PROVISIONAL ATTACHMENT OF BANK ACCOUNTS UNDER SECTION 110(5) OF CUSTOMS ACT, 1962

[Mr. M. GOVINDARAJAN]

Seizure of goods

Section 110 of the Customs Act, 1962 (‘Act’ for short) provides the procedure for having search in the premises of the assessee and seize the goods, if the proper officer is of the opinion that the impugned goods are liable to be confiscated.

Attachment of bank account

Section 110(5) of the Act provides that where the 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 6 months.  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 6 months and inform such extension of time to the person whose bank account is provisionally attached, before the expiry of the period so specified.

In GOODMATRIC EXPORT PVT. LTD. AND ANOTHER VERSUS UNION OF INDIA AND OTHERS - 2021 (1) TMI 871 - BOMBAY HIGH COURT, the petitioner’s bank accounts have been frozen at the request of the respondent on the grounds that petitioner is importing rough stones and semi-precious stones on the over-priced invoices.   The Bank account of petitioner was frozen for more than 12 months. Petitioner contended that Section 110(5) of the Custom Act can’t be invoked for a period exceeding maximum 12 months. Also, no extension for account freezing can be extended beyond 6 months without any order. The High Court held that Section 110(5) is not a procedural provision per se; rather it is coercive in nature. Being a coercive provision, strict compliance should be made of the procedure laid down. Section 110(5) can be invoked only in the manner laid down.  Therefore, the High Court set aside the letter of the Department for provisional attachment of ban account.

Instructions by the Department

There are many litigations on the request of the Department for provisional attachment of bank accounts of the assessees.  Now the Department issued an instruction to the Departmental officers concerned vide Instruction No. 19/2024-Customs, dated 22.07.2024.

The said instruction observed that the High Courts emphasize that the order of provisional attachment must reflect the opinion of the proper officer as to why the provisional attachment is necessary to protect the revenue interests or prevent smuggling.  The High Courts further directed that the written order shall be issued to the bank and also to the bank account holder.

The instructions further instructed that the concerned officer has to form an opinion as to the order for provisional attachment of bank accounts of the assessees.  They shall exercise due diligence by thoroughly considering and examining the facts of the case, such as-

• Nature of offence;
• Amount of revenue involved or value of smuggled goods; and
• availability on record of material having value as evidence.

Further the opinion shall contain the reasons to believe that the bank account holder may utilize the funds from the bank account if it is not provisionally attached.

The basis on which the proper officer forms an opinion to seek approval of provisional attachment of a person's bank account must be duly recorded on the respective file.  The opinion formed by the proper officer for attachment of bank account of the assessee shall bear a proximate and live nexus to the purpose of protecting the interests of revenue and/or preventing smuggling.  This power shall not be exercised in a mechanical and routine way.  The report of the proper officer who intends to attach the accounts shall be on the basis of evidence collected and inquiry conducted.  The proper officer must indicate that, prima facie, a case is made out against the bank account holder.

The Principal Commissioner shall give approval for the attachment of bank accounts.  He shall make careful examination of facts of the case to determine whether a case is fit for exercising power under section 110(5).  After this approval, the proper officer may issue order for attachment of bank accounts.  The order of provisional attachment must reflect/contain the basis of framing opinion by the proper officer to attach the bank account. It must clearly specify the duration for which the bank account is being attached.

The initial period for attachment of bank account is only for six months.  The said order is to be issued to the banker and the assessee whose account is to be attached.  On expiry of the attachment period the department shall inform the bank as well as the account holder to release the account.  If any extension is required only the Principal Commissioner is having authority to extend the provisional attachment.  Such extension shall be not exceeding 6 months.  Before issuing such order, the assessee shall be given reasonable opportunity of being heard.  The order shall be in writing indicating the reasons for the extension of provisional attachment of bank account.

At any time before the expiry of any attachment period, if the proper officer forms the opinion that the bank account is no longer liable for being provisionally attached, he shall, with the approval of Principal Commissioner, issue communication to the concerned bank, with intimation to the bank account holder, to release or restore the bank account to the bank account holder.

The provisional attachment of bank account is resorted to protect the interests of the revenue.  But the same may also affect the business and functioning of the person whose bank account is provisionally attached.  Therefore, the instruction reiterated that the investigation and adjudication are completed at the earliest, well within the period of attachment, so that the due liability of duty/tax as well as interest, penalty etc. arising upon adjudication can be recovered from the said person and the purpose of attachment is achieved.