Six-Month Limit Does Not Apply To Currency Seized As Evidence Under Customs Act: Madras High Court

The Madras High Court on 10 August held that the six-month time limit under Section 110(2) of the Customs Act, 1962 for issuing a show-cause notice does not apply to Indian currency treated as a “thing” under Section 110(3) when Customs officers retain it as material evidence during an investigation.

A Division Bench of Justices G. Jayachandran and N. Mala allowed a writ appeal filed by the Principal Commissioner of Customs against an order directing the release of Rs. 21.55 lakh recovered from the premises of Vikram Jain, proprietor of Globe Opticals. The judges held:

"the currencies were seized during the course of investigation as against the appraiser of the Customs Department who had taken bribe and fraudulently fabricated the documents to claim the advantage of the Scheme. Shri. Mittalal (the father of the respondent herein) had aided the said appraiser in committing an illegal act. The Currencies were seized from the possession of Shri.Mittalal on the reasonable belief that the currencies may be part of Hawala transactions."

The case arose from a Customs investigation into the alleged fraudulent use of the Directorate General of Foreign Trade (DGFT) Amnesty Scheme for closure of export obligations under Advance Licences and Export Promotion Capital Goods (EPCG) authorisations.

The investigation allegedly uncovered forged documents, bribery of a Customs appraiser and Hawala transactions. During a search of Globe Opticals on 8 May 2024, Customs officers seized Rs. 21.55 lakh in cash and a mobile phone.

The Single Judge subsequently directed the Department to return the cash after holding that the seizure was governed by Section 110(1) read with Section 110(2) of the Customs Act. Since no show-cause notice had been issued within six months of the seizure, the Single Judge held that the statutory period had expired.

The Division Bench disagreed and distinguished between “goods” seized under Section 110(1) and “documents or things” seized under Section 110(3). While Section 110(2) requires seized goods to be returned if a notice under Section 124(a) is not issued within six months, Section 110(3) does not prescribe a similar time limit for documents or things taken into custody as evidence.

The judges observed that currency would fall within Section 110(1) where the currency itself is the subject matter of Customs proceedings, such as undeclared currency being carried across the customs frontier. However, where Indian currency is seized during an investigation into Hawala transactions, bribery or other connected offences, the Department can treat it as a “thing” under Section 110(3).

In the present case, the Court found that the cash formed part of an investigation into alleged fraudulent closure of EPCG obligations and suspected Hawala transactions. The investigation had also disclosed possible violations under the Income Tax Act, Prevention of Corruption Act and Prevention of Money Laundering Act. It observed:

"the investigation so far conducted through examination of persons involved, leads and discloses apart from violations of Customs Act, other Acts like Income Tax Act, Prevention of Corruption Act and Prevention of Money Laundering Act. Therefore, before conclusion of the investigation, this Court, in exercise of power under Article 226 of the Constitution, cannot order release of the crime proceeds."

Further, the Bench held that releasing the cash while the investigation continued could prejudice the investigation into the alleged economic offences. It set aside the Single Judge's order and permitted the Customs Department to continue its investigation. It also directed the Department to deposit the currency in an interest-earning scheme with a nationalised bank until the investigation concludes.

Accordingly, the High Court allowed the writ appeal, with no order as to costs.

For Appellant: Sai Srujan Tayi, Advocate

For Respondent: Nitheyash Nataraj, Advocate