A 3-Judge Bench of the Supreme Court in its judgment dated 26 August 2022 has held that the provisions of the Insolvency and Bankruptcy Code, 2016 will prevail over the provisions of the Customs Act, 1962.
The Court said that once a moratorium is imposed in terms of Section 14 or 33(5) of the IBC, the Customs authorities do not have the power to initiate the recovery of dues by means of sale/confiscation, as provided under the Customs Act. It was of the view that demand notices to seek enforcement of customs dues during the moratorium period would violate the said provisions of the IBC.
The Court was of the view that Customs authority only has limited jurisdiction to assess/determine the quantum of customs duty and other levies, and after such assessment, it has to submit its claims (concerning customs dues/operational debt) in strict compliance with the time periods prescribed under the IBC, before the adjudicating authority.
In the present case - Sundaresh Bhatt v. Central Board of Indirect Taxes & Customs, the Court was of the view that issuing a notice under Section 72 of the Customs Act, for non-payment of customs duty, falls within the ambit of initiating legal proceedings against a Corporate Debtor. The Apex Court in this regard also noted that there was no abandonment of goods by the Corporate debtor/appellant.
Accordingly, allowing the appeal challenging the order of NCLAT, the Apex Court said that the liquidator can immediately secure goods from the Customs authority to be dealt with appropriately in terms of the IBC.
In the case, the containers were imported between 2012 to 2015, the CIRP was initiated in 2017 and the Corporate Debtor went into liquidation in 2019. The notice under Section 72 of the Customs Act, 1962 was issued for the first time in 2019 only.