2004 (3) TMI 91 - HC - Customs

Writ jurisdiction - challenged the encashment of a bank guarantee by customs authorities before the expiry of the statutory appeal period - interpretation of bank guarantee terms - HELD THAT - The terms of bank guarantee reads The bond and Bank Guarantee shal1 be kept valid until the assessment has been finalised by the concerned department. Mr. Rana submitted that so far as this clause is concerned it unequivocally makes it clear that upon the finalisation of the assessment by the concerned department it would be open for the department to invoke the bank guarantee. As against this learned Counsel for the petitioner submits that finalisation of assessment means finalisation of assessment by the Appellate authority under the Act. We do not propose to enter into this debatable issue as the same is not necessary to decide this petition. The petitioner has statutory right to appeal. Appeal period is yet to expire. Declared policy of the respondents is not to resort to coercive recovery during the appeal period. In this view of the matter it was not proper on the part of the respondents to encash the bank guarantee before the expiry of the statutory period provided for filing appeal. The action of the respondents is contrary to their declared policy. Thus we quash and set aside the action of the respondents seeking to encash the bank guarantee and direct that the bank guarantee shall not be encashed until an appeal along with an application for stay or to dispense with pre-deposit is not moved by the petitioner which petitioner undertakes to file within two weeks from today along with necessary applications.

Summary

Issues Involved:
The judgment involves issues related to challenging the encashment of a bank guarantee by customs authorities before the expiry of the statutory appeal period, interpretation of bank guarantee terms, and the application of relevant legal precedents.

Facts and Contention:
The petitioner imported goods and claimed exemption from customs duty. Customs authorities ordered encashment of the bank guarantee for duty payment. The petitioner argued that encashment should wait until the appeal period expires, citing statutory appeal rights and classification disputes. The petitioner also highlighted the respondents' policy against coercive actions during appeal periods.

Submissions and Legal Precedents:
The petitioner relied on legal precedents like Mahindra & Mahindra Ltd. case and judgments from the Delhi High Court to support the argument against premature encashment of bank guarantees. The petitioner emphasized the need for the respondents to refrain from encashing the bank guarantee until the appeal process is completed.

Revenue's Argument and Precedents:
The Revenue contended that as per bank guarantee terms, encashment was justified upon finalization of assessment by the department. Legal precedents like Daewoo Motors India Ltd. case and Elecon Engineering Co. Ltd. case were cited to support the Revenue's position on invoking the bank guarantee.

Consideration and Decision:
The Court acknowledged the appeal period was pending and the policy against coercive actions during this period. The Court ruled that encashment before the appeal expiry was improper, quashing the action and directing the bank guarantee not to be encashed until the appeal and necessary applications are filed within two weeks. The Court outlined the process for considering stay applications and waiver of pre-deposit, emphasizing the need to keep the bank guarantee valid until the appeal process is completed.

Conclusion:
The petition was allowed, and the Court set specific timelines and conditions for the appeal process, ensuring the bank guarantee's protection until the appeal decision. The rule was made absolute with no costs awarded.