LAHORE: Tax authorities have failed to encash expired bank guarantee for recovery of government dues, said sources.

An importer opted for a bank guarantee after entering into a controversy regarding withdrawal of certain tax exemptions against the imported goods. The bank guarantee was for a limited period after which the bank stood absolved and released from all liabilities.

However, the tax authorities served a notice upon the bank when the ordinary period of limitation for recovery of amount through enforcement of the guarantee as well as on the basis of reasonableness of time was expired and the bank was discharged from the liability to pay.

The sources said the tax authorities had demanded for the encashment of a guarantee 10 years after the expiry on the pretext that pending government dues had to be recovered by way of the encashment of the guarantee, as relevant provisions of the Customs Act does not stipulate a period of limitation for the recovery of government dues.

The tax officials further assumed that the bank guarantee is standalone contract with the tax department and it is inconsequential how the controversy between the department and a taxpayer was concluded. Banks are duty bound to encash a guarantee once demanded by the department, they stressed.

The banker management, on the other hand, was of the view that a guarantee is regulated under the Contract Act and not the Customs Act.

The obligation to pay is limited by time and amount with time being the expiry date mentioned in the guarantee document itself. The tax authorities had issued demand notice after the expiry of the encashment period stipulated in the relevant guarantee, they added.

Copyright Business Recorder, 2024