2008 (12) TMI 319 - HC - Central Excise

Violation of CBEC circular - The petitioner challenges the invocation of its Bank Guarantee during the pendency of the stay petition - Under Circular No. 396/29/98-CX. dated 2-6-1998 the Central Board directed that no coercive action should be taken to realize the dues till the disposal of the stay application Impugned action bereft of authority of law - The present case turns upon the violation of the binding norms of conduct prescribed under the circulars of the Central Board by the Customs authorities which resulted in the infringement of the legal right of the petitioner to be treated in accordance with such circulars. Uncaring violation of binding norms mandates invocation of writ jurisdiction - petitioner is entitled to refund fresh bank guarantee to be executed

Summary

Issues Involved:
1. Invocation of Bank Guarantee during the pendency of a stay petition.
2. Applicability of Central Board of Excise and Customs circulars.
3. Maintainability of the writ petition under Article 226 of the Constitution of India.
4. Legal principles regarding injunctions against the invocation of Bank Guarantees.
5. Refund of the amount encashed under the Bank Guarantee.

Detailed Analysis:

1. Invocation of Bank Guarantee During Pendency of Stay Petition:
The petitioner, a power generation and distribution company, challenged the invocation of its Bank Guarantee by the Customs authorities during the pendency of its stay petition before the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT). The petitioner had filed an appeal and a stay application under Sections 129A and 129E of the Customs Act, 1962, respectively. Despite informing the authorities about the pending appeal and stay application, the Customs authorities invoked and encashed the Bank Guarantee before the stay application was decided.

2. Applicability of Central Board of Excise and Customs Circulars:
The petitioner relied on Circulars No. 396/29/98-CX., dated 2-6-1998, and No. 788/21/2004-CX., dated 25-5-2004, issued by the Central Board of Excise and Customs, which directed that no coercive action should be taken to realize dues during the pendency of stay applications. The court noted that these circulars were binding on the Revenue and that the invocation of the Bank Guarantee within six months of filing the stay petition amounted to a 'coercive measure', as established by various High Court judgments.

3. Maintainability of the Writ Petition under Article 226 of the Constitution of India:
The respondent contested the maintainability of the writ petition, arguing that disputes related to contracts should not be agitated under Article 226. However, the court distinguished this case from contractual disputes, emphasizing that the issue was the violation of binding circulars by the Customs authorities. The court rejected the respondent's reliance on the Supreme Court judgment in National Highways Authority of India v. Ganga Enterprises, stating that the present case involved statutory obligations rather than contractual breaches.

4. Legal Principles Regarding Injunctions Against the Invocation of Bank Guarantees:
The respondent argued that injunctions against the enforcement of Bank Guarantees should not be granted unless fraud or irreparable injury was shown. The court acknowledged this legal principle but clarified that the present case was not about an injunction against Bank Guarantee invocation. Instead, it focused on the violation of binding circulars by the Customs authorities. Therefore, the legal principles related to injunctions were deemed inapplicable.

5. Refund of the Amount Encashed Under the Bank Guarantee:
The court found that the Customs authorities' action of encashing the Bank Guarantee was in violation of the binding circulars and lacked legal authority. Citing precedents where courts directed the refund of unlawfully encashed amounts, the court ordered the refund of Rs. 7.15 crores to the petitioner. Additionally, the petitioner was directed to execute a fresh Bank Guarantee for the same amount in favor of the Assistant Commissioner of Customs.

Conclusion:
The writ petition was allowed, directing the Customs authorities to refund the encashed amount of Rs. 7.15 crores within two weeks and the petitioner to provide a fresh Bank Guarantee. The court emphasized adherence to binding circulars and statutory obligations, rejecting the respondent's contentions regarding the maintainability of the writ petition and the applicability of principles related to injunctions against Bank Guarantees.