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Tax & Customs LawSupreme Court of India

Sundaresh Bhatt, Liquidator of ABG Shipyard vs Central Board of Indirect Taxes and Customs

Civil AppealDecided 26 Aug 2022
Civil Appeal No. 7667 of 2021
N.V. Ramana · J.K. Maheshwari · Hima Kohli

Background

ABG Shipyard, a shipbuilding company, had imported goods that were lying in Customs Bonded Warehouses when insolvency proceedings began against it in 2017 and it later went into liquidation in 2019. The liquidator asked the Customs Department to release the warehoused goods without payment of customs duty, arguing the IBC's moratorium and asset-distribution scheme override the Customs Act. Instead, the Customs Department issued demand notices and claimed a right under the Customs Act to sell the goods to recover unpaid duties. The NCLT sided with the liquidator, but the NCLAT reversed this, holding the company had abandoned the goods and lost title to Customs, which could sell them independently of the IBC process.

Decision Breakdown

The Supreme Court held that once a moratorium is imposed under Sections 14 or 33(5) of the IBC, the Customs Authority retains only a limited power, to assess and determine the amount of customs duty and other levies owed, but loses the power to initiate recovery through sale or confiscation of the goods; that power must give way to the IBC's insolvency process. After assessing its dues, Customs must lodge its claim with the liquidator in the manner and time frames prescribed under the IBC, like any other creditor, rather than acting unilaterally. The Court also held that the liquidator is entitled to take custody of the warehoused goods so they can be dealt with under the IBC's structured framework, and that the NCLAT was wrong to hold that the company had lost title to the goods before the moratorium began. The appeal was allowed and the NCLAT's order was set aside.

Lesson Learnt

When a company goes into insolvency or liquidation, government departments, including Customs, cannot bypass the IBC's collective process to seize or sell company assets on their own; they must quantify their dues and stand in line as creditors through the liquidator, under the priority scheme set by the IBC.

Sundaresh Bhatt, Liquidator of ABG Shipyard vs Central Board of Indirect Taxes and Customs – Legal Case Shots | LegalAware