Paras Gems And Jewellers Vs Commissioner Of Customs (Preventive) (Rajasthan High Court)
The Rajasthan High Court recently adjudicated on a petition challenging the legality of freezing a bank account by the Customs Department under Section 110(5) of the Customs Act, 1962. The case, Paras Gems and Jewellers Vs Commissioner of Customs (Preventive), brought into question procedural compliance and statutory mandates.
Background of the Case:
The petitioner, a proprietorship firm involved in the bullion trade, but not engaged in import-export activities, faced a search operation under Section 110 of the Customs Act on March 13, 2024. During the search, statements were recorded from the petitioner and summonses were issued to both the petitioner and his brother.
Subsequently, the petitioner discovered that his bank account with Axis Bank’s Sanganeri Gate Branch, Jaipur, had been frozen. On May 7, 2024, the bank formally informed the petitioner that the account had been frozen based on a Customs Department directive dated March 14, 2024. Aggrieved by the action, the petitioner filed a writ petition under Article 226 of the Constitution, challenging the validity of the freezing order.
Petitioner’s Arguments
The petitioner’s counsel argued that the freezing of the bank account was in violation of Section 110(5) of the Customs Act. Key points included:
- Statutory Non-Compliance: The freezing order did not meet the mandatory requirement of being issued in writing and substantiated by tangible evidence, as required under Section 110(5).
- Judicial Precedents: The petitioner relied on rulings such as M/S Radha Krishan Industries vs State of Himachal Pradesh and Chokshi Arvind Jewellers vs Union of India, which emphasize the necessity of procedural adherence in such actions.
- Impact on Business: The freezing of the account without proper justification caused significant disruptions to the petitioner’s business operations.
Customs Department’s Defense
The Customs Department argued that the initial freezing did not require a detailed written order, as internal records documented the reasons for the action. Key defenses included:
- Substantial Compliance: The Department claimed that their internal justification and subsequent extension orders satisfied the legal requirements.
- Extension of Freezing Period: A fresh order extending the freezing period was issued on September 13, 2024, in compliance with procedural mandates.
Court’s Observations
After hearing arguments from both sides, the court focused on the following issues:
- Mandates of Section 110(5): The court noted that the law requires an order in writing, approved by the Principal Commissioner or Commissioner of Customs, and based on tangible material showing a necessity to freeze the account for revenue protection or smuggling prevention.
- Nature of the Freezing Order: The communication dated March 14, 2024, addressed to the bank, did not qualify as an “order in writing” under the law. The absence of tangible material and reasoning rendered the action legally deficient.
Legal Framework Under Section 110
The court highlighted the scope of Section 110, which allows for the seizure of goods and documents and provisional attachment of bank accounts during ongoing proceedings. Key provisions include:
- The necessity of forming an opinion based on tangible material.
- Written approval by the Principal Commissioner or Commissioner of Customs.
- Procedural safeguards to prevent misuse of power.
Judgment
The court concluded that the Customs Department’s action of freezing the bank account violated the statutory mandate under Section 110(5). The order was deemed procedurally deficient due to the lack of:
- A written order substantiating the freezing action.
- Evidence supporting the necessity to protect revenue or prevent smuggling.
Petitioner was represented by Advocate Siddharth Ranka
