2018 (2) TMI 1508 - HC - Customs

Freezing of bank accounts - Communications addressed by the Directorate of Revenue Intelligence to the Bankers, namely Kotak Mahindra Bank and Bank of Baroda - Held that - In this case, when the petitioners state that to the knowledge of the DRI and the Customs Department, they have been importing consignments, having them cleared by payment of duty or otherwise exporting the goods with compliance of the Customs Act, 1962, suddenly there was no need to investigate their cases - there is no prohibition against investigation of old cases and past transactions, but in the garb of such investigation and scrutiny, the need for freezing and attaching the bank accounts should be made out by referring to and production of necessary materials. Merely because the investigations are pending, we are not inclined to accede to the request of Mr. Jetly to continue the freezing order till all investigations are concluded and show cause notices are issued. We are not inclined to presume merely on the basis of the affidavit in reply filed by the Revenue that the adjudication process will necessarily result in a demand for payment of duty, interest and penalty. Petition disposed off.

Summary

Issues:
Challenging communications freezing bank accounts by Directorate of Revenue Intelligence.

Analysis:
The petitioners challenged communications freezing their bank accounts by the Directorate of Revenue Intelligence (DRI) addressed to Kotak Mahindra Bank and Bank of Baroda branches where the petitioners held current accounts. The petitioners argued that the freezing of accounts had paralyzed their business activities, which involved exporting fabrics and readymade garments. They contended that past transactions had never raised any discrepancies or investigations until the recent search and arrests conducted by the DRI. The freezing of accounts without issuing show cause notices or adjudication orders severely impacted their ability to conduct daily business operations.

The DRI, on the other hand, defended its actions stating that the petitions were an abuse of the legal process and aimed at preempting an investigation into alleged fraudulent exports by the petitioners. The DRI claimed that the exports were fraudulent, involving inflated prices to claim duty drawbacks and other benefits. The DRI argued against entertaining the petitions, emphasizing the seriousness of the alleged fraud on the public exchequer.

The High Court analyzed the situation and emphasized the need for strong prima facie evidence to justify freezing bank accounts. The Court noted that while investigations into past transactions were permissible, freezing accounts required substantial evidence of systematic fraud or attempts to defraud the public exchequer. The Court found that the communications to freeze the accounts lacked sufficient justification beyond mere allegations by the DRI. The Court highlighted the importance of balancing the rights of the parties involved and ensuring a fair adjudicatory process.

In its final judgment, the Court directed the petitioners to provide detailed information and documents related to their export transactions to the DRI. The petitioners were required to declare any benefits claimed subject to the outcome of the adjudication process. The Court set forth conditions for the petitioners to forward necessary details to the DRI within specified timeframes, allowing the investigation to proceed without hindrance. The freezing orders on the bank accounts were quashed, subject to compliance with the Court's directions, and the petitioners' banking operations were clarified to remain unaffected by the order. The Court disposed of the writ petitions with the outlined directions, emphasizing the importance of a fair and transparent adjudication process.