Case Law
Subject : Legal - Customs & Indirect Tax
Indore, April 21, 2025
– In a significant ruling, the High Court of Madhya Pradesh at Indore has clarified the limits of provisional attachment powers under the Customs Act, 1962, holding that such action can only be taken during formal 'proceedings' initiated by a
The petition was filed by Mundhra Exim Pvt Ltd and others, who are importers of
The petitioners' bank accounts had already been provisionally frozen for a year under a previous file number (expiring December 2024). The impugned order, dated December 3, 2024, initiated a fresh provisional attachment for another six months under a
new
investigation file number, despite no
During an investigation, DRI scrutinized past imports by the petitioners. They discovered that in November 2022, four consignments of
Upon the expiry of this initial one-year period, and while the investigation continued under a new file number, the DRI issued a fresh intimation on December 3, 2024, provisionally attaching the same bank accounts for a further six months. The petitioners challenged this new attachment order.
Petitioners' Arguments:
The petitioners contended that provisional attachment under Section 110(5) read with Section 28BA of the Customs Act is only permissible when 'proceedings' under Sections 28, 28AAA, or 28B are pending. They argued that an investigation does not constitute "pendency of proceedings" as contemplated by the law, which requires the issuance of a
Respondents' Arguments:
The respondents (Union of India and DRI) argued that the petition was not maintainable due to the availability of an alternative remedy under Section 110A. They also contended that the petitioners had not challenged the underlying approval document dated December 2, 2024, on which the impugned intimation was based. They claimed the approval note-sheet recorded sufficient subjective satisfaction for the attachment. Crucially, the respondents did not dispute that no
The High Court first addressed the maintainability of the petition, noting that the availability of an alternative remedy is not an absolute bar when the order is "wholly without jurisdiction" or violates natural justice, citing Supreme Court precedents like
Regarding the respondents' argument about challenging the underlying approval, the Court found that the document was merely a note-sheet for internal approval, not communicated to the petitioners, and it merged with the final intimation order. Therefore, a separate challenge was not necessary.
The core of the Court's decision rested on interpreting the term "proceedings" as used in Section 110(5) of the Customs Act. By examining Section 28BA, which deals with provisional attachment to protect revenue, the Court concluded that the "proceedings" referred to are those initiated under Sections 28, 28AAA, or 28B. The Court noted that proceedings under these sections commence only upon the issuance of a
The Court stated: > "Hence, in the considered opinion of this court, the word “proceedings” which finds mention in Section 110(5) of Customs Act, 1962 is referrable to proceedings initiated under “Section 28, or Section 28AAA or Section 28B”."
> "In view of conclusion arrived by this court hereinabove, a bare reading of Section 28, or Section 28AAA or Section 28B would reveal that the proceedings under the said Sections would commence only after issuance of
The Court further observed that the CBEC Circular No. 10/2008 also reinforces this requirement, instructing that provisional attachment can be initiated only after an SCN under Section 28, 28AAA, or 28B.
Given the admitted fact that no SCN had been issued and the matter was still under investigation, the Court held that there were no "proceedings" pending against the petitioners within the meaning of the Act. Consequently, the DRI lacked the jurisdiction to pass the provisional attachment order under Section 110(5). The Court cited a Calcutta High Court judgment ( Mineral Metal Centre ) which similarly held that authorities have no power to freeze bank accounts during a pending investigation.
The Court declined to rule on the arguments regarding the attachment being time-barred or a colorable exercise of power, as the finding that the order was issued without jurisdiction was sufficient to dispose of the petition.
Final Decision:
The High Court allowed the petition and quashed the impugned intimation dated December 3, 2024, finding it to be without jurisdiction. The respondents were directed to de-freeze the petitioners' bank accounts provisionally attached by that order with immediate effect. The Court also expressed displeasure, noting that the respondents had not complied with the interim stay order dated January 16, 2025, which it viewed as a clear case of contempt.
This judgment provides crucial clarity on the powers of customs authorities regarding provisional attachment of bank accounts. It reinforces that this 'draconian' power is not available as a tool during the investigation stage but is strictly tied to formal proceedings initiated by an SCN. It underscores the importance of adhering to the statutory preconditions before exercising such powers, offering relief to businesses facing prolonged asset freezes without the initiation of formal adjudication proceedings. The ruling also clarifies that the alternative remedy under Section 110A is applicable post-SCN, during adjudication, not during the preliminary investigation phase.
#CustomsLaw #HighCourt #ProvisionalAttachment #MadhyaPradeshHighCourt
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