Case Law Details
Padmavati Industries Vs Commissioner Of Customs – Preventive (Rajasthan High Court)
The issue under consideration is whether the freezing of the bank account of the petitioner was undertaken by the Deputy Commissioner (Customs) under the provisions of the Customs Act, 1962 is justified in law?
High Court states that the investigation under Central Goods and Service Tax Act is pending against the petitioner company. However, the impugned order has been passed by Deputy Commissioner of Customs (Preventive), in view of the investigation initiated against the petitioner company by Anti Evasion Wing of Central Goods and Service Tax, Commissionerate, Jaipur. Vide impugned order, the bank account of the petitioner company was frozen. The impugned order was passed before the amendment in Section 110(5) of the Customs Act, 1962 had come in operation. Moreover, as per the amendment also, the account cannot be frozen beyond the period of one year. Keeping in view the facts and circumstances of the case, we are of the opinion that the petition deserves to be allowed. Accordingly, the petition is allowed. The impugned order is quashed. Consequently, the bank account of the petitioner be allowed to be operated by the petitioner company.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
Petitioner has filed the petition challenging the order Annexure-3 dated 4.6.2019, whereby, bank account of the petitioner company was frozen.
Learned counsel for the petitioner has submitted that the investigation in the present case had been initiated and was being carried out under the provisions of Central Goods and Service Tax Act, 2017. Hence, freezing of the bank account by Deputy Commissioner (Customs) under the provisions of Customs Act, 1962 was not permissible. Moreover, no power to issue orders for freezing of bank account was available under the Customs Act, 1962 and the said power had only been introduced by way of amendment to Section 110(5) inserted by the Finance (No.2) Act, 2019, dated 1.8.2019. The said power had only been granted to Commissioner of Customs for a period not exceeding six months with the maximum cap of one year.
In support of her arguments, learned counsel for the petitioner has placed reliance on the case of Balaji Enterprises vs. Union of India (2017 (356) ELT 529 (Del.), wherein it was held as under:-
“11. However, as already noted hereinbefore, in the reply filed it has been categorically stated that no proceedings under Section 110 of the Act have been undertaken “as there was no stock of goods with the Petitioners firms.
12. On the contrary, the learned counsel for the Petitioners has referred to a number of decisions, including Khaja Mustafa Kamal v. Union of India 2016 (337) ELT 221 (Bom), Rajendra Vitthal Shinde v. Union of India 2016 (332) ELT 699(Bom) and Laxman Overseas v. Union of India 2010 (252) ELT 512 (Del) where a similar freezing of bank account has been held to be illegal. The decision of this Court in Laxman Overseas v. Union of India (supra) has been followed in Multitek Engineers v. Union of India 2013 (287) ELT 44 (Kar) where the bank accounts were asked to be de- frozen.
13. Learned counsel for the Respondents has referred to another decision dated 16th March, 2017 passed in W.P.(C) No.12251/2016 (Lal Mahal Ltd. v. Union of India) where while ordering the de-freezing of the bank account, the Court required the Petitioner to furnish a bank guarantee. It is accordingly submitted that in this case also, the Petitioners may be asked to furnish some security for de-freezing the bank account.
14. The Court is unable to accept the above submission of the Respondents. Without there being any authority in law to justify the freezing of the bank accounts, requiring the Petitioners to furnish security for de-freezing such bank accounts would be unjustified. It is always open to the DRI to conclude the investigation and issue a SCN in accordance with law. Statutory authorities have to exercise their powers strictly according to the Act under which they function. In Khaja Mustafa Kamal v. Union of India (supra), in similar circumstances, it was observed as under:
“19 Once there are allegations of fraud the Revenue has a larger responsibility and duly to the public. It cannot refuse to take all steps and rest only on freezing of bank accounts of the alleged defaulters. That such an act and which is to be found traceable to different powers and of the nature conferred in the Customs Act, 1962, will not permit the respondents to deprive parties like the petitioner of their source of livelihood. They cannot stop their business by continued freezing of their bank accounts. It is further very clear and requires no reiteration that what is prohibited directly cannot be achieved indirectly or in an oblique manner. A refusal to carry out a duty in accordance with law cannot be justified by such a continued attachment and freezing of the bank accounts. In the given facts and circumstances, we do not see any justification for the same.””
Further reliance was placed on the case of Khaja Mustafa Kamal vs. Union of India (2016 (337) ELT 221 (Bom.), wherein it was held as under:-
“15. If this letter is addressed on 11th September, 2015 and the petitioner is applying from 21st September, 2015, that his bank account be released and the freeze order be withdrawn, then, we do not see how Mr. Jetly can justify the action impugned in the writ petition. It is common ground that when such is the letter addressed to the bank and to the petitioner alleging fraud and terming all exports as bogus so as to avail of a duty drawback, then, a one sided or unilateral version of the Revenue is not determinative or conclusive. It is not a case of an established and proved fraud but an alleged fraud. The fact that the petitioner has admitted that there was some liability but the circumstances in which he has paid the sum of Rs.16,62,794.18 has been duly explained by him. He terms the payment as ad-hoc and when he states that this is only to cooperate in the investigation that the petitioner has made this payment, then, we do not find any justification for the continued action. In a letter addressed on 4th January, 2016, to the Senior Intelligence Officer, copy of which is at page 34 of the paper-book, the petitioner specifically complains that the investigation started in the month of September, 2014.He has appeared and has given evidence. He was asked to submit copies of all shipping bills and related export documents. They have been submitted. He claims that no wrong has been committed by him in relation to the exports nor any undue benefit is availed of, still a total amount of Rs.25,48,573/- being deposited, he should be allowed to continue his business activities. He claims that he is a exporter in imitation jewellery for past several years. He has also set out as to how he has throughout acted bona fide. He has also pointed out that there are documents which would evidence that the exports are genuine.
16. As indicated that he had bills from one Suhail Ansari but same were issued to several exporters. That is no ground to presume that petitioner’s exports were not genuine. All exports were made in accordance with the provisions of law and the practice and procedure of the department. He has explained the entire modus operandi to the Investigating Officer in this letter which is fairly detailed and running into about 15 paragraphs. He has claimed that once he is familiar with the system and has not defrauded the Revenue at all nor made any attempt since 2011, his bank account being frozen is causing serious prejudice and loss to him.
17. Now it is indeed surprising that in the affidavit-in- reply in paragraph 7, the deponent states as under :
7. I say that in the present case, sufficient material has been placed on record to establish that the Petitioner amongst other exporters was indulging in fraudulent exports by inflating the Prevailing Market Value (for short PMV) and Free On Board value (for short FOB) in order to claim excess Duty Drawback and other export benefits. I say that investigations have revealed that the Petitioner was procuring bogus purchase bills from fictitious firms which existed only on paper. Infact no goods were purchased from these firms. I say that this modus operandi was used in order to claim excess Duty Drawback by inflating the PMV as per the value shown on the bogus purchase bills. I say that there exists a linkage between the monies which have been held in the bank accounts with the modus operandi of illegally obtaining the benefit of a drawback by showing inflated FOB value. I say that the data/information gathered was confirmed by Shri Parvez Mohammed Sharif Ansari, the person who was involved in issuing the bogus purchase bills to exporters, in his statement recorded under Section 108 of the said Act. I say that this fact has been admitted by the Petitioner albeit differently in para 4.9 of the petition. I say that the Petitioner has accepted that he has obtained bogus purchase bills from Shri Parvez Mohammed Sharif Ansari. I say that initial investigations have revealed that the Petitioner has fraudulently availed Duty Drawback amounting to Rs.24,00,000/- (Rupees Twenty Four Lakhs only) and availed of duty scrips amounting to Rs.74,00,000/- (Rupees Seventy Four Lakhs Only).
18.We have found from a reading of the above paragraph that the petitioner is attributed a clear admission of the guilt. Once there is an admission of guilt, according to the Revenue, then, it is enough justification for their act is the submission of Mr.Jetly. Far from reading any admission of guilt, what we do in order to completely reject the submissions of Mr. Jetly is a reading of the documents annexed to the petition as also the above reproduced paragraph in the affidavit-in-reply as a whole. We cannot pick and choose certain sentences or portions thereof. We are not denying to the Revenue an opportunity of investigating or unearthing huge fraud. We are also not denying them their powers, but surely if drastic powers have to be exercised by public bodies, they must be exercised reasonably and fairly. We fail to understand if a huge and systematic fraud is alleged and perpetrated not only on the Revenue but on the public as a whole resulting in a voluntary deposit from the petitioner, then, why the investigations could not be concluded nor a show cause notice issued nor any steps taken till date. When such petitions are filed, it is our experience that detailed affidavits are filed in order to justify the act, but there is not a word about the delay. On 21st April, 2016, the deponent has time to file a very detailed affidavit-in-reply and file it in Court, but it is surprising that the Directorate and whole of it does not have time to proceed against those indulging in fraud on the public. A justification of this nature comes promptly only when parties like the petitioner complain of a freezing or attachment of their bank accounts and refusal to release them even if bona fides are shown.
19.We are of the firm view, therefore, that this is not a case of an admitted fraud or a liability which is undisputed. Once there are allegations of fraud the Revenue has a larger responsibility and duty to the public. It cannot refuse to take all steps and rest only on freezing of bank accounts of the alleged defaulters. That such an act and which is to be found traceable to different powers and of the nature conferred in the Customs Act, 1962, will not permit the respondents to deprive parties like the petitioner of their source of livelihood. They cannot stop their business by continued freezing of their bank accounts. It is further very clear and requires no reiteration that what is prohibited directly cannot be achieved indirectly or in an oblique manner. A refusal to carry out a duty in accordance with law cannot be justified by such a continued attachment and freezing of the bank accounts. In the given facts and circumstances, we do not see any justification for the same.”
Learned counsel for the respondents has opposed the petition.
Facts in the present case are not in dispute. Admittedly, investigation under Central Goods and Service Tax Act is pending against the petitioner company. However, the impugned order has been passed by Deputy Commissioner of Customs (Preventive), in view of the investigation initiated against the petitioner company by Anti Evasion Wing of Central Goods and Service Tax, Commissionerate, Jaipur. Vide impugned order, the bank account of the petitioner company was frozen.
The impugned order was passed before the amendment in Section 110(5) of the Customs Act, 1962 had come in operation. Moreover, as per the amendment also, the account cannot be frozen beyond the period of one year.
Keeping in view the facts and circumstances of the case, we are of the opinion that the petition deserves to be allowed.
Accordingly, the petition is allowed. The impugned order dated 4.6.2019 (Annexure-3) is quashed. Consequently, the bank account of the petitioner be allowed to be operated by the petitioner company.
