Encashment of Bank Guarantee for non submission of Export Obligation Discharge Certificate.

Case:-GEMALTO TERMINALS INDIA PVT. LTD. VERSUS COMMR. OF CUS., BANGALORE

Citation:-2014(301) E.L.T 291(Kar.)

Brief Facts:-In this writ petition under Article 226 of the Constitution of India, the petitioner has sought for writ of mandamus directing the Respondents 1 and 2 to refund 2,17,41,000/- to the petitioner being the amount recovered by invoking Bank guarantee issued on 10-4-2013.

The petitioner was formerly known as M/s. Axalto Terminals India Pvt. Ltd. It was engaged in the business of export of electronic goods including EDC terminals also known as point-of-sale terminals. The petitioner was granted advance license bearing No. 0310376099/3/03/00 dated 17-4-2006 by the Joint Director General of Foreign Trade, Mumbai, for import of goods without payment of customs duty against discharge of export obligation of Rs. 11,05,55,250/- by exporting 17,000 nos. of EDC terminals. The period stipulated for fulfillment of export obligation was 24 months from the date of issue of license. It is stated, export goods manufactured by the petitioner from the supporting manufacturer were exported directly from the supporting manufacturer's premises after due examination and scrutiny. The export goods were exported vide 15 free shipping bills.

At the time of import of the permitted goods, the petitioner had furnished as security seven Bank guarantees by the Standard Chartered Bank, Mumbai, in the months of May to August for an amount of 2,17,41,000/-. It was valid till 2009.

The petitioner submitted requisite documents to the Joint Director General of Foreign Trade, Mumbai, for redemption of the advance license and issuance of Export Obligation Discharge Certificate. The Joint Director General of Foreign Trade authorities observed that 15 shipping bills were filed under the ' free category and not under the DEEC scheme and consequently, put on hold the process of issue of Export Obligation Discharge Certificate and advised the petitioner to get the free shipping bills converted into DEEC shipping bills by the Customs authorities.

The petitioner submitted a representation dated 3-9-2007 to the first respondent requesting for conversion of 15 free shipping bills into DEEC shipping bills. The department issued show-cause notice C. No. V111/48/273/2007.CIS.TECH, dated 7-11-2007 proposing to reject the petitioner's request for conversion of 15 free shipping bills into DEEC shipping bills on the ground that necessary examination, scrutiny, assessment, testing etc., as indicated in the DEEC scheme have not been carried out. The petitioner submitted its reply stating that they have fulfilled the necessary conditions for treating 15 free shipping bills as DEEC shipping bills. The petitioner was granted personal hearing on 26-12-2007. Thereafter, the second respondent issued letter dated 21-2- 2009 to the Bank which furnished Bank guarantee on behalf of the petitioner to encash the original Bank guarantee. The petitioner informed the first respondent on 29-4-2009 that the second respondent has sought to encash Bank guarantee and therefore, the matter may be disposed of early.

The first respondent passed Order-in-Original No. 15/2009 on 18-5-2009 rejecting the request of the petitioner for conversion of 15 free shipping bills into DEEC shipping bills. Aggrieved by the Order-in-Original dated 18-5-2009, the petitioner preferred an appeal before the CESTAT, Bangalore, along with an application for early hearing. The case was listed on several dates, but could not reach.

It is stated, the petitioner Company was transferred to a new Company w.e.f. 1-1-2011 including its employees. Therefore, the original Bank guarantees were not renewed. The second respondent issued letter dated 23-2-2013 to Standard Chartered Bank, Mumbai, seeking to encash the original Bank guarantees. The second respondent informed the petitioner through e-mail dated 16-3- 2013 to renew the Bank guarantees as they had expired in 2009. On 19-4-2013, the petitioner furnished seven new Bank guarantees by the Respondent No. 3 for an amount of 2,17,41,000/-. It was submitted to the Respondent No. 2 vide letter dated 19-4-2013 along with a request not to encash the Bank guarantees as the appeal is pending. The second respondent again sought to encash the new Bank guarantees vide letter dated 21-5-2013 issued to the Respondent No. 3. The petitioner approached the Appellate Tribunal seeking an interim order. The Tribunal did not grant any interim order. Thereafter, the petitioner submitted letters dated 22-5-2013 stating that Appeal No. C/445/2009 is pending. Subsequently, the Respondents 1 and 2 have invoked Bank guarantee through communication dated 22-5-2013. Therefore, this writ petition.

Appellant contentions:-The learned counsel for the petitioner contended that invoking of Bank guarantee by the Respondents 1 and 2 is illegal and cannot be sustained in law. He also submitted that the petitioner had imported goods, utilized and exported it. Without any valid reason, the Bank guarantees have been invoked by the Respondents 1 and 2. There is no demand by the Respondents 1 and 2. Without demand the Bank guarantee cannot be invoked. Further he submitted that the factory stuff was verified by the officers and no proceedings have been initiated against the petitioner. The petitioner has discharged his export obligation and therefore, invoking of Bank guarantees was not correct. Therefore, the Respondents 1 and 2 may be directed to refund Rs. 2,17,41,000/-. He placed reliance on the decision reported in 2010 (249) E.L.T. page 481 to contend that invoking of Bank guarantee without demand was illegal.

Respondent contentions:-As against this, the learned counsel for the Respondents 1 and 2 submitted that the Respondents 1 and 2 have rightly invoked the Bank guarantee. Further he submitted that the bills submitted by the petitioner were not in proper form. Further he submitted that the discharge certificate is required and the petitioner has not produced discharge certificate from the competent authority to show that export obligation has been discharged. Further he submitted that the time stipulated was 24 months. The petitioner has not produced any evidence to show that he has discharged his export obligation. In the absence of discharge certificate, the Respondents 1 and 2 were justified in invoking the Bank guarantee. Further he submitted that if the discharge certificate is produced from the competent authority, the petitioner can always claim back his amount. He, therefore, submitted that the writ petition is liable to be dismissed. He placed reliance on the decision reported in 2002 (146) E.L.T. page 301 to contend that show-cause notice and final adjudication are not necessary to invoke Bank guarantee.

Reasoning of Judgment:-After carefully considering the submissions made by the learned counsel for the parties, it is relevant to note, the petitioner has approached this Court seeking writ of mandamus restraining the second respondent from invoking Bank guarantee. Subsequently, the Bank guarantee has been invoked. Therefore, the petitioner has amended the prayer to direct the Respondents 1 and 2 to refund Rs. 2,17,41,000/,

The advance license has been issued to the petitioner on 17-4-2006 by the Joint Director General of Foreign Trade, Mumbai, for import of goods without payment of customs duty against discharge of export obligation of Rs. 11,05,55,250/- by exporting 17,000 nos. of EDC terminals. The period stipulated for fulfillment of export obligation was 24 months. The petitioner contends that export obligation has been fulfilled. According to the petitioner, the export started from 26-5-2006 and ended on 22-1-2007. The petitioner submitted requisite documents to the Joint Director General of Foreign Trade, Mumbai, for redemption of license and issue of Export Obligation Discharge Certificate. The bills produced by the petitioner were under the free category and not DEEC shipping bills. The petitioner has submitted representation dated 3-9-2007 to the first respondent requesting for conversion of 15 free shipping bills into DEEC shipping bills. The first respondent has issued show-cause notice dated 7-11-2007 to the petitioner proposing to reject the request of petitioner for conversion of 15 free shipping bills into DEEC Shipping bills on the ground that necessary examination and assessment of export under DEEC scheme has not been carried out.The petitioner has submitted his reply. Thereafter, by order dated 18-5-2009, the first respondent has rejected the request of the petitioner for conversion of 15 free shipping bills into DEEC shipping bills. The petitioner has preferred an appeal before the CESTAT, Bangalore. The appeal has been dismissed rejecting the request of the petitioner for conversion. From the order passed by the first respondent and the Appellate Authority, it is clear, the bills produced by the petitioner are free shipping bills and not DEEC Shipping bills. Unless the petitioner discharges his export obligation and produces discharge certificate from the competent authority, the petitioner cannot contend that Bank guarantee cannot be invoked.

Chapter 4 of Handbook deals with duty exemption/Remission scheme. The relevant portion of paras 4.25 and 4.26 reads as follows:

4.25 The Authorisation holder shall furnish the following documents in support of having fulfilled the export obligation :-
A. For physical exports :-

(ii) EP copy of the shipping bill(s) containing details of shipment effected or bill of export in case of export to SEZ.
4.26 In case the export obligation has been fulfilled, the Regional Authority shall redeem the case.

After redemption, the Regional Authority shall forward a copy of the redemption letter indicating the shipping bill number(s), date(s), FOB value in Indian rupees as per shipping bill(s) and description of export product to the Customs Authority at the port of registration. Such details shall also be placed by the zonal offices in their website immediately after issuance of the export obligation discharge/redemption letter/No Bond Certificate and by DGFI' Hqr in DGFT website on monthly basis for the Customs Authority to access it front the website.

Before discharging BG/LUT against Physical Exports, the Customs shall verify that the details of the exports as given in the "Redemption Certificate" are as per their records. However before discharging BG/LUT against Intermediate Supplies and Deemed Exports, the Customs .shall verify the details of the supplies from the Central Excise Authorities/Bond Officer.

It is clear from paras 4.25 and 4.26 of the Handbook that the license holder shall furnish EP copy of shipping bill(s) containing details of shipment effected or bills of export in case of export to SEZ. Before discharging BG/LUT against physical exports, the Customs shall verify that the details of the exports as given in the "Redemption Certificate" are as per their records.

In the present case, the petitioner has sought for conversion of free shipping bills into DEEC Shipping bills. That has not been granted. In the appeal, the request of the petitioner has been rejected. In these circumstances, the Respondents 1 and 2 have invoked the Bank guarantee. As the Bank guarantee has already been invoked, it may not be appropriate to direct the Respondents 1 and 2 to refund the amount unless the petitioner produces the discharge certificate from the competent authority regarding discharge of export obligation. As and when the petitioner produces the discharge certificate, Respondent 1 and 2 may consider refund of the amount which has been realized by invoking the Bank guarantee.

The writ petition is dismissed with the above observation.

Decision:-Appeal dismissed.

Comment:-The gist of this case is that the encashment of bank guarantee for non submission of export obligation discharge certificate is proper. The petitioner cannot get refund of the amount encashed until and unless Export Obligation Discharge Certification was not procured. Hence, the appeal was disposed of with condition that as and when the petitioner produces the discharge certificate, the revenue department may consider refund of the amount which has been realized by invoking the Bank guarantee.

Prepared by:- Hushen Ganodwala

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PJ/Case Law/2014-15/2403

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