2014 (1) TMI 123 - HC - Customs

Stay of encashment of bank guarantees - Jurisdiction to invoke bank guarantee - Held that - petitioner can really protest and object to invocation of the bank guarantee on the ground that imports under EPCG scheme were transferred and became liability of Sanya Hospitality Pvt. Ltd.. Letter dated 23.12.2011 shows that certain conditions had to be fulfilled and the Regional Authority had to take necessary action. Letter dated 11.04.2013 records that the conditions imposed were not fulfilled and licence was not transferred and endorsement was not made - petitioner has furnished a bank guarantee to the Customs Authorities, which could be invoked for loss caused or would be caused for violation of the terms of the bond. The letter invoking the guarantee states that terms of the bond have been violated. The petitioner has not filed the said bond on record. Guarantee is specific in terms and states that it can be invoked when there is a breach by the importer of any term and condition mentioned in the bond. There is no stipulation for show cause notice, reply and adjudication order. Terms of the bank guarantee do not stipulate that the same cannot be invoked till an adjudication order is passed. The petitioner was allowed to import capital goods on payment of 5% customs duty in view of the bond and the bank guarantee for the balance amount. The bank guarantee is for the unpaid customs duty and not in respect of penalty, interest etc. - Decided against appellants.

Summary

Issues:
1. Invocation of bank guarantees under the EPCG Scheme.
2. Transfer of obligations to another entity.
3. Conditions for invoking bank guarantees.
4. Requirement of final adjudication before invoking bank guarantees.

Analysis:
1. The petitioner, a company, sought a writ under Article 226 to stay the encashment of 20 bank guarantees invoked by the Deputy Commissioner of Customs. The bank guarantees were invoked due to alleged breaches by the petitioner under the EPCG Scheme. The Court noted that the bank had undertaken to pay the Customs authorities for any loss caused by the petitioner's breach of bond terms. The petitioner had transferred the imported capital goods to another entity, claiming fulfillment of export obligations by the transferee.

2. The petitioner argued that the transferee had complied with all export obligations and had obtained approval from the EPCG Committee for the transfer. However, the Court observed that the conditions for transfer, including the submission of fresh bank guarantees, were not fulfilled as per the letters from the Foreign Trade Development Officer. The Court found that the petitioner could not object to the invocation of bank guarantees based on the transfer of obligations.

3. The Court rejected the petitioner's argument that bank guarantees should only be invoked after final adjudication under the Customs Act. The guarantees could be invoked upon any breach of bond terms without the need for a show cause notice or adjudication order. The guarantees were specifically for unpaid customs duty, not penalties or interest. The Court clarified that its decision did not conclusively determine the petitioner's violation of EPCG Scheme terms, leaving it for the authorities to examine in appropriate proceedings.

4. Ultimately, the Court dismissed the writ petition without costs, allowing the Deputy Commissioner to invoke the bank guarantees. The judgment emphasized that the decision did not signify a final determination of the petitioner's compliance with the EPCG Scheme. The Court's focus was on the Deputy Commissioner's letter invoking the guarantees and the terms therein, rather than a conclusive assessment of the petitioner's actions.