Chatroom: 'After imposition of moratorium, IBC prevails over Customs laws'

After initiation of CIRP, the liquidator can secure the imported goods from the Customs to be dealt with appropriately in terms of the IBC

We had imported certain goods and stored them in the bonded warehouse. Before we could clear them our company got into financial difficulty and went into proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC). Orders were passed initially under Section 13(1)(a) and later under Section 33(5) of the IBC, barring the institution of legal proceedings by or against us and appointing a liquidator/Independent Resolution Professional. After initiation of this Corporate Insolvency Resolution Process, the Customs have issued demand notices in respect of the goods lying in the bonded warehouse, seeking enforcement of customs dues by way of confiscation and sale of goods in the bonded warehouse. Can the Customs do that? What is the correct position?

On similar facts, the liquidator had contested the matter and the Supreme Court, in the case of Sundresh Bhatt vs CBI&C [2022 (381) ELT 731 (SC)], held that the IBC will prevail over the Customs Act, 1962, to the extent that once a moratorium is imposed in terms of Section 13(1)(a) or 33(5) of IBC, the Customs authority cannot get title to the goods and has limited jurisdiction to only assess/determine duty and other liabilities, but cannot initiate recovery by means of sale/confiscation, as provided under the Customs Act, 1962. After such assessment, the Customs must submit its claims in accordance with the procedure and within the time limit prescribed under IBC. The liquidator can secure the goods from the Customs to be dealt with appropriately in terms of the IBC, the Court held.

We have an EOU in Gujarat. Due to paucity of space, we wish to transfer our finished goods (manufactured in the EOU) to a custom bonded warehouse, as currently we do not have export orders for the same. Is it allowed?

The first proviso to Para 3 of the notification 52/2003-Cus dated March 31, 2003 (relevant extracts), says that in case finished goods (including byproducts, rejects, waste and scrap) are cleared to the warehouse authorised to carry out manufacturing process or other operation under Section 65 of the Customs Act, 1962, and under the Manufacture and Other Operations in Warehouse Regulations (MOOWR), the exemption in respect of goods imported or procured under this notification would continue to be available.

Therefore, you can transfer your finished goods without reversal of duty on the inputs to a unit functioning under MOOWR. However, if the warehouse is not under MOOWR and you want to use the bonded warehouse only for storage and export, this proviso will not help. It is better you examine the option of moving the goods to an export warehouse set up in accordance with Para 2.51 of the FTP or just ask for permission of your jurisdictional Customs authorities to store the goods in a warehouse outside your unit.

If we get the name of our supporting manufacturer added in our advance authorisation, can the supporting manufacturer import under the authorisation as co-licensee?

Yes, in accordance with Para 4.35 of HBP.

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