Customs Authorities Cannot Encash Bank Guarantee Before Expiry Of The Limitation Period For Filing An Appeal: Bombay High Court

The Bombay High Court has reiterated that Customs Authorities cannot encash the Bank Guarantee furnished by the assessee before the expiry of the statutory period available for filing an appeal.

The Division Bench consisting of Chief Justice Dipankar Datta and Justice M. S. Sonak ruled that despite the assurances given to the Bombay High Court in the case of Legrand (India) Pvt. Ltd. versus Union of India (2007), the Customs Authorities had breached the law by adopting coercive measures and encashing the Bank Guarantees before the expiry of the limitation period available for filing a statutory appeal.

Observing that the CBEC circular no. 984/08/2014-CX dated 16.09.2014 is binding on the Customs Authorities, the Court directed the Commissioner of Customs to ensure that there is no breach of the CBEC instructions or disobedience of judicial orders in the future.

The Customs Authority passed an order against the petitioner S. J. Enterprises. On the date the said order was served on the petitioner, the Assistant Commissioner of Customs sought encashment of the Bank Guarantees furnished by the petitioner in order to cover the demands raised by the Customs Department against the petitioner. In response to the communication received from the Assistant Commissioner of Customs, the HDFC Bank Ltd. transferred the given amounts to the Customs Authorities to cover the demands raised in the order passed against the petitioner. Against this the petitioner filed a writ petition before the Bombay High Court.

The petitioner S. J. Enterprises contended before the High Court that the Customs Authorities adopted coercive measures to encash the Bank Guarantee furnished by the petitioner. The petitioner added that the authorities sough to encash the Bank Guarantees, even before the petitioner could avail the opportunity to appeal the order passed against it within the prescribed period of limitation.

The petitioner averred that the coercive action taken by the Customs Authorities was in contravention with the Central Board of Excise and Customs (CBEC) circular no. 984/08/2014-CX dated 16.09.2014.

The Bombay High Court noted that the said Order passed by the Customs Authorities, dated 30.06.2020, was issued on 06.07.2020 and served on the petitioner on 15.07.2020; however, on the same day, i.e., on 15.07.2020, the Assistant Commissioner of Customs addressed a communication to the HDFC Bank Ltd. to encash the Bank Guarantees furnished by the petitioner to cover the demands raised in the said Order dated 30.06.2020.

Observing that the petitioner was entitled to file an appeal against the said Order before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) within three months from the date of the communication of the order, the Court held that the Customs Authorities recovered the amounts by way of encashment of Bank Guarantees, even before the petitioner could file an appeal against the said order, by adopting coercive measures.

The Bench held that the CBEC circular no. 984/08/2014-CX dated 16.09.2014 presupposes grant of a reasonable time to the assessee for instituting an appeal against the Order, together with the pre-deposit of a stipulated amount. The Bench ruled that as per the said Circular, no coercive measures for recovery of the balance amount that is in excess of the pre-deposit amount should be taken during the pendency of the appeal. Additionally, recovery action, if any, can be initiated only after the disposal of the appeal in favour of the Customs Department.

The Court further observed that the Bombay High Court in Ocean Driving Centre versus Union of India & Ors. (2004) had held that the authorities cannot encash the Bank Guarantee given by the assessee before the expiry of the statutory period available for filing an appeal.

The Court noted that, after the Union of India had assured the Bombay High Court that adequate care would be taken in the future, the Bombay High Court in the case of Legrand (India) Pvt. Ltd. versus Union of India (2007) had discharged a contempt notice issued against the Customs Authority for adopting coercive measures and for encashing the Bank Guarantees before the expiry of the limitation period for instituting statutory appeals.

"Despite the above assurance, we find that in the present case, the respondents have acted not only in breach of the Circular of CBEC, which was binding on them but also in breach of the law laid down by the several decisions referred to above. The CBEC circular and the instructions bind the Customs Authorities. In any case, the Customs Authorities are bound by the various decisions referred above, not to mention the solemn assurance on behalf of the Union of India that in the future, adequate care would be taken to follow the law laid down by this Court scrupulously. Therefore, the impugned action is unsustainable.", the Court said.

Thus, the Court quashed the letter/order issued by the Customs Department to HDFC Bank Ltd. seeking encashment of the Bank Guarantee furnished by the petitioner. The Court directed the Customs Department to restore the petitioner's Bank Guarantee and maintain status quo ante till the disposal of the appeal instituted by the petitioner, against the Order dated 30.06.2020, before the appellate authority.

"Further, we direct the Commissioner of Customs (respondent no.2) to circulate this judgment and order to all Assistant Commissioners or adjudicating Officers so that in future, there are no similar instances of breach of CBEC instructions or the disobedience of judicial orders. If the Commissioner finds any further cases of violation, we expect the Commissioner to take necessary action against the errant officers.", the Bench directed.

Case Title: S. J. Enterprises & Anr. versus Union of India

Citation : 2022 LiveLaw (Bom) 293

Dated: 05.08.2022 (Bombay High Court, Goa)

Counsel for the Petitioners: Mr. Manoj Ramsurat Chauhan i/b MRC Legal, Advocate

Counsel for the Respondents: Ms. Asha Desai, Senior Standing Counsel for the Respondents.

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