2025 (2) TMI 1414 - HC - Income Tax

Bank guarantee for tax deposit disputed; court rejects guarantee substitution, upholds cash deposit requirement to protect public revenue.

Court refused permission to substitute a bank guarantee for a cash deposit of Rs.60 crore in tax recovery proceedings, relying on established fiscal ... Recovery of the demanded tax subject to the applicant depositing an amount of Rs. 60 Crores with the Respondents within four weeks - seeking bank guarantee in lieu of cash deposit - Applicant/Appellant urges that the applicant or Vedanta Limited, of which the applicant is a subsidiary, be permitted to offer a Bank guarantee of Rs. 60 Crores. HELD THAT:- Apart from the fact that our orders cannot be substantively modified by merely handing in praecipes, even on merits, we are not inclined to accept this request. There is no reason to bypass the usual deposit rule. As it is, we have reduced the deposit amount for reasons set out in our order dated 4 February 2025. No case is made to seek further concessions. In fiscal matters, the Hon’ble Supreme Court of India has repeatedly held that unconditional stays should not be granted and that even interim reliefs based on bank guarantees are not the most appropriate course of action in fiscal matters involving the State. See DUNLOP INDIA LIMITED AND OTHER [1984 (11) TMI 63 - SUPREME COURT (LB)] as noticed that very often some courts act as if furnishing a Bank Guarantee would meet the ends of justice. No governmental business or for that matter no business of any kind can be run on mere Bank Guarantees. Liquid cash is necessary for the running of a Government as indeed any other enterprise. Where matters of public revenue are concerned, it is of utmost importance to realise that interim orders ought not to be granted merely because a prima facie case has been shown. More is required. The balance of convenience must be clearly in favour of the making of an interim order and there should not be the slightest indication of a likelihood of prejudice to the public interest. We are very sorry to remark that these considerations have not been borne in mind by the High Court and interim order of this magnitude had been granted for the mere asking. Issues: Whether the praecipe seeking modification of the interim order to permit a bank guarantee in lieu of the cash deposit of Rs. 60 Crores should be allowed.Analysis: The matter involves interim fiscal relief where the existing interim order required a cash deposit. The request was to substitute a bank guarantee for the stipulated deposit. The established legal framework for fiscal disputes disfavors unconditional stays and substitution of liquid cash with bank guarantees because governmental revenue operations require realisable funds; interim relief by way of bank guarantees in public revenue matters is ordinarily inappropriate unless exceptional circumstances and the balance of convenience clearly favour such relief. The earlier order had already reduced the deposit amount for stated reasons, and no additional material was presented to justify further concession or to show that the balance of convenience now favours substitution with a bank guarantee.Conclusion: The praecipe seeking permission to furnish a bank guarantee in lieu of the cash deposit is denied and the claim for modification is dismissed.