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Bonds under Central Excise
The word ‘bond’ is used quite often in excise and customs e.g. manufacture under bond, clearance under bond, export under bond etc.
‘Bond’ means an undertaking given by the assessee to Government for due fulfillment of certain obligation e.g. export under bond means a ‘bond’ that goods cleared without payment of duty from factory for export will be exported and if not, appropriate duty will be paid.
Bond is an instrument by which the obligation to pay money is created expressly. It is also a legal agreement whereby a person undertakes to do or not to do anything subject to conditions stipulated in the agreement. Primary purpose of the bond is to secure due compliance with the rules and procedures laid down under CE Law. A bond is a collateral security, which the department is securing to ensure payment of appropriate duty, in addition to the statutory provisions available. - Chapter 14 Para 1.1 of CBE&C’s CE Manual, 2001.
Bond is a supplementary security which the Central Excise department can take in addition to provisions of duty payment. Thus, duty can be recovered under law even if bond is not executed or bond amount is not adequate.
Execution of Bonds –
·         Assessee has to execute bond under various provisions of Act. Form of bond has been standardised by excise department and numbers have been given for identification.
·         Bonds should be executed on a non-judicial stamp paper.
·         If adhesive stamps are affixed to any instrument chargeable to duty, the stamps shall be cancelled so that it cannot be used again.
·          Such cancellation may be done by drawing two lines across or by signing on the stamp or in any other effectual manner [If not cancelled, the instrument is treated as ‘unstamped’].-
·         - Amount of stamp depends on the State in which it is executed. Indian Stamp Act authorises each State to prescribe stamp duty chargeable on various documents and hence it varies from State to State.
Bond should be executed in favour of and in name of President of India.
Signing of Bond
·         If the assessee is a Company, bond can be signed by a person authorised by the Board of Directors by a resolution.
·         In case of registered partnership firm, any partner can sign on behalf of the firm.
Acceptance of Bond – As per earlier instructions, bond should be executed before Superintendent of Central Excise or officer above that rank or Notary public or Magistrate. Bond should be accepted by Assistant/Deputy Commissioner of CE. [Presumably, the instructions are still valid].
Release of Bond
·         Bond will be preserved by excise officers till all the obligations are not discharged.
·         After discharge of obligation, the bond can be got released if the terms of bond are fulfilled.
·         Securities offered can be released and then encashed by guarantor. He can also get interest accrued on such securities.
Forms of Bonds - Bonds are of different nature and for various purposes. Forms of bond etc. have been standardised. The main bonds are as follows :
B-1 general bond
The bond is for due dispatch of excisable goods removed for export without payment of duty. The bond can be with surety or security.
 An exporter-manufacturer can execute simple ‘Letter of Undertaking’ (LOU) in form UT-1 without executing any bond.
It is clarified that if export is through merchant exporter, execution of bond is necessary. Export on basis of LUT of the manufacturer is not permissible in such case.
B-2 Bond –
This is a General Bond for provisional assessment. It can be with security or surety.
B-4 Bond –
·         The bond is for provisional release of seized goods. It can be only security bond.
·         Bond should be for whole value of seized goods.
·         Amount of security will be as determined by adjudicating authority taking into consideration of gravity of offence (normally 25% ).
B-8 Bond –
·         This bond is for obtaining goods at Nil or concessional rate of duty under Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules.
·         A bond is required to be executed under these rules. 
B-17 Bond - This is a general surety / security bond to be executed by EOU, EHTP/ STP  units. It is for provisional assessment of goods for export of goods to foreign countries without payment of duty and for accountal / disposal of excisable goods procured without payment of duty.
Types of Bond –
·         Bonds are either surety or security type.
·         Surety bonds are covered under provisions of Contract Act. Under Surety Bond, another person stands as surety to guarantee the performance on the part of obligor. Surety should be for full value of bond and the person standing as surety should be solvent to the extent of bond amount. Under the Contract Act, the liability of surety is co-extensive with that of the principal debtor and hence the department is at liberty to enforce the recovery of dues either from the obligor or from the surety.
·         Security Bond - Security Bonds are executed where security is offered instead of guarantee. Security can be in nature of Post Office saving deposit, National Saving Certificate or similar realisable Government papers of Central or State Government. Bank deposit receipt of large scheduled banks is also acceptable. Interest on such securities will accrue to person making such deposit. Security can also be furnished by cash deposit, but no interest will be receivable on such cash deposit (and hence it is advisable to provide security by way of NSC, Bank FD etc.). Cash should be deposited by way of TR-6 challan mentioning proper account head and other details.
Bank Guarantee as surety/security
 Form of bank guarantee has been prescribed, both for scheduled and un-scheduled banks. Bank guarantee form when Court orders release of goods against bank guarantee has also been prescribed.
Legal position of bank guarantee
The bank guarantee is given is respect of some contract. Such contract is called 'underlying contract', e.g. in case of excise bond, the bond executed by assessee is the 'underlying contract'. Supreme Court has consistently held that bank guarantee is independent of the underlying contract. The bank must honour the bank guarantee except in case of fraud or irretrievable injustice. The fraud should be of beneficiary and not of some one else. If Banks do not honour their guarantees, trust in commerce would be irreparably damaged.
Further, even if bank guarantee specifies a limited period for enforcement of bank guarantee (e.g. one year etc.). The bank guarantee can be enforced any time during the period of limitation, which is usually three years in most of the cases.
One sided conditions in Bond
 Many of the conditions in the standard form of bond are totally one sided, i.e. favouring revenue. Some times, the conditions are even against the provisions of law. The assessee has to sign the bond as per standard format as he has no option. These are dotted line contracts or contracts of adhesion. Normally, standard forms of contract are binding on the person even if the person has not read them. However, if the contracting parties do not have equal bargaining power, these are often one sided. Such contracts are ‘Adhesion Contracts’. These are standardised form of contract form offered on essentially ‘take it or leave it’ basis without affording consumer realistic opportunity to bargain. Court can grant relief if clauses in such contract are unreasonable and unconscionable. The aggrieved person can approach Courts for relief in case of such one sided contracts

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