Customs Department Can't Invoke Expired Bank Guarantees: Kerala High Court

The Kerala High Court stated that invocation of the expired bank guarantees by Customs Department is not permissible under law. The Division Bench of Justices A.K. Jayasankaran Nambiar and Easwaran S. was addressing the issue of whether customs department can invoke expired bank guarantees. The assessee/appellant has filed an appeal challenging the order of Single Judge who found that the challenge to the invocation of the Bank Guarantees cannot be made, except on fraud or irretrievable injury or loss caused to the person who has furnished the Bank Guarantee. In this case, the assessee was under Corporate Insolvency Resolution Process under the Insolvency and Bankruptcy Code, 2016 initiated by the National Company Law Tribunal, Kochi. The assessee had imported various capital goods from abroad under the Export Promotion Capital Goods Scheme announced by the Central Government. At the time of the imports, the assessee had furnished 45 Bank Guarantees for various amounts covering the amount of duty against the EPCG authorisations. According to the assessee, since the amounts were due to the financial creditor an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 was moved before the Kochi Bench of the National Company Law Tribunal. The Customs Department, in the meantime, filed their claim before the resolution professional, who rejected the same. After the rejection of the claim of the Customs Department, the Customs Department issued a letter dated 11.01.2023 (impugned letter) to the Bank to encash the Bank Guarantees which were given by State Bank of India on account of the assessee. The assessee had filed a writ petition before the High Court which was dismissed. The assessee submitted that the Bank Guarantees executed by the erstwhile State Bank of Travancore are no longer in force and have since expired and, therefore, the Customs Department cannot invoke expired Bank Guarantees. The department submitted that in the nature of the Bank Guarantees, it is not possible for the assessee to contend that they have expired. It was further submitted that bank had agreed to make the Bank Guarantees alive until otherwise requested by the Customs Department. The bench opined that in the light of the unequivocal stand taken by the Bank in their affidavit dated 17.3.2025, the impugned letter by which the additional commissioner of customs and the deputy/assistant commissioner of customs (respondents 1 and 2) sought to invoke the Bank Guarantees cannot be sustained. The bench held that invocation of the expired Bank Guarantees is not permissible under law and, therefore, the impugned letter has no efficacy of law and is liable to be set aside. In view of the above, the bench allowed the appeal. Case Title: M/s Itma Hotels India Pvt. Ltd. v. The Additional Commissioner of CustomsCitation: 2025 LiveLaw (Ker) 218 Case Number: WA NO. 2183 OF 2023 Counsel for Appellant/ Assessee: K. Sreekumar Sr Adv, Advs M Balagopal, R Sreejith, Ammu Charles, Thressy Thomas, R Devika, Anjali Menon.Counsel for the Bank. : Adv PV Vinod Counsel for Respondent/ Department: Suvin R Menon Click Here To Read/Download The Order

Customs Department Can't Invoke Expired Bank Guarantees: Kerala High Court

Mehak Dhiman

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