2025 (4) TMI 1344 - AT - Customs

Customs Department's arbitrary encashment of seized traveller's cheques violates Section 110-A property rights

M/s Sohail Maklai Entertainment Pvt. Ltd. Versus Commissioner of Customs, Mumbai (Air Port), Mumbai

M/s Sohail Maklai Entertainment Pvt. Ltd. Versus Commissioner of Customs, Mumbai (Air Port), Mumbai - TMI The core legal questions considered in this appeal revolve around the entitlement to interest on a sum of money derived from traveller's cheques that were seized, encashed, and deposited by the Customs Department. Specifically, the issues include: (1) Whether the appellant is entitled to interest on the amount of Rs. 47,86,334/- deposited by the department after encashing traveller's cheques seized in 2006; (2) The applicable rate and period of interest, if any; (3) The legal justification for granting or denying interest on such amounts held by the Revenue Department; and (4) The treatment of redemption fines and penalties deducted from the deposited amount in relation to the interest calculation.Regarding the entitlement to interest on the seized amount, the Tribunal examined the legal framework governing the treatment of seized property and money under the Customs Act and relevant judicial precedents. The appellant's argument was grounded in the principle that money or bank deposits constitute 'property' under Article 300A of the Constitution of India, which prohibits deprivation of property except by authority of law. The appellant relied heavily on a recent decision of the Tribunal's Delhi Bench in Matta Paints and Hardware Store, which directed payment of interest on amounts seized and deposited as fixed deposits. This was supported by a series of Supreme Court and High Court rulings, notably Kuil Fireworks Inds. v. Collector (1997), which established that interest at 12% per annum is payable on amounts deposited with the Revenue from the date of deposit until refund. Other supporting cases included M/s. Calcutta Iron & Steel Co. v. CESTAT Chennai and Union of India v. M P Desai, which underscored the principle that the Revenue's enjoyment of the money necessitates payment of interest to avoid unjust enrichment.The Revenue's counter-argument was that the amount seized and deposited was not a duty due for refund but rather a seized amount, and hence no interest was payable. The Commissioner (Appeals) had refused to grant interest on this basis, and the Revenue sought to uphold this decision.The Tribunal's reasoning critically analyzed the facts and legal principles. It noted the absence of any justification in the record for encashing the traveller's cheques instead of preserving them in their original form or releasing them provisionally under Section 110-A of the Customs Act after securing bonds. The Tribunal observed that the encashment and conversion into Rupees followed by deposit in the Revenue's bank account appeared arbitrary, especially since the traveller's cheques were not perishable or hazardous and their value was likely appreciating over time. Although the legality of encashment was not directly challenged, the Tribunal emphasized that the appellant's ownership over the amount was established and the money was effectively held in custody by the Revenue.In applying the law to the facts, the Tribunal drew upon the principle that money, including bank deposits, is property protected under Article 300A, and once confiscation orders are set aside or amounts are refundable, the owner cannot be deprived of benefits arising from the property, including interest accrued during the period of retention. The Tribunal cited Allahabad High Court's ruling in RHL Profiles Ltd. v. Commissioner of Customs, which held that interest cannot be denied merely due to absence of express statutory provision. The Bombay High Court's decision in Union of India v. M P Desai was also referenced to reinforce the entitlement to interest on seized cash refunds. The Kerala High Court's reliance on the Supreme Court's Kuil Fireworks decision further supported the 12% interest rate as the appropriate measure.The Tribunal rejected the Revenue's contention that the amount was not a duty due for refund and hence not liable for interest. It reasoned that the Revenue's retention of the money without paying interest constituted unjust enrichment and deprived the appellant of property rights. The Tribunal highlighted that had the appellant kept the amount in fixed deposits, it would have earned substantial interest, which the Revenue effectively appropriated by holding the amount without interest payment.Regarding the redemption fine and personal penalty totaling Rs. 10,01,000/-, the Tribunal clarified that interest would be calculated on the balance amount after deducting this sum from the principal. Similarly, interest on the pre-deposited amount of Rs. 4,00,000/- was to be calculated separately, with the payment of interest to commence three months after the date of the Tribunal's order dated 30.05.2018.The Tribunal's conclusion was to allow the appeal, directing the Revenue to pay interest on the entire deposited amount from the date of deposit (19.10.2006), less the redemption fine and penalty, and including interest on the pre-deposited amount. The payment was to be made within two months of the order.Significant holdings from the judgment include the following verbatim excerpt from the Tribunal's reasoning in the Matta Paints and Hardware Store decision, which the present Tribunal adopted:'As per Article 300A of Constitution of India, also no person shall be deprived of his property, save by authority of law. Once confiscation order about impugned currency get set aside. It is clear that currency in question has been appellant's property. He cannot be deprived of the same and is entitled for benefits arising out of said property. Hence interest accrued on the amount in question during the period it was in fixed deposit is the property of the owner of the amount i.e. the appellant herein.'The Tribunal also reaffirmed the principle that 'when Revenue has enjoyed the benefit of the money collected from the Assessee, it has to pay interest to the Assessee because by its very nature such collection by Revenue can only be termed as extraction under Ostensive Authority of law.'Core principles established include:Money or bank deposits seized and held by Revenue are 'property' under Article 300A, and owners are entitled to interest accrued during retention.Interest on refundable amounts held by Revenue is payable at 12% per annum, consistent with Supreme Court precedent.Denial of interest on seized amounts held by Revenue constitutes unjust enrichment and deprivation of property rights.Interest calculation must exclude redemption fines and penalties deducted from the principal amount.Provisional release under Section 110-A and interest-bearing custody of seized property are preferable to arbitrary encashment and non-interest bearing retention.In final determinations, the Tribunal ruled that the appellant was entitled to interest on the deposited amount from the date of deposit, less redemption fines and penalties, and including interest on the pre-deposited amount, payable within two months. The Tribunal's order effectively mandates the Revenue to compensate the appellant for the financial benefit derived from holding the seized amount without interest for nearly 13 years.