Paras Gems And Jewellers vs. Commissioner Of Customs (Preventive)

Held

The Court held that the action of freezing the petitioner's bank account was illegal and inoperative in law. The Court found that the initial order dated March 14, 2024, communicated to the bank, was in breach of the law. The Court emphasized that Section 110(5) of The Customs Act, 1962, requires the proper officer to form an opinion based on tangible material that it is necessary to freeze the bank account for the purpose of protecting the interest of revenue or preventing smuggling. The Court adopted the test of the existence of "tangible material" and a "live link" between the need for attachment and the purpose it is intended to secure, drawing parallels with Supreme Court decisions concerning similar provisions. The Court held that the order dated March 14, 2024, did not meet this requirement. Consequently, the Court ruled that any subsequent action, including the extension order, which was based on the initial illegal action, must also be set aside. The Court directed that the petitioner's bank account be forthwith released, and the petitioner be allowed to operate it.

Facts

The petitioner, Paras Gems and Jewellers, a proprietorship firm dealing in bullion, had its bank account frozen by the Customs Authorities. This action followed a search of the petitioner's premises on March 13, 2024, under Section 110 of The Customs Act, 1962, and the recording of statements from the petitioner and his brother under Section 108 of the Act. The petitioner was not communicated any order regarding the freezing of his account until he approached his bank and was informed that his account with Axis Bank had been frozen on the instructions of the Customs Authorities, evidenced by an order dated March 14, 2024. Aggrieved by this action, the petitioner filed a writ petition before the High Court, challenging the legality and validity of the freezing of his bank account.

Key Issues

1. Whether the action of freezing the petitioner's bank account by the respondents, based on an order dated March 14, 2024, is in violation of Section 110(5) of The Customs Act, 1962, which mandates a written order based on satisfaction for protecting revenue or preventing smuggling? Petitioner's arguments: The petitioner contended that the freezing of his bank account was illegal and in excess of jurisdiction. He argued that Section 110(5) of the Act requires a written order based on the authority's satisfaction, supported by tangible material, that freezing the account is necessary to protect the interest of revenue or prevent smuggling. The order dated March 14, 2024, addressed to the bank, did not fulfill these statutory requirements. The petitioner relied on the Supreme Court's decision in M/s Radha Krishan Industries Versus State of Himachal Pradesh & Ors. and a Bombay High Court judgment in Chokshi Arvind Jewellers Versus Union of India. Respondents' arguments: The respondents argued that the initial freezing of the bank account does not require a written order, but only an intimation, which was done. They claimed that the reasons for freezing were detailed in their reply, and the formation of opinion, as disclosed in the return, constituted substantial compliance. They further submitted that an extension order dated September 13, 2024, had been passed, which did record reasons in writing, as required for extension, and that this extension order, being an extension of the earlier order, was valid.