPCG Licenses Rs. 37,92,29,749 2. 27.05.2019 Nonfulfilment of obligations under 37 EPCG Licenses Rs. 151,33,06,859 3. 29.05.2019 Non clearing of imported goods from Jawaharlal Nehru Port Trust, Nhava Sheva, Maharashtra Rs. 22,70,50,898 4. 18.09.2019 Dues for all cargo in custom bounded warehouses in Gujarat Rs. 763,12,72,645 9 On 25.02.2020, the NCLT allowed I.A. No. 474 of 2019 filed by the appellant and passed the following directions: "14) Therefore, the present IA deserves to be allowed. Accordin....
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....llant sold the goods warehoused in Surat for a consideration of Rs. 169.11 crores. The sales process with respect to the goods warehoused in Dahej, Gujarat is currently ongoing, and is challenged before this Court in C.A. No. 7722 of 2021 and C.A. No. 7731 of 2021. 12 On 04.03.2021, the respondent filed an appeal before NCLAT challenging the order dated 25.02.2020 passed by the NCLT. On 22.11.2021, the NCLAT passed the impugned order, whereby it allowed the appeal filed by the respondent and set aside the directions of the NCLT requiring the respondent to release the warehoused goods to the possession of the appellant without seeking the custom dues. The NCLAT rather directed that the warehoused goods can be "released or disposed of as per Applicable Provisions of Customs Act by the Proper Officer". 13 The NCLAT, in allowing the appeal of the respondent, held that the goods lying in the customs bonded warehouse were not the Corporate Debtor's assets as they were neither claimed by the Corporate Debtor after their import, nor were the bills of entry cleared for some of the said goods. By not filing the said bills of entry, the NCLAT held that the importer, i.e., the Corporate ....
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....to warehoused goods. Thus, the notice issued by the respondent under Section 72 of the Customs Act and the consequent Form C does not in any manner attract Section 48 of the Customs Act. ii. The Corporate Debtor has not lost ownership of the goods as alleged by the respondent. The respondent, by issuing notice under Section 72 of the Customs Act and filing its claim with the liquidator, has admitted that the Corporate Debtor is the owner. Neither Sections 72 nor 48 of the Customs Act signifies any transfer to the respondent. The Corporate Debtor has also never relinquished title to the goods and no communication regarding the same has been made to the respondent. iii. By submitting claims under Section 38 of the IBC, the respondent has elected to subject its dues to be governed by IBC, and more specifically, to the distribution matrix provided Section 53 of the IBC. The claims made by the respondent before the appellant are based solely on the Corporate Debtor's ownership of the goods. The respondent cannot blow hot and cold at the same time by again claiming before this Court that the Corporate Debtor has lost ownership of the said goods. iv. The respond....
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....se except as provided under by the Customs Act. Hence, the goods cannot be removed without payment of import duties and charges. iv. The Corporate Debtor has abandoned the imported goods for several years, refused to pay the import duties and other charges, and has not taken any effort to take possession of the goods for several years. Consequently, the Corporate Debtor has lost its right to the warehoused goods, and hence under Section 72 of the Customs Act, the government authorities are fully authorized to recover the dues. In such a circumstance, where the Corporate Debtor's title to the goods has been deemed to have been relinquished, the liquidator does not have the authority to take possession of them. v. Customs duty is an incidence or consequence of import. Even before the CIRP was initiated, the Corporate Debtor could not have secured the possession of the warehoused goods without paying the due charges. Hence, the liquidator, who is representing the Corporate Debtor, cannot stand on a better footing than the Corporate Debtor itself. vi. It is further submitted that merely because the respondent had filed its claim before the liquidator, it cann....
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....t to take into possession over those goods for which the Corporate Debtor's title is deemed relinquished by implication of law. Even before initiating the Corporate Insolvency Resolution Process, the Corporate Debtor Company could 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 on a better footing than the Corporate Debtor itself. ... 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 abovementioned 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 goods. ....
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....d so as to warehouse the said goods. Accordingly, an importer has to submit a bill of entry either for home consumption or for warehousing in terms of Section 46 of the Customs Act, in the prescribed format. 26 When a person chooses to warehouse the goods, he ought to execute a bond in terms of Section 59 of the Customs Act. Such warehoused goods can subsequently be either cleared for home consumption or can be exported. 27 Section 61 of the Customs Act mandates the time period allowed for warehousing. For example, in the case of capital goods intended for a 100% exportoriented undertaking, warehousing is permitted till such goods are cleared from the warehouse. In case of goods not intended for such exportoriented purpose, a time period of one year is prescribed in terms of Section 61(1)(c) of the Customs Act. The provision also provides for an extension which could be granted by the appropriate authority, for a period of not more than one year. Under Section 61(2) of the Customs Act, provision is made to charge interest on those goods which are warehoused beyond the period granted. 28 Section 71 of the Customs Act provides that no warehoused goods shall be taken out of t....
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....ing to the contrary contained in any Central Act or State Act, any amount of duty, penalty, interest or any other sum payable by an assessee or any other person under this Act, shall, save as otherwise provided in section 529A of the Companies Act, 1956 (1 of 1956), the Recovery of Debts Due to Banks and the Financial Institutions Act, 1993 (51 of 1993), and the Securitisation and Reconstruction of Financial Assets and the Enforcement of Security Interest Act, 2002 (54 of 2002) and the Insolvency and Bankruptcy Code, 2016 (31 of 2016) be the first charge on the property of the assessee or the person, as the case may be.. 31 In the present case, the Corporate Debtor as part of its business used to regularly import and warehoused goods in the custom bonded warehouses from at least 2011. As has already been mentioned above, the CIRP process commenced against the Corporate Debtor on 01.08.2017 by the order of the NCLT. It appears from the record that no notices were issued by the respondent against the Corporate Debtor with respect to the warehoused goods prior to initiation of the CIRP. In fact, all the duty demand notices issued by the respondent were from March 2019 onwards. It i....
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....s for revival of the Corporate Debtor and decide on future course of action. During this period, a moratorium is imposed to ensure no coercive proceedings are launched or continued against the Corporate Debtor in any other forum or under any other law, until approval of the resolution plan or initiation of the liquidation process. (iii) The NCLT first appoints an interim insolvency professional. The interim insolvency professional is to hold office until a resolution professional is appointed. He further takes control of the Corporate Debtor's operations and collects its financial information from information utilities. The NCLT must also ensure public announcement of the initiation of corporate insolvency process and call for submission of claims. (iv) The Corporate insolvency process must normally be completed within 180 days of admission of the application by the NCLT. The Committee of Creditors has to then take decisions regarding insolvency resolution as provided by law. 35 In this context, we may note that when the insolvency process commences, the adjudicating authority is mandated to declare a moratorium on continuation or initiation of any coercive leg....
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...., suspended or interrupted during the period of moratorium, except where such corporate debtor has not paid dues arising from such supply during the moratorium period or in such circumstances as may be specified. (3) The provisions of subsection (1) shall not apply to - (a) such transactions, agreements or other arrangements as may be notified by the Central Government in consultation with any financial sector regulator or any other authority; (b) a surety in a contract of guarantee to a corporate debtor. (4) The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process: Provided that where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under subsection (1) of section 31 or passes an order for liquidation of corporate debtor under section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be. 36 Section 14 of the IBC prescribes a moratorium on the initiation of CIRP proceedings and its effects. One of the purposes of the mora....
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....y the liquidator, on behalf of the corporate debtor, with the prior approval of the Adjudicating Authority. 38 We may note that the IBC, being the more recent statute, clearly overrides the Customs Act. This is clearly made out by a reading of Section 142A of the Customs Act. The aforesaid provision notes that the Custom Authorities would have first charge on the assets of an assessee under the Customs Act, except with respect to cases under Section 529A of 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. Accordingly, such an exception created under the Customs Act is duly acknowledged under Section 238 of the IBC as well. Additionally, we may note that Section 238 of the IBC clearly overrides any provision of law which is inconsistent with the IBC. Section 238 of IBC provides as under: 238. Provisions of this Code to override other lawsThe provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having....
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....he demand notices are an initiation of legal proceedings against the Corporate Debtor. However, the above analysis would not be complete unless this Court examines the extent of powers which the respondent authority can exercise during the moratorium period under the IBC. 43 In the above context, the judgment of this Court in S.V. Kondaskar v. V.M. Deshpande, AIR 1972 SC 878, is extremely relevant. In that case, this Court, while expounding the interplay of Section 446 of the Companies Act 1956 (bankruptcy provision) with the Income Tax Act,1961, held as follows: "7. ...Looking at the legislative history and the scheme of the Indian Companies Act, particularly the language of Section 446, read as a whole, it appears to us that the expression "other legal proceeding" in subsection (1) and the expression "legal proceeding" in subsection (2) convey the same sense and the proceedings in both the subsections must be such as can appropriately be dealt with by the winding up court. The Income Tax Act is, in our opinion, a complete code and it is particularly so with respect to the assessment and reassessment of income tax with which alone we are concerned in the present case. ....
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....g wound up. The liquidation court would have full power to scrutinise the claim of the revenue after income tax has been determined and its payment demanded from the liquidator. It would be open to the liquidation court then to decide how far under the law the amount of income tax determined by the Department should be accepted as a lawful liability on the funds of the company in liquidation. At that stage the winding up court can fully safeguard the interests of the company and its creditors under the Act. Incidentally, it may be pointed out that at the Bar no English decision was brought to our notice under which the assessment proceedings were held to be controlled by the winding up court. On the view that we have taken, the decisions in the case of Seth Spinning Mills Ltd., (In Liquidation) (1962) 46 ITR 193 (Punj) (Supra) and the Mysore Spun Silk Mills Ltd., (In Liquidation) (1968) 68 ITR 295 (Mys) (supra) do not seem to lay down the correct rule of law that the Income Tax Officers must obtain leave of the winding up court for commencing or continuing assessment or reassessment proceedings." 44 Therefore, this Court held that the authorities can only take steps to determine....
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....ourt in Gujrat Urja Vikas Nigam Case (supra) and held as follows: "7.16 Thus, it is clear that NCLT and NCLAT cannot usurp the legitimate jurisdiction of other Courts, Tribunals and fora when the dispute does not arise solely from or relating to the insolvency of the corporate debtor. In the instant case, the Corporate Debtor had abandoned the imported goods in the Customs warehouses for several years and failed to pay the import duty and other charges and had not taken any steps to take possession of those goods for several years. Therefore, the importer had lost his right to the imported goods. Consequently, Customs Authorities are fully empowered under Section 72 of the Act to sell those goods to recover the Government dues. Liquidator has no right to take into possession over those goods for which the Corporate Debtors title is deemed relinquished by implication of law. Even before initiating the Corporate Insolvency Resolution Process, the Corporate Debtor company could not have secured the possession of the imported goods except by paying the Customs duty. Resolution Professional/liquidator, who virtually represents the company, cannot stand on a better footing than ....