IBC overrides Customs Act, in case of any conflict between the two, rules SC

Case Details: Sundaresh Bhatt, Liquidator of ABG Shipyard v. Central Board of Indirect Taxes and Customs - [2022] 141 taxmann.com 471 (SC)

Judiciary and Counsel Details

• • N.V. Ramana, CJI, J.K. Maheshwari & Hima Kohli, JJ.

Facts of the Case

The appellant was appointed as the Interim Resolution Professional and liquidator of a corporate debtor who was in the business of shipbuilding prior to the initiation of corporate insolvency proceedings against it. The corporate debtor imported various materials for the purpose of constructing ships and some of these goods were stored in Custom Bonded Warehouses. The appellant was granted custody of those warehoused goods by National Company Law Tribunal but CBIC filed appeal before National Company Law Appellate Tribunal (NCLAT).

NCLAT Held

The NCLAT held that the Corporate Debtor had abandoned the goods much before the insolvency process was initiated, and thereby the title of the goods had passed to the Customs Authority. The appellant filed civil appeal before the Supreme Court against grant of custody of warehoused goods to Customs Authority. The moot question before the Apex Court was that whether IBC overrides the Customs Act or vice versa.

The Honorable Supreme Court noted that 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 and NCLAT clearly failed to consider that in case of any conflict, the IBC overrides the Customs Act. Once, moratorium is imposed in terms of Sections 14 or 33(5) of the IBC, the Customs Authority does not have the power to initiate recovery of dues by means of sale/confiscation, as provided under the Customs Act.

Therefore, it was held that the Customs Department could not 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.