2017 (3) TMI 494 - HC - Customs

Encashment of the Bank Guarantee - Held that - The State cannot levy, retain or collect duty from the petitioner, which is based on an erroneous premise that the petitioner had not fulfilled his export obligations - the petitioner had slept over his rights, the best way forward, according to me, would be that, while, the State s action in forfeiting the sum of ₹ 3,55,000/-, will have to be declared as illegal, the petitioner should, in my view, pay costs for not approaching the court in time - petition allowed - decided partly in favor of petitioner.

Summary

Issues:
1. Whether the petitioner fulfilled the export obligation.
2. Whether the action of the Department in encashing the Bank Guarantee and issuing the recovery order was legal.
3. Whether the State can collect duty based on an erroneous premise.
4. Whether the petitioner should pay costs for not approaching the court in time.

Analysis:

1. The petitioner contended that he had fulfilled the export obligation as per the Export Obligation Discharge Certificate (E.O.D.C.) dated 29.07.2013, which indicated compliance to a significant extent. The petitioner argued that the Department's action in seeking to recover duty was in violation of the law, as the conditions of the bond were fulfilled, and there was no breach. The petitioner emphasized that the respondents could not enrich themselves unjustly when there was no legal infraction, even if the statutory remedy was not availed within the prescribed time.

2. The background of the case revealed that the petitioner was issued an EPCG License for importing capital goods under certain conditions. The Department mistakenly issued a demand notice for duty payment, which led to the confirmation of duty payment and encashment of the Bank Guarantee. Subsequently, an Export Obligation Discharge Certificate was issued in favor of the petitioner, confirming the fulfillment of the export obligation. The Department's delay in recognizing this fact and issuing a recovery notice after five years was deemed unlawful by the petitioner.

3. The Court acknowledged that the Department's actions were based on a mistake of fact regarding the petitioner's compliance with the export obligation. The Court held that the State cannot collect duty based on an erroneous premise and declared the encashment of the Bank Guarantee and the recovery notice as illegal. Despite the petitioner's delay in approaching the court, the Court directed the quashing of the orders, subject to the petitioner paying costs for the delay.

4. In conclusion, the Court quashed the Order-in-Original and the recovery notice, directing the petitioner to pay costs for the delay. The Court emphasized that the State cannot levy duty based on incorrect assumptions and ordered the refund of the amount due to the petitioner after adjusting the costs. The costs were to be deposited with the Consumer Welfare Development Fund, and the writ petition was disposed of accordingly.