The Patna High Court has held that the extension of a provisional bank-account attachment under Section 110(5) of the Customs Act, 1962 requires a pre-decisional opportunity of hearing to the affected account holder.
The bench of Justice Rajeev Ranjan Prasad and Justice Sunil Dutta Mishra set aside the extension orders passed against bank accounts of the assessee, observing that the statutory provision contemplates a hearing before the extension is granted and not a post-decisional hearing.
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The appellant/assessee is a company engaged in digital marketing, affiliate digital marketing and resale of various brands and gift vouchers/cards, approached the High Court challenging provisional attachments and debit freezes imposed on its bank accounts.
The Customs authorities had been investigating certain exporters over alleged fraudulent export activities and wrongful availment of Input Tax Credit. During the investigation, the authorities noticed substantial transfers from the accounts of the exporters into the accounts of Nxtify Technologies. Although the petitioner itself was not initially the subject of the investigation, the Customs authorities formed the view that certain amounts had been fraudulently transferred to it and proceeded to provisionally attach its bank accounts.
The petitioner challenged the attachment proceedings before the Karnataka High Court and subsequently before the Patna High Court after further debit freezes were imposed on its accounts.
A principal grievance before the Patna High Court was that several bank accounts had been subjected to debit freezes in October 2025, whereas the formal provisional attachment orders were issued subsequently.
According to the petitioner, the bank accounts were first frozen and the provisional attachment orders were issued only later, including orders dated January 7, 2026. It was argued that the statutory power under Section 110(5) had to be exercised before the attachment and could not subsequently be used to retrospectively validate an earlier freezing of bank accounts.
The petitioner also contended that the attachment orders lacked adequate reasons and that there was no disclosure of tangible material establishing a connection between Nxtify Technologies and the alleged fraudulent export transactions.
The Department disputed the petitioner’s contentions and maintained that the investigation had revealed a money trail connecting assessee with the alleged fraudulent exporters.
According to the respondents, substantial funds originating from fraudulent exporters were received through intermediaries and were allegedly converted into prepaid instruments. Statements recorded under Section 108 of the Customs Act were relied upon by the Department in support of its case.
The Department further stated that fresh investigations concerning other exporters had revealed additional financial trails. In one investigation concerning Kumar Enterprises, an amount of approximately ₹46.52 lakh was stated to have been transferred to Nxtify Technologies. In another investigation involving Kentil Technosoft Pvt. Ltd., the Department claimed that a money trail exceeding ₹3 crore had entered the petitioner’s accounts.
The respondents therefore defended the subsequent provisional attachments as fresh measures based on investigations involving different exporters and additional financial material.
The High Court examined Section 110(5) of the Customs Act, which empowers the proper officer, during proceedings under the Act, to provisionally attach a bank account where the officer forms an opinion that such attachment is necessary for protecting revenue or preventing smuggling.
The provision requires approval of the Principal Commissioner or Commissioner of Customs and permits an initial provisional attachment for a period not exceeding six months. The competent authority may extend the attachment for another period not exceeding six months, but reasons have to be recorded in writing and the extension has to be communicated to the affected person before expiry of the specified period.
The Court considered the safeguards surrounding this power particularly important because attachment of a bank account can have significant consequences for a business.
The Bench considered the Supreme Court’s judgment in Radha Krishan Industries v. State of Himachal Pradesh, which dealt with provisional attachment under the GST legislation.
The Patna High Court noted that Section 83 of the HPGST Act and Section 110(5) of the Customs Act contain comparable statutory requirements concerning provisional attachment. The Supreme Court had explained that the power could be exercised only when the statutory conditions were fulfilled, including the existence of proceedings, formation of the requisite opinion, issuance of an order in writing and compliance with the prescribed procedure.
The Supreme Court’s reasoning, as reproduced by the Patna High Court, emphasised that provisional attachment is a stringent power and that its exercise must strictly comply with the statutory conditions. The opinion that attachment is necessary must have a proximate and live nexus with the protection of government revenue.
The Department itself acknowledged that two provisional attachment orders—dated October 10, 2025 in the case of Kentil Technosoft Pvt. Ltd. and October 23, 2025 in the case of Kumar Enterprises—had been issued without the approval of the competent authority, namely the Commissioner.
The High Court observed that the Department’s own chart established the absence of the required approval. Consequently, the Court held that the two provisional attachment orders, as well as their consequential extension orders, were rendered illegal for violation of the statutory scheme of Section 110(5).
The Bench also expressed reservations regarding the manner in which the Customs authorities proceeded while the writ petition was pending.
After the Court had heard arguments and adjourned the matter to enable the Department to respond to the issues raised, the authority issued a notice to the petitioner on July 3, 2026 and conducted a hearing on July 6. A fresh order was then passed on July 6.
The Court held that the Department had attempted to alter the position during the pendency of the writ proceedings and observed that the action amounted to an attempt to render the writ petition infructuous. The Court described the action as inconsistent with fair play and judicial discipline. The Additional Solicitor General subsequently stated that the Department would not press the July 6 order.
The central issue ultimately concerned the extension of the provisional attachment.
The Court examined an extension order dated April 30, 2026. The order purported to extend the provisional attachment for another six months by invoking Section 110(5) of the Customs Act.
However, the Bench found that before the extension order was passed, the competent authority had not provided an opportunity of hearing to Nxtify Technologies. No show-cause notice had been issued and the extension order itself did not disclose reasons for extending the attachment.
The Court noted that it was only during the pendency of the writ proceedings that the Department subsequently issued a notice and provided an opportunity of hearing, followed by the July 6, 2026 order—which the Department ultimately chose not to press.
The Bench gave a categorical finding on the requirement of hearing, holding that Section 110(5) of the Customs Act contemplates a pre-decisional hearing rather than a post-decisional hearing.
The Court therefore concluded that the extension orders were legally unsustainable and liable to be set aside.
The Court’s conclusion followed its finding that the extension order had been passed without giving the petitioner an opportunity of hearing and without recording reasons. The subsequent attempt to provide a hearing during the pendency of the writ petition could not cure the defect in the original extension process.
The High Court clarified that setting aside the extension orders would not prevent the Customs Department from continuing with the pending adjudication proceedings.
The Department was left at liberty, if otherwise permissible under the Customs Act, to take appropriate steps and pass fresh provisional attachment or extension orders in cases where the original provisional attachment had been issued in accordance with law.
The Patna High Court ultimately allowed the writ petition to the extent indicated in the judgment, setting aside the impugned extension orders for failure to comply with the requirement of a pre-decisional hearing under Section 110(5) of the Customs Act.
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