Pendency Of Customs Adjudication Process Cannot Justify Provisional Attachment Beyond 12 Months: Madras High Court

The Madras High Court has directed the defreezing of a bullion account belonging to a Chennai-based jewellery exporter.

It held that a provisional attachment of a bank account under Section 110(5) of the Customs Act cannot continue beyond the maximum statutory period of 12 months.

Justice Hemant Chandangoudar passed the order on a plea filed by Dhruv Jewellers, challenging a communication dated August 4, 2022, issued by the Directorate of Revenue Intelligence (DRI) to the bank directing it to freeze the firm's bullion account.

The petitioner was engaged in the business of exporting gold jewellery. According to the petitioner, the DRI had conducted a search at its premises, during which no incriminating material was found.

Despite this, the DRI issued the communication directing the freezing of the petitioner's bullion account. The petitioner subsequently approached the High Court seeking quashing of the communication and defreezing of the account.

During the hearing, the Court noted that several grounds had been raised against the freezing of the account but found it sufficient to examine the statutory period prescribed under Section 110(5) of the Customs Act.

The provision permits provisional attachment of a bank account for a period not exceeding six months. The Principal Commissioner or Commissioner of Customs may extend the period by a further period of up to six months, provided reasons are recorded in writing, and the extension is communicated to the person concerned before expiry of the original period.

The Court observed that the provision therefore does not permit provisional attachment to continue beyond a maximum period of 12 months.

It observed that in the present case, the account was frozen pursuant to the DRI communication dated August 4, 2022. The Court stated that even assuming that the attachment had been validly extended in accordance with Section 110(5), the maximum period of 12 months had long expired.

The Customs authorities argued that, in the meantime, the adjudicating authority had issued a show cause notice under Section 124 of the Customs Act and, therefore, the petitioner should approach the adjudicating authority for defreezing of the account.

Rejecting the contention, the Court held that the subsequent issuance of a show cause notice could not extend the statutory period prescribed for provisional attachment under Section 110(5).

“..The mere pendency of adjudication proceedings cannot justify continuation of a provisional attachment made under Section 110(5) beyond the maximum period prescribed by the statute,” the Court held.

The Court also referred to the Supreme Court's judgment in Kesari Nandan Mobile v. Office of Assistant Commissioner of State Tax, which dealt with provisional attachment under Section 83 of the CGST Act. The Supreme Court had emphasised that an attachment which had ceased to operate by efflux of the statutory period could not be continued through administrative action.

Applying the principle to the present case, the Court held that continuation of the freezing of the petitioner's bank account after expiry of the statutory period had no authority of law.

"..the continued freezing of the petitioner's bank account, after expiry of the statutory period prescribed under Section 110(5), has no authority of law. The provisional attachment has ceased to operate by efflux of time", the Court said.

Accordingly, the Court directed the Bank to forthwith defreeze the petitioner's Bullion Account and permit the petitioner to operate the account.

The Court clarified that the order would not prevent the authorities from taking any other action permissible in law in respect of the petitioner or the subject matter of the investigation.

The connected miscellaneous petitions were closed. 

For the Petitioner: A.K. Jayaraj, Advocate.

For Respondent No. 1: Pooja Jain, Standing Counsel.

For Respondent No. 2: M. Sheela, Senior Standing Counsel.

For Respondent No. 3: C. Mohan and A. Rexy Josephine Mary, M/s King and Partridge.