TMI Blog2024 (3) TMI 605X X X X Extracts X X X X X X X X Extracts X X X X ..... isionally attached if the proper officer forms an opinion that, for the purpose of protecting the interest of revenue or preventing smuggling, it is necessary so to do. Further, an order directing provisional attachment of the bank account has to be in writing - The proper officer must form an opinion that it is necessary to provisionally attach the bank account for the aforesaid reasons and not only expedient to do so. Moreover, the necessity has to be for the purpose of protecting the interest of revenue or preventing smuggling and not for any other purpose. While conditioning the exercise of power on the formation of an opinion of the Principal Commissioner / Commissioner that, for the purpose of protecting the interest of revenue or preventing smuggling it is necessary so to do , it is evident that the statute has not left formation of the opinion to an unguided subjective discretion of the proper officer or for that matter the Principal Commissioner / Commissioner. The formation of the opinion must bear a proximate and live nexus to the purpose of protecting the interest of government revenue and / or preventing smuggling. Further, considering the drastic nature of this power, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses within the territorial jurisdiction of this Court, this Court would have jurisdiction to entertain these Petitions so as to issue a writ under the powers conferred under Article 226 of the Constitution. It is declared that the provisional attachment of the bank accounts of the Petitioners is illegal and contrary to the provisions of Section 110(5) of the Act - The said provisional attachment of the bank accounts of the Petitioners is hereby set aside and the Respondent banks are directed to permit the Petitioners to operate their respective bank accounts without any hindrance - Petition allowed. - G. S. KULKARNI FIRDOSH P. POONIWALLA, JJ. For the Petitioners : Dr. Sujay Kantawalla, Mr. Anupam Dighe, Ms. Changni Tanna, Mr. Prathamesh Chavan, Mr. Ankit Trivedi i/b M/s. India Law Alliance. For the Respondent No. 3 : Mr. Jitendra Mishra a/w Ms. Sangeeta Yadav, Mr. Umesh Gupta. JUDGMENT (PER FIRDOSH P. POONIWALLA, J.) 1. Rule in all Writ Petitions. Rule made returnable forthwith. 2. Heard finally by consent of the parties. 3. By this common judgment, we are disposing of three Petitions filed under Article 226 of the Constitution of India. Facts in Writ Petition (L) No. 2633 of 202 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 110(5) of the Customs Act, 1962 ( the Act ). 11. Challenging this attachment, the Petitioner has filed the present Petition seeking the following final reliefs: a. That this Hon'ble Court be pleased to hold and declare: i. that freezing of the Petitioner's Current Account No. 5112113709 held with Respondent No. 4 bank is bad in law; ii. that freezing of the Petitioner's Current Account No. 04230200000795 held with Respondent No. 5 bank is bad in law; b. That this Hon'ble Court be pleased to issue a Writ of Mandamus or Writ in the nature of Mandamus or any other appropriate Writ, Order or Direction directing Respondents, their servants, subordinates and agents: i. To unfreeze the Petitioner's Current Account No. 5112113709 held with Respondent No. 4 Bank. ii. To unfreeze the Petitioner's Current No. 04230200000795 held with Respondent No. 5 Bank. Facts in Writ Petition (L) No. 2634 of 2024 12. The Petitioner, Pallav Gold, is a sole proprietorship of one Pallav Ladulal Kanther, who is also a working partner in the partnership firm Maxis Bullion. On 28th April 2022, a search operation in the name of the firm Maxis Bullion was conducted at the Petitioner s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt No. 5 bank; (b-1). That this Hon'ble Court be pleased to issue a Writ of mandamus or Writ in the nature of Mandamus or any other appropriate Writ, Order or Direction directing Respondents, their servants, subordinates and agents to unfreeze the Petitioner's Bank Account i.e. Current Account No. 026105009537 and Saving Account No. 026101005087 held with Respondent No. 6 Bank. Facts in Writ Petition (L) No. 2635 of 2024 16. The Petitioner is a Partnership Firm engaged in the business of Gold Bullion trading for a period of over four years. In the course of its business, the Petitioner entered into an agreement with one Shubhang Enterprises, through one broker, for purchase of two kgs of Gold Bullion. As per its routine practice in business, the Petitioner purchased the said two kgs of Gold Bullion from Shubhang Enterprises. GST Paid Invoice dated 1st August 2020 came to be issued by Shubhang Enterprises in favour of the Petitioner. In further course of business, the said two kgs of Gold Bullion came to be sold by the Petitioner into the local market. The Petitioner made payments to Shubhang Enterprises against the said invoices via banking channel i.e. RTGS / NEFT. 17. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n from the said entities under a GST-paid invoice and payment for the same was made through banking channels. 21. Further, by a summons dated 11th January 2024, the Petitioner was once again asked to appear before Respondent No. 4 on 23rd January 2024. 22. Thereafter, the Petitioner was informed by Respondent No. 5 Kotak Mahindra Bank, by an email dated 15th January 2024, that the status of its bank account was changed from No freeze to debit freeze . Further, by another email dated 16th January 2024, Respondent No. 5 informed the Petitioner that its account had been frozen due to notice dated 11th January 2024 received from Ministry of Finance in Jaipur. It is the Petitioner s case that, on making oral enquiries with the bank, the Petitioner was informed that the account had been frozen pursuant to customs investigation against the Petitioner. 23. Thereafter, the Petitioner was informed by Respondent No. 6 ICICI Bank Ltd and Respondent No. 7 Yes Bank vide emails dated 30th January 2024 and 1st February 2024 respectively, that the status of the Petitioner s bank accounts in the said banks was changed from No Freeze to Debit Freeze . Further, on the basis of the notices dated 11th J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... early deals with a situation where an opinion has to be formed on the basis of material on record. Further, he submitted that the use of the word may in Section 110(5) of the Act indicated not only the discretion, but an obligation to consider that there is a necessity to pass an order with reasons to be recorded in writing for provisionally attaching the bank account in order to protect the interests of the Government Revenue. He submitted that, in the present case, the Petitioners bank account have been illegally sealed and frozen without following the procedure provided by Section 110(5) of the Act. In support of this submission, Mr. Kantawalla relied upon the judgement of the Supreme Court in the case of Radha Krishan Industries vs. State of Himachal Pradesh Ors. 2021 (4) TMI 837 Supreme Court. Relying on this judgement, Mr. Kantawalla submitted that, in the said Judgment, it was held that the power to order a provisional attachment of the property of a taxable person, including a bank account, is draconian in nature, and the conditions which are prescribed by the statute for a valid exercise of that power must be strictly fulfilled. He further submitted that the exercise of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pal Commissioner of Customs or Commissioner of Customs. 31. Mr. Mishra, further submitted that the Commissioner of Customs (Preventive) Jodhpur, Hqrs at Jaipur, had sufficient reason to believe on the basis of material facts of the active involvement of the Petitioners in the purchase of smuggled gold and, in the interest of revenue, approved the provisional attachment of the bank accounts of the Petitioners following the provisions prescribed under section 110(5) of the Act. 32. Mr. Mishra further submitted that the investigation was being carried out as per the provisions of the Act and, from the said investigation, it seems that the Petitioners were involved in purchasing of smuggled gold. Therefore, in the interest of Revenue, the bank accounts of the Petitioners were provisionally attached under Section 110(5) of the Act. 33. Mr. Mishra submitted that, for all these reasons, these Writ Petitions ought to be dismissed. Analysis And Conclusion 34. We have heard the learned counsel for the parties and with their assistance, we have perused the documents on record. 35. Before dealing with the rival contentions of the parties, as the action as impugned is under Section 110(5) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of the bank account of a person is quite drastic or coercive in nature resulting in attracting civil consequences. If a bank account of a person is attached, it would certainly cause severe prejudice to that person. The Legislature, whilst enacting the provisions of Section 110(5) of the Act was conscious of the severity of such power and the serious consequences which would emanate from the provisional attachment of any property, including a bank account, of a taxable person, and, therefore, it conditioned the exercise of the power by employing specific statutory language of an approval to be sought by the proper officer from the Principal Commissioner or Commissioner, who is a high ranking officer. Thus, such power is not left to the ipse dixit of the proper officer and any such decision is required to undergo a rigorous scrutiny of the Principal Commissioner or the Commissioner. Each of these components of Section 110(5) are integral to a valid exercise of power. In other words, when the exercise of power is challenged, the validity of its exercise will depend on a strict and punctilious observance of the statutory pre-conditions by the Principal Commissioner of the Commiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proper officer, during any proceedings under the Act, is of the opinion that for the purposes of protecting the interest of revenue or preventing smuggling, it is necessary so to do, he may, with the approval of the Principal Commissioner of Customs or Commissioner of Customs, by order in writing provisionally attach any bank account for a period not exceeding six months. Provided that the Principal Commissioner of Customs or Commissioner of Customs may, for reasons to be recorded in writing, extend such period to a further period not exceeding six months and inform such extension of time to the person whose bank account is provisionally attached, before the expiry of the period so specified. 29. From the above it is evident that the said provision was inserted in the statute with effect from 1st August, 2019. Besides, from the tone and tenor of the sub-section it is apparent that it is not a procedural provision per se; rather it is coercive in nature, though the procedure is also laid down for giving effect to the said provision. Being a coercive provision, there has to be strict compliance to the procedure laid down. In such circumstances and having regard to its very nature, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly attached the bank account of the petitioner and continued with such attachment even beyond the permissible extended period. 34. Learned counsel for the respondents could not show any other provision in the Customs Act which empowers or authorizes the customs department to freeze the bank account of a person other than sub-section (5) of Section 110. Such attachment of bank account of the petitioner on 1st March, 2019 and its continuation thereafter being in breach of Section 110(5) is therefore, without any authority of law. 44. Further, the judgment of the Supreme Court in the case of Radha Krishan Industries (Supra), also lays down a clear position in the context in hand would involve. The said judgment was delivered in the context of Section 83 of the Himachal Pradesh Goods and Service Tax Act, 2017, which also provided for provisional attachment. Paragraphs 41 to 51 of the said judgment are relevant and read as under: 41 Sub-Section (1) of Section 83 can be bifurcated into several parts. The first part provides an insight on when in point of time or at which stage the power can be exercised. The second part specifies the authority to whom the power to order a provisional att ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dance he considers necessary either to give evidence or to produce a document or any other thing in any inquiry in the same manner, as provided in the case of a civil court under the provisions of the Code of Civil Procedure, 1908, (5 of 1908). (2) Every such inquiry referred to in sub-section (1) shall be deemed to be a judicial proceedings within the meaning of section 193 and section 228 of the Indian Penal Code, 1860, (45 of 1860). 43. A power is conferred by Section 70 upon the proper officer to summon a person whose attendance is considered necessary to give evidence or produce a document or any other things in any enquiry in the manner which is provided in the case of a civil court under the CPC. 44. Section 74 is extracted below: 74. Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any wilful mis-statement or suppression of facts. (1) Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised by reason of fraud, or any wilful mis-statement or suppression of facts to evade tax, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thin thirty days of issue of the notice, all proceedings in respect of the said notice shall be deemed to be concluded. (9) The proper officer shall, after considering the representation, if any, made by the person chargeable with tax, determine the amount of tax, interest and penalty due from such person and issue an order. (10) The proper officer shall issue the order under sub-section (9) within a period of five years from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates to or within five years from the date of erroneous refund. (11) Where any person served with an order issued under sub-section (9) pays the tax along with interest payable thereon under section 50 and a penalty equivalent to fifty per cent of such tax within thirty days of communication of the order, all proceedings in respect of the said notice shall be deemed to be concluded. Explanation-1. - For the purposes of section 73 and this section,- (i) the expression all proceedings in respect of the said notice shall not include proceedings under section 132; and (ii) where the notice under the same pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with interest and a penalty of twenty-five per cent of the tax within thirty days of the issuance of the notice, all proceedings in respect of the notice shall be deemed to be concluded. Under sub-Section (9), the proper officer after considering the representation of the person chargeable to tax is authorized to determine the amount of tax, interest and penalty due and to issue an order. A period of five years is stipulated by sub-Section (10) for the issuance of an order in sub-Section (9). Sub-Section (11) stipulates that upon service of an order under sub-Section (9), all proceedings in respect of the notice shall be deemed to be concluded upon the person paying the tax with interest under Section 50 and a penalty equivalent to 50 per cent of the tax within thirty days of the communication of an order. These provisions indicate how sub-Sections (5), (8) and (11) operate at different stages of the process. 48. Now in this backdrop, it becomes necessary to emphasize that before the Commissioner can levy a provisional attachment, there must be a formation of the opinion and that it is necessary so to do for the purpose of protecting the interest of the government revenue. The powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t interest of the government revenue. Necessity postulates that the interest of the revenue can be protected only by a provisional attachment without which the interest of the revenue would stand defeated. Necessity in other words postulates a more stringent requirement than a mere expediency. A provisional attachment under Section 83 is contemplated during the pendency of certain proceedings, meaning thereby that a final demand or liability is yet to be crystallized. An anticipatory attachment of this nature must strictly conform to the requirements, both substantive and procedural, embodied in the statute and the rules. The exercise of unguided discretion cannot be permissible because it will leave citizens and their legitimate business activities to the peril of arbitrary power. Each of these ingredients must be strictly applied before a provisional attachment on the property of an assesses can be levied. The Commissioner must be alive to the fact that such provisions are not intended to authorize Commissioners to make preemptive strikes on the property of the assessee, merely because property is available for being attached. There must be a valid formation of the opinion that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s necessary to attach provisionally any property belonging to the dealer. However, such satisfaction must be on some tangible material on objective facts with the Commissioner. In a given case, on the basis of the past conduct of the dealer and on the basis of some reliable information that the dealer is likely to defeat the claim of the Revenue in case any order is passed against the dealer under the VAT Act and/or the dealer is likely to sale his properties and/or sale and/or dispose of the properties and in case after the conclusion of the assessment/reassessment proceedings, if there is any tax liability, the Revenue may not be in a position to recover the amount thereafter, in such a case only, however, on formation of subjective satisfaction/opinion, the Commissioner may exercise the powers under Section 45 of the VAT Act. (emphasis supplied) 51. We adopt the test of the existence of tangible material . In this context, reference may be made to the decision of this Court in the Commissioner of Income Tax v Kelvinator of India Limited (2010) 2 SCC 723. Mr Justice SH Kapadia (as the learned Chief Justice then was) while considering the expression reason to believe in Section 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dents on the provisions of Section 110(5) of the Act are ex-facie oblivious to the settled principles of law as enunciated by the Supreme Court and, if, accepted virtually make a mockery of the provisions of Section 110(5) and deprive the Petitioners of all the safeguards provided in Section 110(5) before the power of provisional attachment can be exercised. As stated hereinabove, in the present case, no order in writing records the opinion of the proper officer, namely that, for the purpose of protecting the interests of revenue or preventing smuggling, it had become necessary to provisionally attach the bank accounts of the Petitioners. In our view, there is a total non-compliance of the provisions of Section 110(5) of the Act while provisionally attaching the bank accounts of the Petitioners. For this reason, the provisional attachment on all the bank accounts of the Petitioners will have to be declared as illegal and lifting the impugned provisional attachment and defreezing of the bank accounts of the Petitioners will have to be directed. 48. As far as the issue of jurisdiction as raised by the Respondents is concerned, we are not at all inclined to accept the same. Although t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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