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of <h1>Court declares premature encashment of bank guarantees 'bad in law,' orders refund and fresh guarantees</h1> <h3>M/s UNITED DISTRIBUTORS INC Versus UNION OF INDIA</h3> M/s UNITED DISTRIBUTORS INC Versus UNION OF INDIA - TMI Issues:1. Challenge to encashment of bank guarantees by the revenue authority before the expiry of the period for filing an appeal.2. Legality of encashing bank guarantees before the adjudication order.3. Refund of the encashed amount and issuance of fresh bank guarantees.Analysis:Issue 1:The petitioner, a company, contested the respondent-authority's action of encashing bank guarantees before the period for filing an appeal had expired. The adjudication order confirming Central Excise duty and penalty was issued on 22 August 2013, with the petitioner receiving it on 26 August 2013. Despite the appeal period not lapsing, the revenue authority encashed bank guarantees totaling Rs.94,30,625 issued by a bank. The petitioner argued that this premature encashment was against established legal precedents, citing cases like Mahindra & Mahindra v/s. Union of India and Legrand (India) Pvt. Ltd. v/s. Union of India.Issue 2:The petitioner contended that the encashment of bank guarantees before the appeal deadline was illegal, invoking legal principles from previous court decisions. The respondent-revenue did not contest this legal position. Consequently, the High Court declared the revenue authority's action of encashing the bank guarantees as 'bad in law.' The court ordered the refund of the encashed amount to the bank and directed the bank to issue fresh guarantees to maintain the status quo ante.Issue 3:In its judgment, the High Court allowed the petition, emphasizing that the encashment of bank guarantees before the appeal period was unjustifiable. The court directed the revenue authority to refund the encashed amount to the bank by a specified date. Furthermore, the bank was instructed to issue new guarantees to the revenue authority promptly. This ruling was intended to benefit the petitioner until the Tribunal's decision on their stay application, where the fate of the bank guarantees would be determined based on the merits of the case.In conclusion, the High Court's judgment favored the petitioner, highlighting the importance of adhering to legal timelines and procedures in matters involving bank guarantees and revenue encashment.
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