Madras High Court
Czarnikow Group Limited vs Commissioner Of Customs ... on 26 June, 2023
WP.No.29614 of 2022
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Dated: 26.06.2023
CORAM
THE HONOURABLE DR. JUSTICE ANITA SUMANTH
WP.No.29614 of 2022 and
WMP.No.28992 of 2022
Czarnikow Group Limited
A company incorporated under the
Laws of United Kingdom
Paternoster House, 65, St. Paul’s Churchyard,
London EC4M 8AB, United Kingdom ... Petitioner
Vs
1.Commissioner of Customs (Preventive),
No.1, Williams Road, Cantonment,
Tiruchirapalli-620 001
2.Ramakrishnan Sadasivan,
Chairman of Monitoring Committee of
M/s.Thiru Arroran Sugars Limited,
Old No.22, New No.28, Menod Street,
Purasawalkam, Chennai-600 007.
[email protected]
(R2 cause title amended vide order dated 8.11.2022 made
in memo dated 8.11.2022 (USR.36777/2022) in
WP.29614/2022 by this Court)
3.M/s.KALS Distilleries Private Limited,
Having its registered office at No.23/5, Thanikachalam Road,
T.Nagar, Chennai 600 017, [email protected],
[email protected], [email protected]. ... Respondents
(R3 impleaded vide order dated 21.02.2023 made in
WMP.3774/2023 in WP.29614/2022)
https://www.mhc.tn.gov.in/judis
Page 1 of 53
WP.No.29614 of 2022
PRAYER: Writ Petition filed under Article 226 of the Constitution of
India praying to issue a Writ of Certiorarified Mandamus, to call for the
records of the 1st Respondent in C.No.VIII/10/146/2019-Cus Adjn.
Which has culminated in the order-in-original vide Order no.04 of 2022
dated 30.08.2022, quash the same and direct the re-export of the goods
(sugar) weighing at 11,899.21 metri tonnes (approx.) which was
imported by the 2nd Respondent.
For Petitioner : Mr.J.Sivanandaraj
For Mr.S.Kaushik Ramaswamy
For Respondents : Mr.S.R.Sundar (for R1)
Senior Standing Counsel
Mr.Mohammed Umal (for R2)
for Mr.B.Dhanaraj
Mr.R.Vidhya Shankar (for R3)
ORDER
The petitioner is an importer of Raw Sugar (‘goods’/‘goods in
question’) and is a company incorporated under the laws of England.
Exports had been made to R2 under warehousing bills of entry as R2 had
been unable to pay for the goods or establish a letter of credit. The goods
were thus being retained in a bonded warehouse under the control and
possession of an agent appointed by the petitioner, and continue to be so
retained.
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
2. Contracts had been entered into qua the petitioner and R2 dated
26.10.2016 with addendums on various dates between 05.01.2017 and
05.02.2018 for a total import quantity of 27,169 MT. Out of the aforesaid
quantity 12,497.802 MT has been paid for and release secured by R2
from the petitioner. Out of the remaining, which is 14,671.698 metric
tonnes, R2 had applied for a licence under the Advance Authorization
Scheme (in short ‘AA scheme’), and was granted licence dated
17.07.2017.
3. In the meanwhile, an application had been filed by a creditor
before the National Company Law Tribunal (NCLT) and by order dated
07.06.2019, Corporate Insolvency Resolution Process (CIRP) was
initiated as against R2. A resolution professional was appointed and an
order of liquidation has been passed on 02.05.2022, liquidating R2 and
sanctioning the scheme proposed by R3 (in short ‘R3 or ‘scheme
proponent’).
4. As petitioner claims title to the goods, representations came to
be filed before the Customs Department/in short hereinafter ‘R1’ seeking
re-export of the goods. Since the representations were not been disposed
in a timely fashion, WP.No.14441 of 2000 came to be filed seeking
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
directions from this Court to permit re-export of sugar. The prayer was
limited to 11,899.21 metric tonnes as the difference of 2542.5 metric
tonnes relates to a different importer and is stated to be the subject matter
of different proceedings before the NCLT as well as before the Division
Bench of this Court.
5. W.P.No.11441 of 2000 was decided on 09.07.2021. Inter alia,
this Court had noted, applying the judgment of the Hon’ble Supreme
Court in the case of Union of India v. Sampat Raj Dugar1 that the
petitioner, as an unpaid exporter held title over the goods. The
validity/consequence of the advance licence obtained by R2 in regard to
the goods imported, was unavailable to this Court.
6. Hence, R1 was, in conclusion, directed to dispose the
representations seeking re-export within four weeks from date of that
order bearing in mind that the goods were perishable. It was made clear
that the re-export would be ordered upon payment of applicable charges.
7. At the outset, it is an admitted position that there has been a
violation of the time frame fixed under order dated 09.07.2021. What R1
has done is to pursue the show cause notice issued on 30.01.2020 to R2
1. (56) ELT 739
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
and pass an order on 30.08.2022 addressing therein, the representation of
the petitioner as well.
8. However, much water has flowed under the bridge post issuance
of show cause notice dated 30.01.2020 as the noticee, R2, has, in the
meantime been liquidated by an order of the NCLT and the company has
been taken over by R3. It is for this reason that there has been no
response by R2 to the notice issued by R1 prior to the order passed on
30.08.2022.
9. Noting that there was no response from R2, the impugned
proceedings culminate in an order (i) confirming confiscation of the
goods, (ii) denying the benefit of customs duty exemption availed under
Advance Authorisation Scheme, (iii) confirming the demand of customs
duty to an extent of 30,68,86,724 and (iv) imposing penalty of Rs.3
crores.
10. The representation of the petitioner was taken up, albeit in an
indirect sense, and the petitioner heard. The prayer of the petitioner was
for re-export and this prayer was rejected, R1 stating at paragraph 8.3(e)
that ‘their plea cannot be entertain since M/s.Czarnikow is not a party to
dispute adjudged by this office’.
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
11. The officer has lost sight of the specific direction of the Court
to dispose their representation seeking re-export which ought to have
been done on the strength of their plea in their representation. On the
question of re-export at clause (e) of the operative portion of the order,
the officer permits the noticee, that is, R2, to redeem the confiscated
goods on payment of redemption fine as a pre-condition to re-export.
Thus, and in effect re-export has been permitted on payment of duty and
penalty, denying the benefit of Advance Authorisation Scheme.
12. Through all this and even prior to 09.07.2021, being the date
of order in W.P.No.11441 of 2020, R1 was clearly aware of the
proceedings before the NCLT as against R2. The defence of the
resolution professional/liquidator, who appears on behalf of R2 in the
present proceedings, is that R1 was well aware that R2 was before the
NCLT, despite which, no claim was filed before the NCLT. It was
liquidated as early as on 02.05.2022 and hence the impugned order is
wholly unsustainable in law.
13. R1, in paragraph 40 in the counter to the present writ petition
has sought to extend the coverage of the impugned order to R3 as well.
R3 was impleaded on 21.02.2023, and had, prior thereto, filed a writ
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
petition in W.P.No.11441 of 2020, on 20.08.2020 seeking a certiorari to
call for and quash order dated 30.08.2022. The main arguments raised
are that (i) R3 has come into the picture only on sanction of the scheme
on 02.05.2022 (ii) It is not a party to the import transaction (iii) it was
not in receipt of show cause notice or any other notice from R1 (iv) R3 is
not a party to order dated 30.08.2022.
14. That writ petition was dismissed on 24.04.2023 with liberty to
file a statutory appeal. Evidently the challenge to order dated 30.08.2022
by R3 was only by way of abundant caution and closure of the writ
petition relegating R3 to appeal cannot create any liability, if there is no
liability created by operation of statute or law. This Court is of the
considered view that R3 stands outside the purview of any liability under
order dated 30.08.2022 and the attempt of R1, albeit by way of counter,
to draw R3 into the storm of controversy, is wholly misconceived.
15. The specific submission of the petitioner is that the directions
in order dated 09.07.2021 have not been adhered to scrupulously.
Admittedly, there is unexplained delay in complying with the direction in
order of this Court and R1 has not bothered in counter to address or
explain the specific ground raised relating to delay. However, in
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
conclusion, the request for re-export has been accepted, though on terms
of payment of customs duty and penalty denying the benefit of the
Advance Authorisation Scheme.
16. The petitioner argues that it cannot be mulcted with any
liability as it is an unpaid importer/seller and the goods have not been
cleared by customs. The goods are in a bonded warehouse and the
petitioner, through agent, is admittedly, in possession of the same. The
question of levy of duty and penalty does not arise in these
circumstances. It relies upon the judgment in the case of Sampat Raj
Dugar (supra) applied by this Court in order dated 09.07.2021 in the
following terms:
10. Both learned counsel in this regard have referred to the
decision in the case of Union of India V. Sampat Raj Dugar
((1991) 56 ELT 739 (Bombay High Court) and ((1992) 2
Supreme Court Cases 66)) (Supreme Court).
11. Before the Bombay High Court, the Union had filed an
appeal challenging an order of the learned single Judge
confirming the order of the Collector confiscating certain
consignments imported upon arrival. The consignments in
that case were abandoned by the importer, whereas in this
case, the importers have eschewed the same, admitting that
they hold no title to the consignments and also for the reason
that they are themselves before the NCLT undergoing
Corporate Insolvency Resolution process.
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
12. The conclusions of the Bombay High Court at paragraph
11 are to the following effect:
11. We have gone through the impugned Order. We
concur with the findings and conclusion of the
learned Judges when it is held that the title in the
said goods had not passed to the 2nd respondent.
In view of the fact that the title in the said goods
had not passed to the 2nd respondent, the question
of confiscation of the said goods which were
exported by the 1st respondent, a foreign party did
not arise. The title in the said goods had remained
with the foreign exporter and the foreign exporter
was entitled to have the said goods re-exported on
payment of requisite duty for exportation thereof.
The importation of the said goods was made
against Advance Licence which was validly
subsisting at the time when the said goods arrived
at the Port of Bombay. Merely because the said
licence was subsequently cancelled for lapses on
the part of the 2nd respondent, it cannot be said
that the importation of the said four consignments
was without a valid and subsisting licence.
In the circumstances, provisions of Section 111 (d)
of the said Act under which the order was passed
by the 2nd appellant confiscating the said goods
were not attracted and the said order was rightly
quashed by the learned Judge in the said writ
petition. The re-export of the goods covered by the
said four consignments has to be permitted subject,
however, to payment or requisite export duty
payable in respect thereof. The 1st respondent is
entitled to detention certificate in respect of the
goods covered by the said four consignments for
the period the said goods were wrongfully detained
rendering the 1st respondent liable to pay
demurrage to Bombay Port Trust.
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
13. While dismissing the appeal filed by the Union of India
and confirming the order of the learned single Judge, the
Bench permits re-export subject to payment by the first
respondent of requisite export duty. Consequently, the
appellant, being the Customs Department was directed to
issue a detention certificate in respect of the goods covered by
the consignments in question. The first respondent in that
case, the importer, was held liable to pay demurrage to the
Bombay Port Trust.
14. The Union of India carried the matter in appeal before the
Supreme Court and at paragraph 19, the issues that arose
have been decided as follows:
19. We may first consider the question of title to the
said goods. If we keep aside the provisions of law
relied upon by the appellants viz., definition of
`importer' in Section 2(26) of the Customs Act,
Clause 5(3) (ii) of the Imports (Control) Order as
well as para 26 (iv) of the Import-Export Policy, the
position is quite simple. Since the second respondent
did not pay for and received the documents of the
title she did not become the owner of the said goods,
which means that the first respondent continued to
be the owner. How do the aforesaid provisions make
any difference to this position? The definition of
`importer' in Section 2(26) of the Customs Act is not
really relevant to the question of title. It only defines
the expression `importer'. The first respondent does
not claim to be the importer. The provision upon
which strong reliance is placed by the appellants in
this behalf is the one contained in Clause 5(3) (ii) of
the Imports (Control)Order. Sub-clause (I) of Clause
5 specifies conditions which can be attached to an
import licence at the time of its grant. Sub-clause (2)
says that a licence granted under the Order shall be
subject to the conditions specified in Fifth Schedule
to the Order. Subclause (3) sets out three other
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
conditions mentioned as (i), (ii), and (iii) which shall
attach to every import licence granted under the
Order. First of these conditions says that the import
licence shall be non-transferable except under the
written permission of the Licensing Authority or
other Competent Authority. Condition (ii)-which is
provision relevant herein-says that the goods for the
import of which a licence is granted "shall be the
property of the licensee at the time of import and
thereafter upto the time of clearance through
customs." This condition, however, does not apply to
STC, MMTC and other similar institutions entrusted
with canalisation of imports. It also does not apply
to certain eligible export houses, trading houses and
public sector agencies mentioned in the second
proviso. Condition (iii) says that the goods for which
the import licence is granted shall be new goods
unless otherwise mentioned in the licence. Now
coming back to Condition (ii), the question is what
does it mean and what is the object underlying it
when it says that the imported goods shall be the
property of the licensee from the time of import till
they are cleared through customs. It is necessary to
notice the language of the sub-clause. It says "it
shall be deemed to be a condition of every such
licence that-the goods for the import of which a
licence is granted shall be the property of the
licensee at the time of import and thereafter upto the
time of clearance through Customs." The Rule-
making authority (Central Government), which
issued the order, must be presumed to be aware of
the fact that in many cases, the importer is not the
owner of the goods imported at the time of their
import and that he becomes their owner only at a
later stage, i.e., when he pays for and obtains the
relevant documents. Why did not Central Govt. yet
declare that such goods shall be the property of the
licensee from the time of import? For appreciating
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
this, one has to ascertain the object underlying the
said provision. The interpretation to be placed upon
the provision should be consistent with and should
be designed to achieve such object. In this context, it
should also be remembered that expressions like
`Property of' and `Vest' do not have a single
universal meaning. Their content varies with the
context. The aphorism that a word is not a crystal
and that it takes its colour from the context is no less
true in the case of these words. In our opinion the
object underlying condition (ii) in Clause 5(3) is to
ensure a proper implementation of the Imports
(control) Order and the Imports and Exports
(Control) Act, 1947. The idea is to hold the licensee
responsible for anything and everything that
happens from the time of import till they are cleared
through Custom. The exporter is outside the country,
while the importer, i.e. the licensee is in India. It is
at the instance of the licensee that the goods are
imported into this country. Whether or not he is the
owner of such goods in law, the Imports (Control)
Order creates a fiction that he shall be deemed to be
the owner of the such goods from the time of their
import till they are cleared through Customs. This
fiction is created for the proper and effective
implementation of the said order and the Import and
Exports (Control) Act. The fiction however cannot be
carried beyond that. It cannot be employed to
attribute ownership of the imported goods to the
importer even in a case where he abandons them, i.e.
in a situation where he does not pay for and receive
the documents of title. It may be that for such act of
abandonment, action may be taken against him for
suspension/cancellation of licence. May be, some
other proceedings can also be taken against him.
But certainly he cannot be treated as the owner of
the goods even in such a case. Holding otherwise
would place the exporter in a very difficult position;
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
he loses the goods without receiving the payment
and his only remedy is to sue the importer for the
price of goods and for such damage as he may have
suffered. This would not be conducive to
international trade. We can well imagine situations
where for one or other reason, an importer chooses
or fails to pay for and take delivery of the imported
goods. He just abandons them. (We may reiterate
that we are speaking of a case where the import is
not contrary to law). It is only with such a situation
that we are concerned in this case and our decision
is also confined only to such a situation. Condition
(ii) in sub-clause (3) of Clause 5, in our opinion,
does not operate to deprive the exporter of his title
to said goods in such situation.
15. On the question of title, the Supreme Court holds
unambiguously that the definition of the term 'importer' and
other statutory definitions would hardly be relevant to decide
the issue. They conclude by saying that, in a situation where
the goods imported into India by an exporter outside the
Country are unavailable to him for various reasons including
abandoning of the consignment by the Indian importer, or as
in the present case, the importers not being in a position to
take possession and claim ownership of the goods, it would
place the foreign exporter in an unenviable position. Having
lost possession of the goods, he would also not be in a
position to enforce payment for the same, which would be
detrimental to international trade.
16. Statutory provisions and regulations cannot, the Bench
holds, be interpreted in a manner so as to deprive the exporter
of his title to the goods imported. The above conclusion of the
Supreme Court would apply on all fours to the present matter,
quite apart from the position that the importers have
themselves expressed no-objection to the release of the goods
to the petitioner. In that case, the Supreme Court holds that
the importer would have to be heard by the Customs
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
Department before any order is passed dealing with the goods
in any way, including re-export. This question does not arise
in the present case in view of their no objection to the release.
17. Admittedly order dated 09.07.2021 has attained finality and
was closed recording the no-objection of R3 and R4 in that writ petition,
being Thiru Arooran Sugars Limited and Shri Ambika Sugars Ltd
respectively. There is however a difference in interpretation of that order,
as according to the R1, the reference to ‘charges’ in paragraph 18 of that
order is to applicable duties etc. whereas the petitioner would argue that
it would only refer to incidental and administrative charges, if at all. In
any event, there can be no liability to duty bearing in mind the status of
the petitioner as an unpaid exporter/seller.
18. Per contra, learned Senior Standing Counsel for R1 relies on
the Advance Authorisation Scheme and the conditions thereunder that
require to be satisfied within the time stipulated. According to them, the
burden cast upon R2 under the Advance Authorisation Scheme, and the
liability for non-compliance, would extend to the importer also by virtue
of the contracts entered into by the importer with R2.
19. He draws attention to some clauses under the contract to show
that there was a continuing relationship between the parties and
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
consequently a burden to comply with all statutory requirements cast
both upon R2 as well as the petitioner. He relies upon Sections 3(30) and
3(31) of the Insolvency and Bankruptcy Code, 2018 (in short ‘2018
Code’/’IB Code’) defining ‘secured creditor’ and ‘security interest’ that,
according to him, would support their case in full.
20. His argument is that the definition of ‘security interest’
includes any right created in a secured creditor by virtue of an
‘agreement or arrangement securing payment or performance of any
obligation of any person’. Thus, on account of the relationship inter se
R2, and the Petitioner, the bills of entry and warehousing bond, the
liability originally vesting upon R2 would now vest in the petitioner.
21. Reference is made to the decisions in the case of (i) Japan
Airlines Company Limited V. Commissioner of Income Tax, New Delhi2,
(ii)Bank of India V. Ahmedabad Manufacturing and Calico Printing Co.
Limited3 and (iii) Premier Automobiles Limited V. Engineering Mazdoor
Sabha and Ors.4
22. One of the issues crystallized is whether at all the import of
the goods in question by the petitioner would come within the ambit of
2. (2015 ) 10 SCC 591
3. (1972) 42 Comp Cas 211 Bom.
4. Manu/MH/0224/1981
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
‘security interest’ under Section 3(31) of the Act. Section 3(31) reads
thus:
‘Security Interest’ means right, title or interest or a
claim to property, created in favour of, or provided for a
secured creditor by a transaction which secures payment or
performance of an obligation and includes mortgage, charge,
hypothecation, assignment and encumbrance or any other
agreement or arrangement securing payment or performance
of any obligation of any person:
Provided that security interest shall not include a
performance guarantee;’
23. In my considered view, the attempt of R1 is misconceived on a
plain reading of the definition. Security interest as envisaged, must be
created by virtue of a ‘transaction’ securing payment or performance of
an obligation. In the present case, there is no cause of action whatsoever
that would construe a ‘transaction’ inter se R1 and the petitioner, much
less one which secures payment or performance of an obligation inter se
the two parties. Thus, there has been no creation of security interest
giving rise to any scope for action by R2 as against the petitioner.
24. That apart, there has been no communication of any sort
between R1 and the petitioner till the passing of impugned order, wherein
also, the stand of R2 is that its claim cannot be entertained as the
petitioner ‘is not a party to dispute adjudged by this office’. The
aforesaid conclusion reflects the categoric stand of R2 that the petitioner
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
is wholly unconnected with the customs department. However, re-export
requires the permission of the customs department, and it is to this
limited extent that they have a role to play.
25. The judgments relied on by R1 elaborate on the interpretation
of the term ‘agreement’/’arrangement’. In the case of Japan Airlines
Company Limited, the question that came up for consideration touched
upon the provisions of the Income Tax Act, 1961, specifically the
deduction of tax at source under Section 194I. The assessee, Japan
Airlines, had urged that landing, parking and take-off facilities provided
under an agreement/arrangement with the Airports Authority of India
does not tantamount to ‘use of land’ for which rent is to be paid.
26. Their argument was premised on the language deployed in
Section 194I dealing with rent and tax deduction thereon and the
definition of rent under clause (i) of that provision as per which rent
meant ‘any payment by whatever name called under any lease, sub-lease,
tenancy or any other agreement/arrangement for the use of land or
building’.
27. While deciding this question, the Court concurred with the
view taken by the Madras High Court in the case of Commissioner of
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
Income Tax v. Singapore Airlines Limited 5, wherein this Court had
concluded that charges fixed by the Airports Authority of India for
landing, parking and take off services would not amount to ‘use of land’
and no tax deduction need be made thereupon.
28. This judgment is of no assistance to R1, since that statutory
provision is completely distinguishable from the provisions of Section
3(31) of the IB Code. Thus, the interpretation thereof would not be
applicable to the present case. The purpose of the phrase
agreement/arrangement in the definition of the term rent under Section
194I is to determine the scope of payments for use of land and bring the
same within the ambit of tax deduction under the Income Tax Act.
29. Per contra, the scope of the definition of security interest under
the IB Code is to determine those transactions that give rise to the
creation of a charge in favour of the secured creditor. It is necessary that
the party as against which a claim/demand is made or a charge laid, must
be party to the transaction. In the present case, R1 has neither an
agreement/arrangement with the petitioner nor does the in-bond
warehousing agreement entered into between R2 and R1 make any
reference to the petitioner.
5. Tax Case Appeal No.15 of 2006 dated 13.07.2012
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
30. The agreements between the petitioner and R2 serve only to
secure the interests of the former and do not impact in any way, either by
reducing or expanding, the rights of R1. Thus, there is a clear absence of
the requisite nexus between the petitioner and R1, and the argument that
R1 holds a security interest in the goods qua the petitioner, is too
circuitous to be countenanced apart from being untenable in law.
31. In the case of Premier Automobiles Limited, a learned single
Judge of the Bombay High Court considered a challenge to an order
passed by the Industrial Court, Bombay. The facts and legal position in
that matter are also entirely at variance from those in the present case. In
the case of Ahmedabad Manufacturing & Calico Printing Company
Limited, a learned single Judge of the Bombay High Court was deciding
a petition filed by Bank of India for sanction of scheme of arrangement
under the applicable provisions of the Companies Act, 1956.
32. The learned Judge considered the import of the term
arrangement in Chapter V of the Companies Act, 1956 and held that the
word must be given a wide import such that it would include any
understanding affecting the rights of the parties involved. In that case,
the Court was concerned with the transfer of the undertaking and
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
liabilities by one company to another, and whether such a transaction
may or may not affect the rights of its members or creditors.
33. This decision is also distinguishable for the reason that the
members/creditors whose interests were taken note of in that case were
closely intrinsically connected with the company in amalgamation and
the company court, in considering the scheme of amalgamation was
required to take, in holistic perspective, the interests of all stakeholders.
This situation does not arise in the present case.
34. The importer/petitioner is an unpaid vendor with no connection
whatsoever with the Customs Department. It continues to hold
possession of the goods. To state that the Customs Department would
have a claim on the petitioner’s goods based on violations committed by
another party would be stretching the term ‘security interest’ beyond
permissible scope, distorting the concept of security interest under the
Code.
35. Faced with this position, R1 then makes an attempt to cement
its claim as against R2. The two legal issues that arise in this context are
(i) whether the condition imposed under the AA Scheme has been
triggered and (ii) if the answer to (i) is in the affirmative, whether R1 is
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
in a position to raise a claim in the subsisting circumstances.
36. As far as the first issue is concerned, it is the case of R2 that no
liability stands triggered. The AA is accompanied by a condition sheet
and an additional condition sheet that read as follows, respectively:
O/o Additional Director General of Foreign Trade
4th Floor, Shastri Bhawan Annexe, 26, Haddows Road,
Chennai-600006
CONDITION SHEET
Attached to DES Authorisation No: 0410163331 Dated:
17.07.2017 THIRU AROORAN SUGARS LTD..
1. The Authorisation holder shall export to or import from
any country other than that specified on the Authorisation
or paragraph 2.02 of HBP 2015-2020.
2. The Authorisation holder shall export/supply the
products of quantities and values specified below within a
period prescribed under paragraph 4.22 of the Foreign
Trade Policy 2015-2020.
…………….. goods
3. Foreign Exchange remittance against this authorisation
shall be governed by the instructions issued by the Reserve
Bank of India from time to time.
4. The Export obligation shall be fulfilled by the
authorisation holder as per the terms and conditions
specified in the Foreign Trade Policy 2015-20 and the
Handbook of Procedures, 2015-20 and other guidelines
issued by the Director General of Foreign Trade from time
to time.
5. The Authorisation holder shall deliver or cause to
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
deliver to this office within 2 months from the date of
expiry of the export obligation period stated above,
documents as prescribed under paragraphs 4.44 and 4.46
of Handbook of Procedures, 2015-2020, as amended, from
time to time, as evidence of fulfillment of export obligation
imposed on this authorisation. In case of bonafide defaults
provisions of paragraph 4.49 of the Handbook of
Procedures, 2015-2020 as amended from time to time shall
apply. Failure to fulfillment of the export obligation in the
manner as prescribed in the Handbook of Procedures,
2015-20 shall attract penal proceedings under the
provisions of Foreign Trade (Development & Regulation)
Act 1992.
6. The exempt goods imported against this authorisation
shall only be utilised in accordance with the provisions of
paragraph 4.16 of the Foreign Trade Policy 2015-2020
and other provisions and the relevant Customs Notification
(Custom Notification 18/2015 dated 1.4.15 (for physical
exports), 21/2015 dated 1.4.15 (for deemed exports),
22/2015 dated 1.4.15 (for Advance Authorisations for
prohibited goods) and 20/2015 (for Annual Advance
Authorisations) as the case may be), as amended from time
to time.
7. The authorisation holder shall abide by the instructions
contained in paragraph 4.21 of the HBP. (2015-2020), as
the case may be maintenance of a true and proper account
of consumption and utilisation of inputs and furnish
returns to the concerned Regional Authority as per the
provisions of FTP and the procedure laid thereunder.
8. Wherever, the input item list contains Acetic Anhydride,
Ephedrine, and Pseudo-ephedrine, the authorisation
holder shall be required to obtain an NOC from the
Narcotic Commissioner of India, Central Bureau of
Narcotic, Gwalior before effecting such imports, a per
paragraph 4.08 of HBP 2015-2020.
9. Import of Scraps/Metal Scraps shall be subject to the
conditions of the relevant licensing notes under relevant
Chapters of ITC(HS) Classification Book. Import of
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
Chemical falling under Montreal Protocol and Schedule I,
II and III of the Chemical Weapons Convention shall be
subject to the conditions specified thereunder and as
appearing in the ITC(HS) classifications.
10. The authorisation holder to comply with the provisions
of paragraph 4.10 and paragraph 4.35 of Handbook of
Procedures 2015-2020, as amended from time to time, with
regard to transfer of any material from one unit of the
authorisation holder to any other unit of the authorisation
holder included in the IEC or to the supporting
manufacturer/jobber.
11. Import and Export of items
Prohibited/Restricted/Reserved for State Trading
Enterprises shall be governed by the provisions contained
in paragraph 4.18 of Foreign Trade Policy 2015-2020.
12.All conditions of the Foreign Trade Policy and
Procedures and ITC (HS) Classification Book as amended
shall be applicable unless specifically dispensed with
against this authorisation. That for any item/product
restricted/SCOMET under Schedule 2 of ITC(HS), the
exporter would be required to take a separate export
licence.
13. The DES Authorisation holder shall execute BG/LUT
with Customs Authority, as per the procedure prescribed by
them before effecting imports, However, for domestic
procurement of input, BG/LUT shall be executed with the
concerned regional Authority in the manners specified in
paragraph 2.35 of the FTP, 2015-2020.
14.Factory Address(es) of the Authorisation holder and/or
the Supporting Manufacturer where the goods imported
shall be processed.
…… goods
15. Name and Address(es) of the Co-Authorisation holder
in terms of Para 4.35 of Handbook of Procedures, 2015-
2020:
Name and Address of the Co-Licensee: No Co-Licensee.
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
Additional Condition Sheet
1. IMPORTS SHOULD PRECEED EXPORTS (as per
Public Notice No.8 dated 1.5.2015) 2. EXPORT
OBLIGATION PERIOD FOR THE RAW SUGAR
IMPORTED UNDER THIS ADVANCE AUTHORIZATION
SHALL BE SIX MONTHS FROM THE DATE OF
CLEARANCE OF EACH CONSIGNMENT BY CUSTOMS
AUTHORITY, 3. THE CONTENT OF SUCROSE BY
WEIGHT, IN DRY STATE IN RAW SUGAR MUST
CORRESPOND TO A POLARIMETER READING OF
LESS THAN 99.5% BUT NOT LESS THAN 96.5% (as per
note No.1 to SION E-52)
16 Authorisation holder willing to take the finished
components imported and Advance Authorisation scheme,
directly from the port to the site of the recipient of deemed
export supply (Project Authority) shall follow the
procedure laid down by DOR in this regard. For availing
the facility, name of such components and the address of
the site where the said components are to be supplied,
should indicated in the Advance Authorization issued by
Regional Authority concerned.
17. No drawback shall be available for any duty paid
material whether imported or indigenous unless such
item(s) is/are endorsed on the authorisation by RA in terms
of para 4.15 of the FTP 2015-2020
Date: 17.07.2017
Place Chennai sd/-
Assistant Director General of
Foreign Trade
37. While R1 would draw attention to the conditions at clauses 4,
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
6, 7, 10 and 11 above, the rival contention is that the export obligation
must be fulfilled within 6 months from date of clearance of each
consignment by the customs authority. To this, the petitioner points out
that the consignments yet await clearance as they are still under bond and
the goods are yet to cross the customs frontier.
38. R1 then draws attention to the observation in the impugned
order, wherein the officer specifically states that out-of-charge order has
been passed on 19.01.2018 for the first 18 bills of entry and on
28.02.2018 for the last bill of entry (see para 9.1(v) under head
‘discussion and findings’).
39. Thus, in terms of Appendix 4j of HBP 2015-2020 the officer
states that the importer has to fulfill export obligation within six months
from date of clearance of export consignment, i.e., 22.07.2018,
21.08.2018 and 27.08.2018. This has not been done and thus, according
to R1, the condition for duty exemption has not been satisfied.
40. One question that arose was whether the passing of an out-of-
charge order would tantamount to ‘clearance’ for the condition under the
AA to stand triggered. A note has been circulated by learned Standing
Counsel explaining the position in the following terms:
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
‘Under the EDI system, the Bill of entry, after
assessment by the appraiser, the Bill of Entry need to be
presented for registration for examination in the import shed.
A declaration correctness of entries and genuineness of the
original documents needs to be made at this stage. After
registration, the B/e is passed on to the Shed officer
(Inspector and Superintendent) for the examination of the
goods. Along with the B/E, the CHA is to present all the
necessary documents. After completing examination of the
goods, the Shed Inspector enters the report in System and The
Superintendent gives ‘out of charge’ in case of already
assessee Bs/E. Thereupon, the system prints Bill of Entry and
order of clearance’.
41. Simultaneous therewith, the bill of entry for warehousing
(provisional) for some consignments have been furnished, dated
17.01.2017. Thus, in cases of provisional bills of entry (warehousing) as
contra distinguished between bill of entry for home consumption, while
the goods may not have crossed the customs frontier as they are being
retained in the customs warehouse, the importer would be bound by the
terms/conditions under AA which require processing and export to be
carried out within a period of six months from date of out-of-charge
order.
42. Thus, the answer to issue (i) is that the condition prescribed
under the AA scheme stands triggered, though proper procedure
prescribed in this regard must be followed for necessary consequences to
follow. Coming to the second issue, the out-of-charge orders are stated to
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
be dated 19.01.2018 and 28.02.2018, though copies of the same have not
been supplied to the Court.
43. The show cause notice has been issued by R1 to R2 only on
30.01.2020, long past the order of moratorium dated 07.06.2019 passed
under Section 14 of the IB Code. The only avenue of redressal available
to R1 was thus to approach the NCLT by way of a claim. The IB Code
under Section 53 thereof provides for a waterfall mechanism setting out
the hierarchy/priority of charge.
44. Much has been made by R1 on the point that it constitutes a
secured creditor, placing reliance upon the judgment of the Apex Court in
the case of State Tax Officer V. Rainbow Papers Limited6 and the order of
the learned single Judge in the case of Dishnet Wireless Limited V.
Assistant Commissioner of Income Tax (OSD)7.
45. The decision in Dishnet has been challenged in Writ Appeals in
W.A.Nos.1796 of 2022 etc. batch and the connected Miscellaneous
Petitions seeking interim protection have been ordered on 16.08.2022
granting interim stay of the decision for a period of six weeks.
46. The Hon’ble Supreme Court in the case of Ghanashyam
6. (2022) SCC on line SC 1162
7. (2022) SCC online Madras 3643
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
Mishra and Sons P. Ltd., Vs. Edelweiss Asset Reconstruction Co. Ltd.,8
considered the impact of a resolution plan, and, taking note of the
legislative intent of formulation of the resolution plan, held that the plan
would be sacrosanct and binding on all stakeholders after it obtains a seal
of approval from the adjudicating authority.
47. The ratio of the judgment is to the effect that no surprise claims
should be flung on the successful resolution application after the
resolution plan is approved by the NCLT. The dominant purpose of the
plan is to enable the successful resolution applicant to start with a clean
slate without having to deal with any claims that are made after the
resolution plan is finalized.
48. The ratio of this judgment would apply across the Board to all
stakeholders whether statutory, operational or financial. As held by the
Hon’ble Supreme Court and as argued by R3, once a resolution plan is
finalized, it must be given effect to scrupulously, as otherwise, the spirt,
object and purpose of the Code would itself be defeated, quite apart from
the economic and financial repercussions of a resolution proponent being
blindsided by a belated claim.
49. The judgment in Ghanashyam Mishra has been followed in
8. (2021) 9 SCC 657
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
Ruchi Soya Industries Ltd. V. Union of India ((2022) 6 SCC 343). In the
case of Rainbow, the Hon’ble Supreme Court considered the claim of the
Commercial Taxes Department challenging an order by the National
Company Law Board Appellate Tribunal (in short ‘NCLAT’) holding that
the State cannot claim first charge over the property of a corporate debtor
as Section 48 of the Gujarat Value Added Tax Act, 2003 (in short ‘GVAT
Act’) did not prevail over Section 53 of the IB Code.
50. The aforesaid judgment would be of no assistance to R1 in the
present matter. It is an admitted position that R1 has not made a claim
before the Liquidator appointed by the NCLT to stake its right in the
distribution of assets. The right of any creditor whether a financial
creditor, operational creditor, secured or unsecured creditor would arise
only in the event, and upon condition, that a claim is made by that
creditor. In the event no claim has been put forth that creditor would have
no recourse to the distribution of assets by the Liquidator appointed.
51. The Insolvency and Bankruptcy Board of India (Insolvency
Professionals) Regulations, 2016 (in short ‘2016 Regulations’) provide
for a clear and transparent procedure by which the public/creditors are
made aware of the proceedings before the NCLT. The proceedings of the
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
NCLT are stated to be uploaded promptly and advertisements are issued
in publications with sufficient circulation to enable the creditors to be
aware of pending proceedings.
52. It is thus necessary for the concerned creditor, whether
operational or financial to file a claim within the time limit stipulated
under Regulation 16 of the 2016 Regulations that is, within 30 days from
date of publication of advertisements in order to secure its rights. In the
present case, it is nobody’s case that R1 has filed a claim and the fact that
it has not, is admitted. Consequence would have to flow from this
position.
53. That apart, the judgment in the case of Rainbow turns on an
appreciation of the legal position that the GVAT Act contains Section 48
under which there was a first charge created on the property of a
defaulting sales tax assessee. Section 48 of the GVAT Act states
‘notwithstanding anything to the contrary contained in any law for the
time being in force, any amount payable by a dealer or any other person
on account of tax, interest or penalty for which he is liable to pay to the
Government shall be a first charge on the property of such dealer, or as
the case maybe, such person’.
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
54. The provision in pari materia with Section 48 of the GVAT Act
under the Customs Act, 1962 is Section 142A, extracted below:
142A. Liability under Act to be first charge.—
Notwithstanding anything to the contrary contained in
any Central Act or State Act, any amount of duty, penalty,
interest or any other sum payable by an assessee or any
other person under this Act, shall, save as otherwise
provided in section 529A of the Companies Act, 1956 (1
of 1956), the Recovery of Debts Due to Banks and the
Financial Institutions Act, 1993 (51 of 1993) and 2 [the
Securitisation and Reconstruction of Financial Assets
and the Enforcement of Security Interest Act, 2002 (54 of
2002) and the Insolvency and Bankruptcy Code, 2016 (31
of 2016).
55. Section 142A makes it clear that the charge that is created
relates to a demand raised upon an assessee. Thus, only a demand
validly raised would stand protected by virtue of the charge created. It
thus becomes relevant to note the assessments framed on the assessee
prior to 07.06.2019 when moratorium was imposed.
56. Under customs law, the bill of entry would constitute a self-
assessment till such time it is replaced by assessments under Sections 15,
16, 17 or 128. The assessment of the bill of entry is as on 30.01.2017.
The licence for advance authorization came to be issued on 17.07.2017
and hence assessment on bill of entry would have to be read with the
exemption granted under the advance authorization scheme dated
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
17.07.2017, till such time the position regarding exemption was varied or
disturbed in any way.
57. This came to be done by R1 only on 30.08.2022 by which time
R2 had been released for liquidation and the scheme proponent had come
into the picture. Thus, even the provisions of Section142A are of no avail
to R1 in the present case.
58. The relevant portion in the case of Rainbow reads thus:
30. The learned Solicitor General rightly argued that in
view of the statutory charge in terms of Section 48 of the
GVAT Act, the claim of the Tax Department of the State,
squarely falls within the definition of “Security Interest”
under Section 3(31) of the IBC and the State becomes a
secured creditor under Section 3(30) of the Code.
59. The judgment in Rainbow thus proceeds on the admitted legal
position that a statutory charge had been created under Section 48 of the
GVAT Act and in such a case, the claim of the sales tax department
would fall within the definition of ‘security interest’ under the Code.
60. In the present case, I am of the considered view that R1 cannot
claim the benefit of any such statutory charge. It is hence not a secured
creditor under Section 3(30) of the IB Code. In any event, even without
recourse to this position and as seen earlier, no claim has been filed by
R1 before the Liquidator which even a secured creditor is bound to do in
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
terms of Regulation 16 of the 2016 Regulations. Regulation 16 reads
thus:
16. Submission of claim. (1) A person, who claims to be a
stakeholder, shall submit its claim, or update its claim
submitted during the corporate insolvency resolution
process, including interest, if any, on or before the last
date mentioned in the public announcement.
(2) A person shall prove its claim for debt or dues to him,
including interest, if any, as on the liquidation
commencement date.
61. Thus, any person who claims to be a stakeholder, financial/
operational/secured/unsecured is liable to submit a claim as this is a pre-
condition/requisite for any benefit to be obtained by an entity claiming to
be a creditor in the proceedings before the NCLT. R1 has missed the bus
in entirety.
62. A public announcement is to be issued in Form A as per
Regulation 6 of the Insolvency Bankruptcy Board of India (Insolvency
Resolution Process for Corporate Persons) Regulations, 2016 and has in
this case, been issued on 10.06.2019 in strict compliance with the
requirements under the Regulations in English and Vernacular language,
published in the Hindu and Dinamalar, Chennai, Thanjavur and
Cuddalore District.
63. It puts the public to notice that the NCLT, Division Bench,
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
Chennai has ordered announcement of Corporate Insolvency Resolution
Process (CIRP) of R2 on 07.06.2019. It calls upon the creditors of R2 to
submit their claims with proof on or before 21.06.2019 to the Interim
Resolution Professional in accordance with the applicable Regulations
and in proper format.
64. Sufficient time is available for submission of claim even
beyond the initial period granted, till such time the resolution process
itself was complete. The customs department has not taken the benefit of
the wide timeframe available.
65. The scheme of the IB Code proceeds on the basis that the CIRP
shall be time bound and adhere to the statutory time frame, in a
scrupulous manner. This is made clear by the provisions of Section 12
which sets out the time limit for completion of insolvency resolution
process. A second proviso has been inserted to Section 12(3) making it
clear that the outer time limit for completion of CIRP shall mandatorily
be within a period of 30 days from commencement of insolvency taking
into account any exemptions granted and the time taken in legal
proceedings in relation to such process.
66. In light of this discussion and in the absence of any claim made
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
by R1 before the Official Liquidator, there is no force whatsoever in the
demand made under the impugned order. It is also quite mystifying as to
how R1 proceeds to completely disavow the proceedings before the
NCLT in toto. It is not as though the Customs Department is unaware of
the proceedings before the NCLT.
67. In fact, in the earlier round of litigation, the Director General
of Foreign Trade was arrayed as the first respondent and the
Commissioner of Customs as the second respondent. This Court, in
order dated 09.07.2021 had recorded the proceedings of the learned
Standing counsel appearing for both R1 and R2. The submissions of the
Customs Department on the right or otherwise of the petitioner to seek
re-export have also been specifically noted at paragraph 9 of that order.
68. That apart, in the course of that hearing, detailed reference had
been made to the proceedings pending before the NCLT and in fact R3,
who is R2 in the present Writ Petition, and R4, who is not a party to the
present proceedings had been represented by their respective Resolution
Professionals. Thus, a claim should have been made at least in July,
2021 in the proceedings pending before the NCLT.
69. The scheme was sanctioned by the NCLT on 02.05.2022 and is
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
stated to have been challenged by R1 by way of appeal filed in January,
2023 before the NCLAT. I am not per se concerned with that appeal.
However, one point that niggles in the back of my mind is the
consequence of success by the customs department in that appeal. If it
were to so succeed and the scheme were to be set aside, the question that
would arise is as to who would bear the burden of the duty.
70. Thus, in the interests of a complete resolution of the matter
before me, though the sole point urged by the petitioner is its entitlement
to re-export without the burden of duty and penalty, I must consider the
possibility of success of R1 in the appeal stated to have been filed by it
before the NCLAT.
71. The appeal is stated to have been filed in terms of Section 421
of the Companies Act, 2013 (in short ‘2013 Act’) and this is pointed out
to get over the argument of the other parties that the appeal is not
maintainable as it has been filed beyond the statutory period and in light
of the fact that there is no provision for condonation of delay.
72. Section 421, insofar as it is relevant to this issue states thus:
421. Appeal from orders of Tribunal.—
(1) Any person aggrieved by an order of the Tribunal may
prefer an appeal to the Appellate Tribunal.
(2) No appeal shall lie to the Appellate Tribunal from an
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
order made by the Tribunal with the consent of parties.
(3) Every appeal under sub-section (1) shall be filed within
a period of forty-five days from the date on which a copy of
the order of the Tribunal is made available to the person
aggrieved and shall be in such form, and accompanied by
such fees, as may be prescribed:
Provided that the Appellate Tribunal may entertain an
appeal after the expiry of the said period of forty-five days
from the date aforesaid, but within a further period not
exceeding forty-five days, if it is satisfied that the appellant
was prevented by sufficient cause from filing the appeal
within that period.
73. Thus, an appeal under Section 421 must be filed within a
period of 45 days from the date on which a copy of the order of the
Tribunal is made available to the person aggrieved. It is the case of R1
that the appeal was filed as soon as R1 came to know of the order dated
07.06.2019 by the NCLT, that is, as and when a copy of the scheme was
filed by R3 in these proceedings.
74. Per contra, the other parties would draw my attention to the
provisions of Section 61 of the IB Code reading thus:
61. (1) Notwithstanding anything to the contrary contained
under the Companies Act 2013, any person aggrieved by the
order of the Adjudicating Authority under this part may
prefer an appeal to the National Company Law Appellate
Tribunal.
(2) Every appeal under sub-section (1) shall be filed within
thirty days before the National Company Law Appellate
Tribunal: Provided that the National Company Law
Appellate Tribunal may allow an appeal to be filed after the
expiry of the said period of thirty days if it is satisfied that
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
there was sufficient cause for not filing the appeal but such
period shall not exceed fifteen days.
75. Thus, any person aggrieved by an order of the adjudicating
authority under part VI of the Code, shall be preferred before the NCLAT
within 30 days and the proviso permits condonation of 15 days in filing
the appeal if the NCLAT were satisfied that there was sufficient cause for
not filing the appeal within the 30 days period provided under Section
61(2).
76. The NCLT adjudicates upon matters falling under the 2013 Act
as well as the IB Code and Section 60 dealing with adjudicating authority
for corporate persons, in sub-section (1), states thus:
60. (1) The Adjudicating Authority, in relation to
insolvency resolution and liquidation for corporate
persons including corporate debtors and personal
guarantors thereof shall be the National Company Law
Tribunal having territorial jurisdiction over the place
where the registered office of the corporate person is
located.
77. Thus, those appeals relating to those matters adjudicated upon
by the NCLT falling under the IB Code would be filed in terms of
Section 61 of the Code before the NCLT and those matters heard by the
NCLT relatable to the provisions of the Companies Act would be filed in
terms of Section 421 of the 2013 Act.
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
78. All matters adjudicated upon by the NCLT relatable to the
2016 Regulations would be circumscribed by the time limit set out under
Section 61 of the Code which is 30 days or 15 days only. Thus, prima
facie, the appeal filed by R1 as against the Scheme dated 02.05.2022 is in
terms of Section 61 of the Code and not Section 421 of the 2013 Act, and
is barred by limitation. I leave this issue at that.
79. R1 also relies upon the decision in Motilal Gupta Karta of
Kanta International v. Union of India and others9, wherein a Division
Bench of the Bombay High Court upheld confiscation of a consignment
relegating the petitioner to statutory appeal. It would hardly be
appropriate for me to relegate the petitioner to statutory appeal in the
present case since there are no disputed facts involved and only questions
of law arise for decision.
80. Then again, the judgment in N.K.Bopna v. Union of India and
others10 is also not of any assistance to R1. In that case, three Judges of
the Hon’ble Supreme Court decided a challenge to a detention order
passed under the provisions of the COFEPOSA Act and whether removal
of goods that were deposited in a warehouse without payment of duty
9 (1988) 36 E.LT. 44 (Bom.)
10 (1992) 3 SCC 512
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
would amount to smuggling.
81. In the present case, it is admitted that the petitioner is an
unpaid vendor/importer of the goods and is only seeking re-export. The
question that arises is as to whether violation of advance authorisation
committed by R2 can have any impact or can pose a hindrance to re-
export by the petitioner. This is not the question that arises in
N.K.Bapna’s case.
82. R1 has also relied on a judgment by the Hon’ble Supreme
Court in Dhampur Sugar Mills Limited v. Commissioner11, wherein the
Hon’ble Supreme Court has confirmed a decision of the Allahabad High
Court to the effect that the assessee, Dhampur Sugar Mills Limited had
failed to establish that raw sugar imported under the advance
authorisation scheme was physically incorporated in sugar exported later,
when the condition was relaxed only in respect of sugar imported during
2009.
83. The confiscation of the sugar imported in 2006 was sustained
as it had been exported without any export release order. That case did
not involve a claim for re-export by the unpaid vendor/importer and the
entirety of the proceedings were conducted only against Dhampur Sugar
11 2016 (333) E.L.T. A241 (SC)
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
Mills Limited, who was an assessee in India and the purchaser of the
sugar. Hence, it is distinguishable on facts and in law.
84. In Municipal Corporation of Greater Mumbai (MCGM) v.
Abhilash Lal and others12 cited by R1, three Judges considered the
interpretation of Section 238 of the IB Code to conclude that the Court
would not override the right of the Corporation to control and regulate its
properties. The attempt seems to be to state that the Code cannot nullify
any rights of the Customs Department. Then again, this case has been
cited out of context as it does not address the question that arises for
decision before me.
85. In ED and F Man Commodities India Pvt. Ltd. v. Union of
India (2022 (381) E.L.T. 644 (Guj.)), the Division Bench of the Gujarat
High Court considered a prayer for mandamus by an unpaid vendor for a
direction to the Customs Authority to extend the period of completion of
export obligation in respect of the advance licence obtained by the
customs by the assessee/purchaser, arrayed as R5 in that matter, and
various other prayers. In that context and in light of the prayer sought,
the Bench states as follows:
34. Under the Customs Act, 1962, the person who
12 (2020) 13 SCC 234
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
files a 'bill of entry' under Section 46 of the Act is the importer
of the goods covered under the 'bill of entry'. Such 'bill of
entry' may be for home consumption (i.e. for clearing the
goods from the customs station to any other place in India)
or a 'bill of entry' for warehousing (i.e. for depositing the
imported goods in a warehouse for a certain period of time).
In any case, the person who files the bill of entry is the
importer and, therefore, in the present case, the respondent
no.5 is the importer of the goods in India. The stance of the
respondents, that it is the respondent no.5 who has imported
the goods in India and the respondent no.5 is the importer,
appears to be correct and justified. The respondent no.5
holds an advance authorization and the details of such
authorization are stated in the bill of entry while claiming
exemption from the customs duty under the notification
meant for the materials imported into India against the valid
authorization. The stance of the department that the
respondent no.5, as an importer, availed or claimed
exemption of a notification that prescribes or lays down a
condition of utilization of the imported materials and export
of the resultant products for the fulfillment of the export
obligation in respect of the authorization also appears to be
correct.
35. We go to the extent of observing that if the
export obligation period of 18 months from the date of issue
of the authorization has elapsed and no extension has been
granted in favour of the respondent no.5 being the
authorization holder, then the stance of the department that
as the exemption from duty was granted at the time of the
import of the goods subject to the conditions of the Customs
Notification No.79/2017-Cus and the condition of fulfillment
of export obligation within the period specified in the
authorization not being complied with, the goods are liable
to be confiscated under Section 111(o) of the Act, 1962, also
appears to be well justified.
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
36. The fact that the exporter, i.e. the writ-applicant,
has not been paid the price of the goods and that his goods
are liable to be confiscated because of a lapse or any
irregularity on the part of the respondent no.5, the same
would have no impact on the legal position as regards the
goods being liable to be confiscated under Section 111(o) of
the Act, 1962.
86. Thereafter at paragraph 37, the Bench states ‘with all that has
been observed above, still the writ applicant being the unpaid owner and
exporter of the goods can claim ownership of the goods and also re-
shipment’. Paragraph 42, where the Gujarat High Court has clarified the
observations and conclusion in the judgment in the case of Sampat Raj
Dugar (supra) are relevant and read as follows:
45. In the aforesaid context, we may refer to and
rely upon an order passed by a learned Single Judge of the
Madras High Court in the case of M/s.Pacific (HK) Limited vs.
The Commissioner of Customs (Airport and Air Cargo
Complex), Meenambakkam, Chennai, reported in (2012) 281
ELT 522, wherein the importer had refused to clear and take
delivery of the goods, and as the cost of the goods had not been
paid, the petitioner therein had requested the authorities to
permit re- export/reshipment of the goods. In such
circumstances, a writ- application was filed before the Madras
High Court under Article 226 of the Constitution of India. While
disposing of the writ- application, the Court observed as under
:
"4. The learned counsel appearing
on behalf of the petitioner had submitted that the
petitioner continues to be the owner of the goods
in question, when the importer or the consignee
concerned abandons the goods imported on their
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
behalf, as held by the Supreme Court, in Union of
India Vs. Sampath Raj Dugar, reported in
1992(58) ELT 163 (SC).
5. It had also been stated that the seller of
the goods is deemed to be an `unpaid seller', as
per the terms of Section 45 of the Sale Goods Act,
1930, when the whole of the price had not been
paid or tendered. Under Section 46 of the said Act
it is stated that, notwithstanding the fact that the
property in the goods may have passed to the
buyer, the unpaid seller of the goods has a lien
on the goods concerned, for the price, by
implication of law. As such, the petitioner, who is
an unpaid seller, has the right in respect of the
goods in question. Therefore, he has the right to
make a request to the respondents to re-ship or to
re-export the goods in question. As per the
decision of the Delhi High Court, in Agrim
Sampada Ltd. Vs. Union of India, reported in
2004 (168) ELT 15 (Del), the title in respect of
the goods abandoned by the importer would vest
with the petitioner.
6. In the counter affidavit filed on behalf of
the first respondent it has been stated that the
importer has not abandoned the goods, even
though he had chosen not to file the bill of entry,
in order to escape from the clutches of law and in
order to avoid detection of its mode of operation
by the investigating agency. During the
examination, it had been found that the goods
had been mis-declared as imitation stones, in
order to evade payment of a higher duty.
Therefore, a show cause notice had been issued
to the importer for the violation of the provisions
of the Customs Act, 1962. Hence, the request of the
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
petitioner for re- shipment or re-export of the
goods would not arise.
7. In fact, a show cause notice, dated
8.7.2011, had been issued to M/s.Sky Way
Corporation, Jaipur, and certain others,
proposing confiscation of the goods, under Section
111(d) of the Customs Act, 1962, read with Section
11(1) of the Foreign Trade (Development
and Regulation) Act, 1992, as the goods in question
are under investigation by the authorities
concerned. While so, the request of the petitioner
cannot be considered, at this stage.
8. In the counter affidavit filed on behalf of
the third respondent it has been stated that the
amount due to be paid to the petitioner, by the
third respondent, for the goods in question, could
not be paid due to severe financial constraints.
Therefore, the goods could not be cleared and
taken by the third respondent. It had also been
stated that the value of the imported goods had
not been paid, till date. As such, the petitioner
continues to be the owner of the goods in
question, as the third respondent, being the
importer of the goods, had abandoned the goods
in question.
9. In view of the above contentions, raised
on behalf of the petitioner, as well as the
respondents, and on a perusal of the records
available, it is clear that the petitioner has the
right to request the respondents for the necessary
permission, to re-ship or to re-export the goods
in question. Further, as the third respondent does
not have any serious objection for the re-export
of the goods in question, the respondents are
directed to permit the petitioner to re-export the
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
goods in question, as prayed for by the petitioner,
in the present writ petition. However, it is made
clear that it is open to the authorities concerned,
to pass an appropriate order, with the view to
initiate the necessary action against the parties
concerned, if it is deemed to be necessary, in
respect of the alleged infringement of the relevant
provisions of law, if any, as expeditiously as
possible, as the petitioner, has been incurring
heavy demurrage charges. Further, it is made
clear that the respondents are directed to
consider the request of the petitioner, for the re-
shipment and re-export of the goods in question,
in view of the above observations made by this
Court, in this order, unless there are other legal
impediments, for granting such permission, as
prayed for by the petitioner. The writ petition is
ordered accordingly. No costs. Consequently,
connected miscellaneous petition is closed."
87. At paragraph 44 the Bench notes that no irrevocable letter of
credit was obtained by that unpaid seller and hence it has not properly
protected its interest. In the present case, no LC has been opened by R2
and the goods are thus in possession of the petitioner. After referring to
the decision in M/s.Pacificorp (HK) Limited v. Commissioner of Customs
(Airport and Air Cargo Complex), Meenambakkam, Chennai13 and an
order passed by the Customs, Excise and Gold Tribunal in the case of
M.V.Marketing and Supplies v. Commissioner of Customs (Import)14 the
writ petition was disposed granting liberty to that petitioner to make an
13 (281) E.L.T. 522
14 (178) E.L.T. 1034
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
application for re-export.
88. R1 would emphasise that the Court has directed that
reasonable duty be paid on export of the goods. Thus, according to him,
even in the case of re-export, duty should be paid on the consignment to
be re-exported. There are some distinguishing features in that case which
make the conclusion thereof inapplicable to the present matter.
89. In that case, it had been found that the goods had been mis-
declared as imitation stones, in order to evade payment of higher duty. A
show cause notice had been issued to the importer for the violation of the
provisions of the Customs Act, 1962. That apart, show cause notices had
been issued to several parties proposing confiscation of the goods,
under Section 111(d) of the Customs Act, 1962, read with Section 11(1) of
the Foreign Trade (Development and Regulation) Act, 1992, as the goods in
question were under investigation by the authorities concerned.
90. Even in such circumstances, the Court had not found the
request of that petitioner for re-shipment unacceptable and had permitted
it to make a representation before the authorities seeking re-export,
though on terms. That apart, an added dimension in the present case is
that the assessee/R2 has been liquidated and no valid claim has been
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
made before the authorities.
91. The show cause notice has been issued after moratorium has
been imposed by the NCLT and the order determining liability has been
issued long past the date of liquidation. This, when the customs
department was well aware of the assessee/R2 being before the NCLT.
Thus, and all the more, would the petitioner in the present case be
eligible for re-export upon payment of charges alone.
92. In time, I would still maintain that it is only re-export charges
that would be payable by the petitioner and not duty and penalty as
computed under the impugned order, for the following reasons:
i) It is an admitted position that the petitioner is an unpaid ex-
porter. R2 has, admittedly, not settled the amounts relating
to 11,000 MT of sugar.
ii) Order dated 30.08.2022 has been passed on R2 post the date
of liquidation. In any event, any liability under that order
would attach only to R2 and not to the petitioner or R3.
iii) R1, ought to have, if convinced of the violation committed
by R2, secured its interest at the relevant point in time and
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
in any event prior to 07.06.2019, when moratorium was im-
posed.
iv) Securing of interest could have been of two kinds: a) by is-
suance of notice and passing of order-in-original denying
the benefit of exemption granted under advance authoriza-
tion scheme in a timely fashion or b) by filing a claim before
the Resolution Professional appointed by the NCLT. Nei-
ther of the two options were availed.
v) R1 was well aware of the proceedings pending before the
NCLT even as early as in July, 2021 when order dated
09.07.2021 had been passed in the Writ Petition. Hence, the
consequences from the failure to file a claim in time before
the authority must be suffered.
93. The legal issues are thus answered in terms of the discussion as
above. The challenge to order dated 30.08.2022 is at the instance of the
petitioner, since, though it has been granted re-export that it seeks, such
re-export comes with a heavy price tag.
94. The Hon’ble Supreme Court in the case of Sundaresh Bhatt,
Liquidator of ABG Shipyard Vs. Central Board of Indirect Taxes and
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
Customs15 has considered the harmonious construction of the Code with
the Customs Act. While so, the Court considered that the provisions of
the Code were sacrosanct and that the Department would be duty bound
to stake claim, though only in terms of Section 53 of the Code and not
beyond. At paragraph 50, they state as follows:
50. As laid down earlier, the Customs Act and IBC
can be read in a harmonious manner wherein authorities
under the Customs Act have a limited jurisdiction to
determine the quantum of operational debt – in this case,
the customs duty – in order to stake claim in terms of
Section 53 of the IBC before the liquidator. However, the
respondent does not have the power to execute
execute its claim beyond the ambit of Section 53 of the IB
C. Such harmonious construction would be in line with
the ruling in Gujarat Urja Vikas Nigam Ltd. V. Amit
Gupta, (2021) 7 SCC 209, wherein a balance was struck
by this Court between the jurisdiction of the NCLT under
the IBC and the potential encroachment on the legitimate
jurisdiction of other authorities.
95. As a matter of prudence, the Departments must consider
appointing a Nodal officer who would monitor the proceedings before
the NCLT on a regular basis. This process does not appear very
cumbersome as the proceedings are stated to be available online for
periodical reference and timely action.
96. In fine, this Writ Petition is allowed and the impugned order
dated 30.08.2022 insofar as it raises a demand on duty and penalty as a
15 (2023) 1 SCC 472
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
pre-condition to re-export by the petitioner, is quashed. As a
consequence of this order, the petitioner is permitted to re-export the
goods in question. Let the needful be done by R1 within a period of 4
weeks from date of receipt of this order. No costs.
26.06.2023
Index:Yes
Speaking order
Neutral Citation:Yes
vs/sl
To
1.Commissioner of Customs (Preventive),
No.1, Williams Road, Cantonment,
Tiruchirapalli – 620 001.
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
https://www.mhc.tn.gov.in/judis
WP.No.29614 of 2022
DR.ANITA SUMANTH, J.
vs/sl
WP.No.29614 of 2022 and
WMP.No.28992 of 2022
26.06.2023
https://www.mhc.tn.gov.in/judis
