2015 (4) TMI 888 - HC - Customs

Appeal dismissed, bank account frozen, bank guarantee required, funds presumed from smuggling.

The appeal was dismissed, upholding the freezing of the appellant's bank account and the requirement of furnishing a bank guarantee for the released ... Confiscation of goods u/s 111 - Freezing of bank account - Smuggling of goods - Whether such freezing of bank account is confiscation/seizure of goods - Held that:- Without even the order / notice / direction of freezing of the account and without proper pleadings, and merely on the basis of copies of some documents handed over across the bar, do not deem it appropriate to render any interpretation of Sections 110 and 121 of the Act. Suffice it is to state that from the show cause notice dated 29th November, 2013 issued by the respondent no.2 DRI to the appellant, a case of the monies in the frozen account being sale proceeds of smuggled goods is made out and the said monies are liable to confiscation under Section 121 supra and thus cannot be allowed to be withdrawn unconditionally by the appellant. - appellant has failed to explain the source of the imported goods sale proceeds whereof were credited into the bank account which has been frozen. The onus was/is on the appellant to explain the transactions in the said bank account and to establish that the said transactions were/are not tainted. No endeavour even in that direction has been made. We, at this stage, have thus but to presume that the monies in the bank account which has been frozen, are sale proceeds of smuggled goods. - Decided against assessee. Issues Involved:1. Legality of the freezing of the appellant's bank account.2. Application of Sections 110(1), 110(2), 110(3), and 121 of the Customs Act, 1962.3. Requirement of furnishing a bank guarantee for the release of the frozen amount.4. Entitlement to discretionary relief under Article 226 of the Constitution of India.Detailed Analysis:Legality of the Freezing of the Appellant's Bank Account:The appellant's bank account was frozen in July 2011 by the Directorate of Revenue Intelligence (DRI) during an investigation into the import of high-value pesticides mislabeled as Sodium Bi-Carbonate. The appellant argued that the freezing of the account was arbitrary and without notice, causing a halt to their business operations. The DRI countered that the freezing was necessary due to the massive duty evasion and the appellant's involvement in the illegal importation scheme.Application of Sections 110(1), 110(2), 110(3), and 121 of the Customs Act, 1962:The appellant contended that under Section 110(2) of the Customs Act, the seized goods should be returned if no notice is issued within six months. The DRI argued that Section 110(3) allows the seizure of documents or things relevant to the investigation without a six-month notice requirement. The court found that Section 110(3) does not cover the freezing of bank accounts as it pertains to the seizure of documents or things, not currency. However, Section 121 allows for the confiscation of sale proceeds of smuggled goods, which applied to the appellant's case as the frozen account contained proceeds from the sale of smuggled goods.Requirement of Furnishing a Bank Guarantee for the Release of the Frozen Amount:The learned Single Judge directed that the amount deposited in the bank account after the date of freezing be released subject to the appellant furnishing a bank guarantee. The appellant argued that this condition was improper as they were not involved in the importation and no notice was served on them. The DRI maintained that the freezing was to ensure recovery of evaded customs duty and penalties. The court upheld the requirement of a bank guarantee, noting the ongoing investigation and the appellant's failure to explain the source of the funds in the frozen account.Entitlement to Discretionary Relief under Article 226 of the Constitution of India:The court observed that the appellant had not provided sufficient evidence to explain the transactions in the frozen account and establish that they were not tainted. The onus was on the appellant to prove the legitimacy of the funds, which they failed to do. Consequently, the court presumed the monies were sale proceeds of smuggled goods and denied discretionary relief under Article 226 of the Constitution of India. The court also dismissed the argument regarding the change in the firm's partners, stating that it does not entitle the firm to the frozen funds if they are liable to confiscation.Conclusion:The appeal was dismissed, and the court upheld the freezing of the bank account and the requirement of furnishing a bank guarantee for the release of the amount deposited after the freezing date. The court found that the appellant failed to explain the source of the funds and that the monies were presumed to be sale proceeds of smuggled goods, making them liable for confiscation under Section 121 of the Customs Act.