Bank guarantee encashment under import conditions requires prior breach determination and quantified liability before coercive recovery.
Where alleged non-compliance with EPCG import conditions had not yet been finally determined by the competent authority, the show cause notice and allied adjudicatory proceedings were not quashed and the importer was directed to respond before that authority. However, bank guarantees furnished for the import could not be invoked before breach was first established and the resulting liability quantified. In the absence of any final determination or quantified demand, coercive encashment was held unsustainable and was set aside. The proceedings on the alleged breach were left open for decision on the merits by the competent authority, but recovery through guarantee invocation was interdicted until liability was determined.
Issues: (i) Whether the show cause notice and allied proceedings for alleged non-compliance with the import conditions could be quashed at the threshold without a final determination by the competent authority; (ii) whether the bank guarantees furnished for the import could be enforced before any determination and quantification of liability.
Issue (i): Whether the show cause notice and allied proceedings for alleged non-compliance with the import conditions could be quashed at the threshold without a final determination by the competent authority.
Analysis: The imported vehicles were allowed under the EPCG scheme subject to conditions, and the question whether those conditions were satisfied required examination of the petitioner's records and the explanation offered to the notice. Since the competent authority had not yet taken a final decision on compliance, the proceedings based on the show cause notice were treated as an initial step for determination rather than a final adverse adjudication.
Conclusion: The challenge to the show cause notice and the connected proceedings was rejected, and the petitioner was directed to respond before the competent authority.
Issue (ii): Whether the bank guarantees furnished for the import could be enforced before any determination and quantification of liability.
Analysis: Encashment of the bank guarantees depended on a prior determination that the petitioner had failed to comply with the import conditions and on a consequent quantification of the amount due. In the absence of any such determination or quantified liability, direct invocation of the guarantees was not justified.
Conclusion: The order seeking encashment of the bank guarantees was held unsustainable and was set aside.
Final Conclusion: The proceedings for adjudication of the alleged breach were left open for decision by the competent authority, but coercive recovery by way of bank guarantee encashment was interdicted until liability is first determined.
Ratio Decidendi: Bank guarantees furnished under an import scheme cannot be enforced until the competent authority first determines breach and quantifies the liability arising from such breach.
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