Kerala HC: No encashment of bank guarantee until expiry of 3 months from Order

Last updated: 06 August 2021

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Quick Summary

The Kerala High Court has ruled that a bank guarantee cannot be encashed until three months have passed from the date of an order. This decision, made in favour of Varahamurthi Flexirub Industries (P.) Ltd., acknowledges the petitioner's right to deposit disputed amounts within the three-month period stipulated by the CGST Act. Consequently, the court set aside the order to invoke the bank guarantee and directed the petitioner to maintain it until an appeal is filed.

Court :
Kerala High Court

Brief :
In the matter of Varahamurthi Flexirub Industries (P.) Ltd. v. State Tax Officer, Squad-VII, Palakkad [W.P. (C) No. 3900 of 2021 (J) dated February 16, 2021], Varahamurthi Flexirub Industries (P.) Ltd. ('the Petitioner') received an order of confirmation of penalty from the State Tax Officer ('the Respondents'). The Petitioner had challenged the order of the Respondents in directing bank to invoke bank guarantee and to forward demand draft of value of said bank guarantee.

Citation :
W.P. (C) No. 3900 of 2021 (J) dated February 16, 2021

In the matter of Varahamurthi Flexirub Industries (P.) Ltd. v. State Tax Officer, Squad-VII, Palakkad [W.P. (C) No. 3900 of 2021 (J) dated February 16, 2021], Varahamurthi Flexirub Industries (P.) Ltd. ('the Petitioner') received an order of confirmation of penalty from the State Tax Officer ('the Respondents'). The Petitioner had challenged the order of the Respondents in directing bank to invoke bank guarantee and to forward demand draft of value of said bank guarantee.

The Petitioner contended that as per the provisions of Sections 78 of the Central Goods and Services Act, 2017 ('the CGST Act') read with Section 107 of the CGST Act, the Petitioner had time of three months for depositing the disputed amount as per assessment order.

The Hon’ble Kerala High Court relying upon the provisions of Section 78 and Section 107 of the CGST Act directed the Respondents not to encash bank guarantee and to put forward the amount under the bank guarantee by demand draft, accordingly quashed and set aside the order. Also directed the Petitioner to continue the bank guarantee till filing of the appeal.

FAQ :

The case concerned whether a bank could be directed to encash a bank guarantee and forward the amount via demand draft before the expiry of the three-month period allowed for depositing disputed amounts under the CGST Act.

The relevant sections were Section 78, which relates to the time for payment of tax, and Section 107, which governs appeals under the CGST Act.

The Kerala High Court directed that the bank guarantee should not be encashed and that the amount should not be forwarded by demand draft until the expiry of three months from the order.

The petitioner was directed to continue the bank guarantee until the filing of their appeal.