IBC would Prevail Over the Customs Act Once The Moratorium Is Executed: Supreme Court

The Insolvency and Bankruptcy Code (IBC) regulations would supersede over the Customs Act once a moratorium is executed, the Supreme Court said in Sundaresh Bhatt v. CBITC. The Central Board of Indirect Taxes and Customs (CBIC) would have limited jurisdiction to determine customs, and they could not initiate the recovery of dues in such circumstances, according to the Bench of Chief Justice NV Ramana, Justices JK Maheshwari, and Hima Kohli.

According to the NCLAT order that is currently being challenged, the liquidator's desire to take possession of items that are in customs warehouses but have not yet been paid for in full violates the Customs Act's provisions. In admitting the appeals of an order by the National Company Law Tribunal in Ahmedabad, the NCLAT had come to the conclusion that the assets located in the Customs bonded warehouses could not be regarded as belonging to the corporate debtor. After considering Section 238 of the IBC, the NCLT determined that the non-obstante provision had precedence over proceedings under the Customs Act.

Senior Advocate Arvind Datar, who was representing the appellant-liquidator, claimed that the respondent had decided to subject their dues under the IBC by making the claims under section 38 of the IBC. It was further contended that the said goods still belonged to the corporate debtor.

Furthermore, it was claimed that the respondents were unable to assert their rights under the Customs Act because the relevant statutory charge in question is expressly subordinate to the IBC. The goods in question, were never claimed after being imported, according to ASG KM Nataraj, who appeared on behalf of the respondents, and they were abandoned without paying due import prices.

The Bench finally held that “The IBC would prevail over The Customs Act, to the extent that once moratorium is imposed in terms of Sections 14 or 33(5) of the IBC as the case may be, the respondent authority only has 35 a limited jurisdiction to assess/determine the quantum of customs duty and other levies. The respondent authority does not have the power to initiate recovery of dues by means of sale/confiscation, as provided under the Customs Act.”