Case Note & Summary
The petitioners, a proprietary concern and a partnership firm, challenged the coercive encashment of a bank guarantee by the Customs authorities. The dispute arose from an Order-in-Original dated 30.06.2020, which confirmed a customs duty demand. The order was issued on 06.07.2020 but served on the petitioners only on 15.07.2020. On the same day, respondent no. 3 addressed a letter to HDFC Bank, directing encashment of the bank guarantee furnished by the petitioners to cover the demand. The bank promptly transferred the amounts of ₹35,25,160 and ₹10,58,000 to the respondents. The petitioners contended that this action was coercive and taken with undue haste, depriving them of the opportunity to avail the statutory remedy of appeal under Section 129(3) of the Customs Act, 1962. They asserted that such action violated the Central Board of Excise and Customs (CBEC) Circular No. 984/08/2014-CX dated 16.09.2014, which clearly prohibits coercive measures for recovery of amounts in excess of the mandatory pre-deposit during the pendency of an appeal. The petitioners had already filed an appeal before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) and sought quashing of the impugned letter/order dated 15.07.2020, along with a direction for refund/restoration of the bank guarantee and maintenance of status quo until the appeal was decided. The respondents raised a preliminary objection regarding the maintainability of the writ petition on the ground of alternate remedy. They argued that the petitioners should agitate their grievances in the pending appeal, and if successful, would be entitled to a refund with interest. The Court, however, distinguished between the challenge to the original order and the challenge to the coercive action of encashment. It held that the remedy of appeal was not an efficacious remedy to address the illegality in the encashment process, and thus the writ petition was maintainable. On merits, the Court placed strong reliance on the CBEC circular, particularly paragraph 4, which mandates that no coercive measures be taken for recovery of the balance amount during the pendency of an appeal, provided the assessee has paid the pre-deposit and filed the appeal. The Court also referred to a previous decision of a Coordinate Bench in Mahindra & Mahindra Ltd. v. Union of India (MANU/MH/0316/1992), which had deprecated the encashment of bank guarantees even before the expiry of the three-month statutory period for filing an appeal. Applying these principles, the Court found that the action of the respondents was highly improper and contrary to law. Consequently, the impugned letter/order dated 15.07.2020 was quashed, and the respondents were directed to refund/restore the encashed amount and maintain the bank guarantee pending the final disposal of the appeal before CESTAT.
Headnote
A) Customs – Pre-deposit and Recovery – Coercive Measures During Pendency of Appeal – Customs Act, 1962, Section 129E; CBEC Circular No. 984/08/2014-CX dated 16.09.2014 – The circular prohibits coercive measures for recovery of the balance amount over and above the pre-deposit during the pendency of an appeal, and recovery action can be initiated only after the appeal is decided in favour of the Department. In this case, the respondents encashed the bank guarantee on the very day the Order-in-Original was served, before the petitioners could even file an appeal. Held that such encashment was highly improper and contrary to the circular, warranting quashing of the impugned letter and restoration of the bank guarantee pending the appeal before CESTAT. (Paras 10-14) B) Writ Jurisdiction – Alternate Remedy – Maintainability – Constitution of India, Article 226 – The respondents contended that the petition should be dismissed because the petitioners had an alternate remedy of appeal. The Court rejected this objection, observing that the grievance was against the coercive action of encashment, not the original order, and the alternate remedy was not efficacious to provide relief in this context. Held that the writ petition was maintainable. (Para 9)
Issue of Consideration
Whether the encashment of the bank guarantee by the Customs authorities on the same day as the service of the Order-in-Original, before the expiry of the statutory period for filing an appeal and during the pendency of the appeal, was illegal and contrary to the CBEC Circular dated 16.09.2014.
Final Decision
The Court deprecated the premature encashment of the bank guarantee, held it to be highly improper, and following the CBEC Circular and Mahindra & Mahindra Ltd. v. Union of India, quashed the impugned letter/order dated 15.07.2020 and directed restoration/refund of the bank guarantee pending the appeal before CESTAT.
Law Points
- Legal points not extracted
- No coercive measures for recovery of amounts in excess of pre-deposit during pendency of appeal
- encashment of bank guarantee before expiry of statutory appeal period is improper
- CBEC Circular binding on revenue authorities
- alternate remedy not a bar if not efficacious
