December 14, 2021

Provisional Attachment of Bank Account u/s 110(5) of Custom Act can’t exceed maximum period of 12 months

In the matter of Goodmatric Export Pvt. Ltd. and another Vs. Union of India and others (WRIT PETITION (ST.) NO.94899 OF 2020 dated), the petitioner’s bank accounts have been freeze at the request of the respondent on the grounds that petitioner is importing rough stones and semi-precious stones on the over-priced invoices.

Bank account of petitioner was freezed for more than 12 months. Petitioner contended that Section 110(5) of the Custom Act can’t be invoked for a period exceeding maximum 12 months. Also, no extension for account freezing can be extended beyond 6 months without any order.

Hon’ble High Court held that Section 110(5) is not a procedural provision per se; rather it is coercive in nature. Being a coercive provision, strict compliance should be made of the procedure laid down. Section 110(5) can be invoked only in the manner laid down. In the given case, as Section 110(5) was not available on the date of issuance of letter and also extension of additional period of 6 months was not supported by any order. Further, the total period can’t exceed a maximum period of 12 months. Therefore, such letter was liable to set aside.

1. Brief fact of the case

M/s Goodmatric Export Private Limited (“The Petitioner”) is engaged in import of precious and semi-precious stones.
Directorate of Revenue Intelligence (“Respondent”) Developed an intelligence that certain unscrupulous importers were importing goods declared as ‘rough precious stones and semi-precious stones’, which were over-invoiced.
During the investigation it revealed that petitioners had made such imports from overseas suppliers.
Rationale for inflating the value of such ‘rough precious stones and semi-precious stones’ is that there is no customs duty applicable on the said items. Only Integrated Goods and Services Tax (IGST) is required to be paid but that too at the rate of only 0.25%.
The petitioner made such import to the tune of INR 2000 crores.
Consequently, The respondent issued a letter to the Bank of the petitioner requesting to Debit freeze the account of the petitioner under section 110 of the custom Act, 1962.
Therefore, the bank freezed all bank accounts of the petitioner.
Another independent person was involved in this fraudulent import and he undertook such fraudulent imports on behalf of several companies including that of the petitioners.
Summons were issued to the petitioner for appearance but summons could not be served as the petitioner was not found at given address. The petitioner did not appear before the respondent and did not cooperate with the investigation.
Due to non-cooperation, investigation has not reached its finality.
The petitioner challenged the letter requesting freezing of Bank Account before hon’ble High Court.

2. Contention of the Petitioner

The petitioner filed an appeal before hon’ble High Court contending that:

The provisional Attachment under Section 110(5) of the Custom Act can be made for a period of maximum 12 months.
Further, in the present case, provisional attachment of bank account can be continued beyond the period of six months according to the section 110 of Customs Act? The extended period of 6 months was not available to the respondents as no order was passed for extending the initial period of 6 months.

Petitioner further denied the allegations of the respondent.

3. Contention of the Respondent

The respondents submitted that conduct of the petitioners does not inspire confidence. Such a person is not entitled to invoke the discretionary jurisdiction of the writ court under Article 226 of the Constitution of India.

4. Legal Extracts

Relevant legal extract of the Section 110(5) of the customs Act, inserted by Finance (No.2) Act, 2019 with effect from 01.08.2019, is reiterated below,:

“(5) Where the proper officer, during any proceedings under the Act, is of the opinion that for the purposes of protecting the interest of revenue or preventing smuggling, it is necessary so to do, he may, with the approval of the Principal Commissioner of Customs or Commissioner of Customs, by order in writing provisionally attach any bank account for a period not exceeding six months.

Provided that the Principal Commissioner of Customs or Commissioner of Customs may, for reasons to be recorded in writing, extend such period to a further period not exceeding six months and inform such extension of time to the person whose bank account is provisionally attached, before the expiry of the period so specified.”

5. Analysis by Hon’ble High Court

From a perusal of the impugned letter, it was observed that letter was issued in terms of section 110 of the Customs Act, 1962.
However, it was not indicated in the matter that the petitioner was engaged in unlawful activities and money which have accrued out of such unlawful activities has been credited to the bank account which is required to be frozen.
It was generally stated that “whatever amount (balance) is lying in the concerned bank accounts, the same have been seized by this office, in terms of section 110 of Customs Act, 1962 read with section 121 of Customs Act, 1962 as there are reasons on record to indicate that the companies have engaged in the act of smuggling.”
But the moot question raised in the writ petition is whether a provisional attachment of bank account can be continued beyond the period of one year?
As per Section 110(5) of the Act, the provisional attachment of a bank account can be made only for a period of 6 months. Further extension can be made for another 6 months after recording the reasons in writing and communicating the same to affected person.
Reliance was also placed in the case of M/s. Boxster Impex Pvt. Ltd. Vs. Union of India and others wherein Hon’ble Court held:
- From the tone and tenor of Section 110(5) of the Act, it is apparent that it is not a procedural provision per se; rather it is coercive in nature, though the procedure is also laid down for giving effect to the said provisions.
- Being a coercive provision, strict compliance should be made of the procedure laid down.
- Further, considering the circumstances and nature, such a provision can only have prospective operation and not retrospective operation and the same is explicitly provided under the concerned Finance Act.
- Letter for freezing bank account was issued on 1st March, 2019. This was prior to insertion of Section 110(5) of the Act. Therefore, it is quite clear that this provision could not have been invoked for freezing the bank account of the petitioner.
- Otherwise also, provisions of Section 110(5) of the Act can only be invoked in the manner provided therein which can be:
  - The order of attaching the bank account provisionally shall be passed in writing by a proper officer;
  - Such order is passed during any proceedings under the Customs Act;
  - Before passing such an order the proper officer must form an opinion that such attachment is necessary for the purposes of protecting the interest of revenue or for preventing smuggling;
  - Before passing such an order the proper officer must obtain prior approval of the Principal Commissioner of Customs or of Commissioner of Customs; and
  - Such provisional attachment shall be made for a period not exceeding six months.
  - As per proviso, the Commissioner can extend the period of attachment for a further period but not exceeding 6 months. However, he must record reasons for such extension and extension of period has to be informed to the person before expiry of the period so specified
- Thus, it is noticeable that several pre-conditions and procedures are mandated under Section 110(5). Therefore, an order in writing for provisional attachment of a bank account is a must before such an account can be attached. In the absence of such an order in writing respondents could not have provisionally attached the bank account of the petitioner and continued with such attachment even beyond the permissible extended period.

Further, reliance was also placed on the matter of Samyak Jewels Pvt. Ltd. Vs. Union of India wherein it was held that Section has used the word “Provisional”. Examining the meaning of the word ‘provisional’, it has been held that it is a temporary arrangement. Further, The two words – ‘provisional’ and ‘attachment’ read in conjunction can only mean a temporary attachment. Dictionary meaning of “provisional” is ‘arranged or existing for the present, possibly to be changed later’. Therefore, the statute has provided a definite time line beyond which the attachment becomes bad in law.

6. Decision of Hon’ble High Court

Basis the above analysis, Hon’ble High held:

There is no justification in continuing the provisional attachment of the bank account of the petitioner.
Further, no document has been submitted to show that any order was passed by the Principal Commissioner of Customs or Commissioner firstly for provisional attachment of bank accounts and secondly for extending the initial period of 6 months to a further period not extending 6 months.
The initial period of 6 months had expired in November, 2019. Even assuming and giving benefit of further six months to the respondents, the outer limit of one year expired in May, 2020.
The provisional attachment was made on 08.05.2019 when the said provision was not available in the statute book.
Therefore, relying on decision in case of M/s. Boxter Impex Pvt. Ltd. (supra) holding that the said provision had prospective application.
Therefore, such exercise of power is clearly unlawful and in any case cannot be continued now after expiration of the outer limitation period of one year.

Therefore, the impugned letter under dispute was set aside and quashed.

DISCLAIMER: The views expressed are strictly of the author and VJM & Associates LLP. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.

Demand order passed without giving opportunity of being heard is liable to be set aside

An opportunity of hearing shall be granted where a request is received in writing from the person chargeable with tax or penalty, or where any adverse decision is contemplated against such person.

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