Circular No. ES/422/2020-21 6th February, 2021
To: Members of the Council
Sub: Systemic improvements regarding modification in the Bond (B-17) Execution process
This is to inform you that CBIC has issued Circular No. 3/2021- Customs dated 3rd February, 2021 on the above subject.
In case of EOU/ EHTP/ STP, a single all-purpose bond was notified vide Notification No. 06/98-C.E. (NT) dated 2nd March,1998. This bond is called B-17 (General Surety/Security). Various instructions through circulars were issued regarding execution of said B-17 bond.
Post GST, revised new B-17 bond was notified vide Notification No. 01/2018-C.E.(N.T.), dated 5th December, 2018. Also, it was clarified vide Circular No. 50/2018-Customs dated 6th December, 2018 that all relevant instructions applicable for the old B-17 bond will be applicable, mutatis mutandis, to the new B-17 bond.
It may be mentioned that–
- CBIC’s Circular No. 14/98 – Customs dated 10th March, 1998 clarified that although the bond is devised to be executed as surety or security bond, it has also been decided that only surety bond has to be taken from such units.
- Subsequently, Circular No. 42/98-Customs dated 19th June, 1998 acknowledging the fact that some units were not able to organise prescribed individual/corporate surety equivalent to the bond amount, allowed such units to execute the bond coupled with a security amount.
- CBIC vide Circular No. 66/98-Customs dated 15th September, 1998 further directed that the solvency of sureties may also be certified by a Chartered Accountant or the Bankers of the surety. And, since in the law, a limited company is distinct legal entity and the Members of the Company, including the Directors are distinct from the company, there should be no objection to allow the Directors of the EOU, which are Limited Companies to stand as surety in their personal capacity for the said companies. In addition, other corporate bodies including Limited Companies may also stand as surety for the units.
Recently, it has come to the notice of CBIC that the B-17 bond executed by the Proprietor of EOU was issued in violation of the Circular no. 66/98-Customs dated 15th September, 1998. The surety was given by the Proprietor himself though the same was required to be given by some independent legal entity other than the EOU firm. This resulted in improper execution of B-17 Bond resulting in loss of Government revenue.
Now, the matter has been examined in the Board.
- “Surety” is a person/individual who undertakes an obligation to pay a sum of money or to perform some duty or promise for another in the event that person (obligor) fails to act.
- A sole Proprietorship firm is not a legal entity distinct from its proprietor. Hence, the question of Proprietor himself standing as surety for his own Proprietorship firm does not arise.
- Even the clarification vide Circular No. 66/98-Customs dated 15.09.1998 clarified this fact that individuals (Directors) standing as surety in their personal capacity are distinct legal entities from the limited companies (EOUs) thereby allowing such Directors of EOU to stand as surety in their personal capacity for said EOU companies. This clarification nowhere recognizes a Proprietor standing as surety for his/her own Proprietorship EOU firm.
- Therefore, there seems to be no ambiguity with regard to the requirement of surety to be given by some independent legal entity other than EOU itself irrespective of the constitution of the EOU firm.
- However, it is hereby clarified that –
In case of B-17 bond executed by EOU/STP/EHTPs in the capacity of Proprietorship or Partnership Firm, surety cannot be given by the Proprietor/ partner himself. Such sureties must be given by an independent legal entity other than the Proprietor/ Partner of the concerned Proprietorship/ Partnership EOU firm.
CBIC has advised the concerned Officers to review all the executed B-17 bonds in their respective jurisdiction in view of the above clarification.
Members may kindly make a note of the above.