2012 (9) TMI 939 - HC - Customs

Restriction on operation of Bank Account - Duty Drawback - Held that - Section 121 of the Customs Act on which reliance was placed by Mr. Dey provides that where any smuggled goods are sold by a person having knowledge or reason to believe that the goods are smuggled goods, the sale proceeds thereof shall be liable to confiscation - The section can only be invoked on a specific finding that smuggled goods have been sold. Operations can only be prevented in respect of the sale proceeds of smuggled goods. In this case there is admittedly no adjudication as yet. The petitioner be allowed to operate his bank accounts - application disposed off.

Summary

Issues:
- Freezing of bank account by Directorate of Revenue Intelligence pending investigation
- Legal provisions allowing freezing of bank accounts during investigations
- Applicability of Customs Act provisions in the case

Freezing of Bank Account:
The judgment addresses the petitioner's grievance against the respondent authorities for not allowing the operation of a bank account linked to the petitioner's business of export and import. The Directorate of Revenue Intelligence initiated investigations into certain exports by the petitioner, suspecting misdeclaration of export values to avail undue duty drawback. The respondent argued that the goods exported were of no value, with items like second-hand clothing and shoes without soles. The petitioner, through its authorized representative, informed the authorities of the unavailability of export documents due to office relocation. The court acknowledged the authority's right to investigate but questioned the freezing of bank accounts at this stage, emphasizing that no provision of law authorizes such action pending investigation.

Legal Provisions for Freezing Bank Accounts:
The judgment delves into the legal framework governing the freezing of bank accounts during investigations. It discusses Section 121 of the Customs Act, which allows confiscation of sale proceeds of smuggled goods upon specific findings. However, in this case, there was no adjudication yet. Section 2(39) defines smuggling in relation to goods liable to confiscation under Sections 111 or 113. The court highlighted that no adjudication had determined the presence of such goods in the bank account. Additionally, Section 142A, dealing with the priority of dues under the Customs Act, was found inapplicable as no duty, penalty, or interest had been adjudicated or assessed against the petitioner. The judgment concludes that there is no provision in the Customs Act for the interim attachment of bank accounts during investigations.

Applicability of Customs Act Provisions:
The judgment provides a detailed analysis of the relevant provisions of the Customs Act in the context of the case. It clarifies that while the Directorate of Revenue Intelligence can take stringent action if fraud or misdeclaration is proven, freezing bank accounts without legal authorization is impermissible. The court also notes that duty drawback is contingent upon actual remittance of foreign exchange and verification of relevant documents, emphasizing that investigations can proceed without impeding banking operations. Ultimately, the court directs the petitioner to be allowed to operate the bank accounts for daily business transactions but restricts withdrawals related to the consignments under investigation. The provisional release of the detained consignments is not pursued at that stage.

In summary, the judgment scrutinizes the freezing of the petitioner's bank account during investigations, evaluates the legal provisions governing such actions under the Customs Act, and ultimately rules in favor of allowing the petitioner to operate the bank accounts for business transactions while imposing restrictions on withdrawals linked to the investigated consignments.