Prolonged customs account freezing during investigation cannot continue without prompt adjudication and notice, the Delhi High Court held.

Customs coercive measures during investigation, including freezing of bank accounts, should not continue indefinitely where adjudication is deferred. The Delhi High Court noted that prolonged attachment without prompt issuance of a show cause notice can cause undue hardship and disrupt business operations, especially where overdraft-based working arrangements are affected. It directed the Department to complete the investigation and issue the show cause notice within three months, and allowed immediate defreezing of the HSBC accounts against an ad hoc deposit under protest.

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Issues: Whether the Customs Department could continue coercive measures, including freezing of bank accounts, during investigation while deferring adjudication, and what interim directions were warranted regarding the investigation and the petitioner's bank accounts.

Analysis: The petitioner challenged provisional attachment of its bank account in connection with an investigation into exemption claimed under Notification No. 50/2017-Customs. The Court noted that repeated coercive action during investigation, without prompt commencement of adjudication by issuance of a show cause notice, would cause undue hardship and disrupt business operations. It further observed that freezing of bank accounts can severely affect trade and overdraft-based working arrangements. The Court therefore directed the Department to complete the investigation and issue a show cause notice within three months, and permitted immediate defreezing of the HSBC accounts to enable an ad hoc deposit.

Conclusion: The challenge succeeded in part. The Department was required to proceed expeditiously with adjudication, the bank accounts were to be defrozen, and the petitioner was directed to deposit Rs. 3 crores under protest.

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