Bonds and Letter of Undertaking, Types of Bonds, Guidelines for executing Bonds Bonds for provisional assessment, Stamps on Bond.
Bonds and Letter of Undertaking
Types of bonds
Guidelines for executing bonds
Bonds for provisional assessment
Stamps on bond
Execution of bond by Government Undertaking or Autonomous Corporations
Security
Surety
Guarantee bond executed by bank
Preservation of
bond and retention of securities
Verification of sureties
CHAPTER 14
BONDS and LUTs
- Bonds and Letter of Undertaking
1.1 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. The
primary purpose of the bond is to secure due compliance with the rules and
procedures laid down under the Excise 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 .
1.2 As a measure of rationalization and simplification of excise law and
procedures the number of bonds have been further reduced. Several bonds,
which were in vogue prior to 1st July, 2001 have since been dispensed with.
Care should be taken with regard to bonds, which were executed prior to 1st
July, 2001 while discharging the same. These bonds should be discharged only
after the completion/performance of the obligation.
- Types of bonds
2.1 Bonds are basically two types ,i.e. surety and security. Under
a surety bond another person stands as surety to guarantee the performance
on the part of obligor. The surety should be for the full value of the bond
and the person standing as surety should be solvent to the extent of the
bond amount. Under the Contract Act the liability of the surety is
co-extensive with that of the principal debtor and hence the department is
at liberty to enforce the recovery of the dues either from the obligor or
from the surety.
2.2 The following are the types of bonds, which are presently in vogue :
- B-1 Surety / Security (General Bond) - for export of goods
without payment of duty under Rule 19;
- B-2 Bond Surety / Security(General Bond) for provisional assessment;
- B-3 Bond Surety / Security) - to obtain matches Central Excise stamp
on credit;
- B-4 Bond Surety/Security for provisional release of seized goods
(provided in this Manual by instruction); and
- B-17 Bond (General) Surety / Security -composite bond for EPZ/ 100%
EOUs for assessment, export, accounting and disposal of excisable goods
obtained free of duty [continuation of the Format as specified under the
erstwhile Central Excise Rules, 1944].
- Guidelines for executing bonds
3.1 The bond should be executed on the non-judicial stamp paper of
appropriate value. The bond amount should be sufficient to cover the duty
liability. The bond should be signed by the obligor or by the authorised
agent. The surety should be for the full amount and the person standing as
surety should be solvent to extent of the amount covered. The security
should normally be limited to the 25% of the bond amount.
3.2 In case of exporters, certain specific categories i.e. Super Star
Trading House, Star Trading House, Exporters registered with Export
Promotion Council & Registered Exporters need not furnish any bank
guarantee/cash security while executing export bonds. They may furnish
sureties only. This is a modification over the previous instruction
contained in Board’s Circular No.284/118/96-Cx dated 31.12.96.
3.3 In the case of 100% E.O.Us obtaining indigenous goods without payment of
duty under a notification issued under section 5A of the Central Excise Act,
1944, acceptance of surety bond instead of bank guarantee is permissible. In
respect of 100% EOUs & EPZ s units may continue to execute bond in the
Format given in Form B-17 under the erstwhile Central Excise Rules, 1944.
While executing combined B17 Bond security to the extent of 5% of the value
of the bond in the form bank guarantee or cash deposit or any other mode of
security may be accepted in lieu of surety (Board’s letter
F.No.305/86/98-FTT dated 19./6/98). Fresh bond may not be taken, where the
existing units have already furnished bond in B-17 Form prior to 1.7.2001.
The existing bond may be simply re-validated under the new rules.
3.4 The export bonds executed under rule 19 of the said Rules should be
accepted within 24 Hours or the next working day and communicated to the
exporter by the Deputy/Assistant Commissioner of Central Excise or Maritime
Commissioner or any other officer authorised by the Board in this behalf.
3.5 Bonds should be executed in favour of and in the name of the President
of India. They should be properly stamped. The prescribed wordings of the
bond form must be copied out on a non judicial stamp paper of the
appropriate amount (to be locally ascertained), except where arrangement can
be made for embossing printed forms or where the State Government rules
require otherwise. The bonds must be executed on stamp paper of the
respective State Government in which the registered persons business is
situated.
- Bonds for provisional assessment
4.1 The amount of the bond in forms B-2 should be fixed on the
following basis: -
- The amount of the specific bond in Form B-2 should be sufficient to
cover the difference between the duty payable on provisional assessment
and the probable duty payable if the highest rate / value applicable
such goods has to be applied.
- The amount of the general bond in Form B-2(surety)/(Security) should
be equal to the difference between the duty payable on provisional
assessment and the probable duty payable applying the highest rate /
value applicable to such goods for a period of 3 months. If the
provisional assessment cannot be completed within the 3 months and
longer time is required, say a period of one year, in appropriate cases,
differential duty likely to arise during such period shall be the basis/
determination of the bond amount. When the security bond is executed,
the amount of security will be generally fixed at 25% of the bond
amount. However, in appropriate cases, for special reasons to be
recorded, the proper officer under rule 7 of the said Rules may order
for a higher security amount. In the event of death or insolvency or
insufficiency of the surety / security, the proper officer may demand
fresh bond. If the security furnished is found to be inadequate, he may
demand additional security also. In the case of provisional assessment,
if the assessee fails to make the due adjustment within the period of 15
days after the final assessment made, the proper officer may proceed to
enforce the bond or encash the bank guarantee after due notice to the
assessee.
- Stamps on bond
5.1 All bonds must bear stamps on the scale prescribed by article
57 of the schedule I to the Indian Stamp Act 1899, modified as may be, by
State Legislation. Commissionerate should circulate to their staff the rate
of stamp duty required in each State within Commissionerate for each type of
bond.
5.2 Whoever affixes an adhesive stamp to any instrument chargeable with duty
which has been executed by any person shall when affixing such stamp cancel
the same so that it cannot be used again and whom so ever has executed any
instrument on any paper bearing an adhesive stamp shall at the time of
execution unless such stamp has been already been cancelled in the manner
aforesaid, cancel the same so that it cannot be used again. Any instrument
bearing an adhesive stamp, which has not been cancelled so that it cannot be
used again, shall so far as such stamp is concerned be deemed to be
un-stamped. The person required to cancel an adhesive stamp may cancel it by
writing on or cross the stamp with his name or initials or the name or
initial of his firm with the true date of his so writing, or in any other
effectual manner.
-
Execution of bond by Government Undertaking or Autonomous
Corporations
6.1 The Board has decided that every undertaking owned and managed
directly through any Ministry, Directorate or Directorates by the Central
Government is exempt from the execution of any bond; or a State Government
is hereby exempt from furnishing any security or surety for bond, where the
execution of such bond, or, as the case may be furnishing of security or
surety is required by or under any other provision of the rules made under
Central Excise Act, 1944.
6.2 An undertaking owned or controlled by the Central Government or State
Government does not include-any undertaking belonging to corporation owned
or controlled by the Central Government or State Government and established
by or under a Central Provisional or State Act; or any undertaking belonging
to Government Company within the meaning of Section 617 of the Companies
Act, 1956 (I of 1956).
- Security
7.1 The security to be furnished in respect of the bonds will be,
as follows:
- The security furnished should either be cash, Government promissory
notes, post office savings, bank deposits, national savings
Certificates, National Defence Bonds, National Defence Gold Bonds, 1980
or similar realizable Government papers. Promissory Notes and stock
Certificates of the Central Government or a State Government shall be
accepted subject to the conditions laid down in clause (ii) of Rule 274
of GFR.
- Deposit receipt of bank can also be pledged as securities for
Central Excise - Bonds subject to certain specific conditions under Rule
274 (vi) of G.F.R. The conditions inter alia are:
- The deposit receipt shall be made out in the name of the pledgee
or if it is made out in the name of the pledger, the bank shall
certify on it that the deposit can be withdrawn only on demand or
with the sanction of the pledgee.
- The depositors shall agree in writing to undertake any risk
involved in the investment and make good the depreciation, if any.
- The depositors shall receive the interest when due, direct from
the bank on a letter from the pledgee authorising the bank to pay it
to him.
- The responsibility of the pledgee in connection with the deposit
and the interest on it will cease when he issues a final withdrawal
order to the depositor and sends an intimation to the Bank that he
has done so.
- Only the larger Scheduled banks are to be considered as
recognized banks approved by Government for the purpose of item of
Rule 274 of G.F.R.
- Interest on the securities will, however, continue to accrue and
will be realised by the holders on discharge of the bond and return
of the securities.
- Where the same bond and security continue for over one year,
arrangements must be made for credit or payment of the interest on
such securities to the bonders.
- On cash securities no interest is payable. In the case of
Savings Bank Account, the interst may be paid to the parties on
claim preferred by them periodically or can be collected after the
amount is returned to them. In respect of other securities,
arrangements are to be made for the payment of interest at regular
intervals of 6 months.
- Surety
8.1 Whenever surety bond is executed it is to be ensured that both
the obligor and surety sign the bond. Field officers will ensure that surety
is financially sound and have been verified from time to time. Whenever bank
guarantee is accepted for security, care should be taken to get the
guarantee renewed before expiry from time to time, so as to enable the
enforcement of liability as and when such need arises. Execution of B17
Bonds is optional and if the assessee does not wish to avail of this
facility, he may execute individual bonds prescribed for different purposes.
8.2 A partner or a director of a limited company can also stand as surety in
his individual capacity to guarantee the performances of the firm or a
company as the case may be. Since, in law, a limited company is a distinct
legal entity and the member of the company including directors are distinct
from the company, there should be no objection to allow the directors of the
limited company to stand as surety for the companies provided they fulfil
all the other conditions applicable to sureties. (F. No. 8/10/16/CX II dt
5/8/1960)
- Guarantee bond executed by bank
9.1 The provisions governing the execution of bonds by banks are,
as follows:
- When the State Bank of India or a scheduled bank gives a
guarantee for a registered person with or without deposit of security,
the guarantee bond should provide a period of validity and an extra
period during which obligations arising during the period of validity to
be enforced. The time limit for enforcement of obligation should be at
least two years.
- Where there is a need for extension of the period of validity of
bank guarantee furnished by the bank on behalf of a party in pursuant to
an order of an original or appellate authority or any other reasons, it
should be done by means of supplementary deed of bank guarantee on a
stamp paper.
- Preservation of bond and retention of securities
10.1 Proper preservation of bonds is to be ensured in the interest
of the revenue.
- Bonds must be preserved as long as they are valid and should be
returned only after all the obligations under the bond had been
discharged.
- All officers who filled Central Excise bonds must be careful not to
enforce the words " cancelled" on the bonds even after the apparent
fulfilment of obligation ; otherwise it is likely to be argues that
persons liable under the bond have been their by discharge from the
liabilities imposed by the bond. The obligations under the bond are not
legally extinguished so long as the bond is not returned to the obligor
or is not cancelled on execution of a deed of cancellation.
- Verification of sureties
11.1 In respect of surety bonds, periodical verification,
preferably on an annual basis will be made by the jurisdictional Central
Excise Officers so as to ensure the sureties are financially sound, solvent
and alive. The enquiry to verify the financial stability of the sureties
will be made by any of the following methods:
- By reference to the surety’s bankers.
- By making personal enquiries and ascertaining whether the surety
possesses a house or other immovable property, industrial equipment,
shop etc. which would cover the bond amount. Alternatively, the sureties
may themselves be asked to furnish a list of their property, which may
be verified by the Officer.
- By reference to Revenue Officer not below the rank of Tahsildar or a
Mamalakdar.
- The result of enquiry as well as the solvency of the surety should
be incorporated in the records of the Department.