Cus - Finalisation of Provisional Assessment - Bank guarantee encashed even before order of finalisation despatched to importer - Department directed to remit amounts to importer's bank accounts within seven days: High Court

Cus - Finalisation of Provisional Assessment - Bank guarantee encashed even before order of finalisation despatched to importer - Department directed to remit amounts to importer's bank accounts within seven days: High Court



BANGALORE, JULY 16, 2013: THE Department's urge to collect what they think is revenue by means fair or foul, knows no limits of decency or law, as this case would reveal.

An order finalising provisional assessment was passed on 20.05.2013. A copy of this order was despatched to the importer at 12.53pm on 21.5.2013, while the bank guarantee was invoked at 11.37 am on 21.5.2013. So, once an order is passed, the Revenue immediately rushes to the bank to recover the duty demanded, even before the order is delivered to the importer, thereby preventing the importer from availing the appellate remedies the law has provided him with.

Petitioner is engaged in the business of developing and selling information technology related to hardware support and software products and is having its registered office at New Delhi and also at Bangalore. M/s Sun Microsystems India Pvt. Ltd. became a part of petitioner-company, which is engaged in the activity of importing various information technology related hardware products and spares at Bangalore and Chennai. On an intelligence information received by Department of Revenue Intelligence (DRI) investigations were initiated during October 2006 to ascertain correct value of the spares imported by M/s Sun Microsystems India Pvt. Ltd. in Bangalore and Chennai, pursuant to which show cause notice dated 27.02.2009 came to be issued demanding the differential customs duties based on the assessable value re-determined at United States List price. After hearing the noticee, an Order-in- Original came to be passed on 29.03.2012, demanding tax, interest and penalty. Said order also directed the finalization of provisional assessment since Bills of Entry had been provisionally assessed for clearance.

Being aggrieved by this Order-in-Original dated 29.03.2012 an appeal has been filed by petitioner before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT') and an application for stay of Order-in-Original dated 29.03.2012 also came to be filed by the petitioner, which came to adjudicated by the Tribunal and an order came to be passed on 04.03.2013, whereunder an amount of Rs. 75,00,00,000/- was ordered to be paid / deposited as predeposit as contemplated under Section 129E of the Customs Act, 1956 and stayed the recovery of balance amount of differential duty determined in Order-in- Original dated 29.03.2012.

The goods imported during the period 11.05.2007 to 31.03.2008 had been provisionally assessed pending finalization and in Order-in-Original dated 29.03.2012, provisional assessment orders were directed to be finalized. Pursuant to same, provisional assessment came to be finalized and an Order-in-Original came to be passed on 20.05.2013, whereunder the value of goods came to be re-determined on the basis of United States of America's list price as Rs. 1,54,74,52,291/- under Rule 9 of the Customs Valuation Rules, 2007 and the differential duty payable was determined at Rs. 19,85,21,756/- and affirmed the demand of duty short paid as Rs. 19,85,21,756/- and demanded payment of interest on the short collected duty above referred to by an order of even date.

The bank guarantees furnished for an amount of Rs. 24,50,00,000/- at the time of provisional assessment came to be invoked by Additional Commissioner on 21.05.2013 and realised the proceeds thereof. On such Order-in Original being passed affirming the provisional assessment, communication dated 21.05.2013 came to be issued by Assistant Commissioner to the bankers of petitioner for forwarding the cheques in favour of Commissioner of Customs towards the bank guarantees invoked which has been undisputedly received.

The question before the High Court is

Whether respondent-Department was entitled to invoke Bank Guarantees after passing the Order-in-Original and finalizing the provisional assessment even before said order is communicated to the assessee or even before completion of the statutory period as prescribed in the Circular dated 01.01.2013 issued by the Board?

The High Court noted,

It can be noticed that Order-in-Original dated 20.05.2013 (Annexure-F) finalizing the provisional assessment came to be passed under Section 18(2) of the Act undisputedly without issuing any notice to the petitioner. In fact, respondents in their statement of objections have nowhere stated that notice of personal hearing or notice of hearing was issued to assessee before finalization of provisional assessment. On the other hand it is the specific stand of the respondents that when there is no stay of Order-in-Original dated 29.03.2012 which directed finalization of provisional assessment or an injunction restraining respondents from finalizing provisional assessment the authorities were bound to pass such order. It is also asserted that no personal hearing needs to be extended to an assessee. Additional documents produced by the respondents namely, 'Activity Log' would indicate that at job No.11079 on 21.05.2013 order dated 20.05.2013 is said to have been despatched about 12:53:45 HRS running into 5 pages. Though it is contended by the respondents that Bank Guarantees were invoked after despatching to petitioner the order dated 20.05.2013 records would speak otherwise. As noticed, order dated 20.05.2013 has been despatched by Fax at about 12.53 p.m. on 21.05.2013 and much prior to it letters have been issued by 4th respondent invoking Bank Guarantees as per communication dated 21.05.2013 - i.e., even before the said order could have been despatched to the petitioner. This I say so, on account of the seal affixed by the two Banks indicating the time at which said communication invoking the Bank Guarantees have been received by them has been indicated in the very same letters. The time at which it has been received has been reflected by computer generated entry as 11-37 a.m on 21.05.2013. Likewise the time indicated in the seal fixed would indicate that it has been received by Bank of America, Bangalore branch on 21.05.2013 at 11.05 a.m. This would clearly indicate that even prior to despatching the order dated 21.05.2013 to the petitioner by fax at 12:53:45 HRS as claimed by respondents themselves, Bank Guarantees in question have been invoked. This would virtually preempt or nullify very right of the assessee to file an appeal against the Order-in-Original and very proviso to Section 129E of the Act would render nugatory or it would become otiose as this is not the intention of the legislature nor intention of the Central Excise and Customs Board namely to frustrate the right of assessee to file an appeal and seek order of stay. This act of respondents is also contrary to circular dated 01.01.2013.

The High Court observed,

Action of the respondents invoking the Bank Guarantees will have to be viewed with utmost circumspection. Mere furnishing or execution of Provisional Duty Bond and agreeing thereunder to pay differential duty between what has been provisionally assessed and what would be assessed finally would itself not provide the department a handle to nullify the appeal provisions or the right of the assessee to seek waiver of pre deposit as provided to under proviso to Section 129E of the Act and such appropriate relief in appellate proceedings. Said bonds executed and the Bank Guarantees furnished by assessee pursuant to provisional assessment is to ensure that interest of the revenue is secured and its right to recover the duty and interest is not frustrated. Though on account of provisional assessment getting merged with the final assessment, as such bond would come to an end will not relieve the assessee of its obligation particularly when Bank Guarantees have also been executed. When it is a declared policy of the department not to resort to coercive recovery proceedings during the appeal period, plea of the respondents that by virtue of provisional assessment having been finalized under the final assessment it would entitle them to invoke the Bank Guarantee cannot be accepted as it would virtually take away the right of the assessee to pursue its remedy in accordance with the provisions of the Act. The very circular dated 01.01.2013 issued by the Board would be a complete answer to the acts of the respondents.

In the present case the sequential events would clearly indicate that at the time of passing Order-in-Original finalizing the provisional assessment dated 20.05.2013 no notice has been issued to the petitioner (which is not disputed by learned Advocate appearing for the revenue) and even before the said order could be communicated to the petitioner - assessee, Bank Guarantees have been invoked thereby rendering the statutory right available to the petitioner infructuous which cannot be countenanced by this Court. This action of the respondent is contrary to the statutory provisions. Petitioner has a statutory right of appeal, which period is not yet expired. It is the declared policy of the respondent-department not to initiate recovery proceedings during the currency of appeal period. In this view of the matter it was not proper on the part of the respondents to encash the Bank Guarantees even before the period of appeal was over or the conditions stipulated in circular dated 01.01.2013 is not attracted. Respondents' action in invoking the Bank Guarantees is contrary to their own declared policy.

So, the High Court was of the view that respondents-authorities are required to be directed to remit the proceeds of the Bank Guarantees so recovered and collected to the respective bank accounts of the petitioner within seven days and simultaneously the petitioners shall furnish Bank Guarantees for a sum of Rs.24 ,50,00,000 /- also within seven days and said Bank Guarantees shall be kept current and alive for such period as may be called-upon by the respondents. The respondents would be at liberty to initiate recovery proceedings in accordance with the circular dated 01.01.2013. Hence, the point formulated hereinabove is answered in favour of the petitioner partly.