The Central Board of Indirect Taxes and Customs (CBIC) issued the circular in respect of systemic improvements regarding modification in the B-17 Bond execution process.
In case of EOU or EHTP or STP, a single all-purpose bond was notified vide notification no. 06/98-C.E.(N.T.), dated March 2, 1998. This bond is called B-17(General Surety/Security).
Recently, it has come to notice that the B-17 bond executed by the Proprietor of EOU was issued in violation of the Circular no. 66/98-Customs dated September 15, 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.
The CBDT examined the matter and clarified that “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.
The question of Proprietor himself standing as surety for his own Proprietorship firm does not arise.
Even the clarification stated that this fact that individuals (Directors) standing as surety in their personal capacity are distinct legal entities from the limited companies (EOUs) there by 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 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,” the CBDT in the circular said.
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