Karnataka High Court Rules Bank Guarantee Need Not Be Continued Where Taxpayer Demonstrates Consistent GST Compliance

Karnataka High Court addressed the issue of whether a Bank Guarantee, furnished by a taxpayer for the release of goods detained under GST proceedings, must be continued when the taxpayer has demonstrated consistent compliance with GST obligations. The petitioners challenged the validity of endorsements requiring the continuance of the Bank Guarantee, arguing that it caused undue hardship, especially after succeeding before the First Appellate Authority.

The background involved proceedings initiated under Sections 129 and 130 of the Karnataka Goods and Services Tax Act, 2017 and the Central Goods and Services Tax Act, 2017. The petitioners had furnished a Bank Guarantee as a condition for the release of detained goods, pursuant to a High Court order. Subsequently, the First Appellate Authority set aside the confiscation order and limited the demand to tax only. However, revisionary proceedings were initiated by the revenue, resulting in a stay of the appellate orders. The matter was then challenged before the Tribunal and remained pending.

The core issue before the Court was whether the Bank Guarantee should continue to be kept alive during the pendency of further proceedings. The Court acknowledged the revenue’s concern that Bank Guarantees serve to secure its interests in case the final outcome upholds confiscation, especially where there is a risk of the assessee abandoning proceedings or becoming untraceable. However, the Court emphasized that discretion must be exercised in cases where the taxpayer has a consistent record of compliance.

The Court examined the affidavit and documentary evidence submitted by the petitioners, which demonstrated regular filing of GST returns, timely discharge of tax liabilities, and a substantial tax payment record exceeding Rs. 102 crores from 2017-18 to 2024-25. The revenue did not dispute the petitioners’ compliance history, except for the present proceedings.

In its reasoning, the Court held that, under the peculiar facts of the case, the petitioners’ track record as bona fide taxpayers was sufficient to secure the revenue’s interest. The Court found that the record of compliance itself could serve as adequate security for adherence to any future orders. Consequently, the endorsements requiring the continuance of the Bank Guarantee were set aside, and the authorities were directed to return the Bank Guarantees to the petitioners without delay.

The Court clarified that this order was passed specifically in light of the petitioners’ demonstrated compliance and bona fide conduct, and should not be treated as a precedent for other cases. All other contentions were left open for consideration in pending proceedings. The petition was accordingly disposed of.