CHAPTER - V
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Confiscation and Prosecution
1. Introduction
The Government of India is empowered under the
Constitution of India to collect revenue from different sources to
meet its administrative expenses and financial support to carry
out various objectives to establish a ‘welfare state’ by carrying
out various social schemes, for this purpose various statutes
have been framed and some of the Acts like Central Excise Act,
19441, Customs Act, 19622 and Finance Act, 19943 are enacted
by the parliament to empower the Govt. of India to collect tax
from the public. These are the indirect taxes collected from the
manufacturer/ importer/ exporter/ service providers who in turn
collect the tax from the ultimate consumer.
In this chapter an effort has been made that since there is
natural tendency of some tax evaders / unscrupulous elements
1 For reference see R. K. Jain’s, Central Excise Law Manual, Golden Jubilee
Edition, 2010 (March), Centax Publication Pvt. Ltd. 1512-B, Bhisham Pitamah Marg, New Delhi.
2 For reference see R. K Jain’s, Customs Law Manual, 39th Edition, 2009(July), Centax Publications Pvt. Ltd. 1512-B, Bhisham Pitamah Marg, New Delhi.
3 For reference see S.S.Gupta’s Service Tax How To Meet Your Obligation, Vol.2, 29th Edition, 2010(June), Taxmann Allied Services Pvt. Ltd.
113
to evade tax payable under these Acts. These Acts were
supposed to act as deterrent and provide for the certain penal
provisions which act as the deterrent / lesson for such type of
persons. Broadly, there are two types of parallel provisions
under these Acts as under:
(i) Confiscation of goods and imposition of penalty by the
departmental adjudication.
(ii) Launching of prosecution in the court of law.
These provisions are hereinafter discussed in detail
separately. The purpose of both these provisions is to prevent
the evasion of taxes. Broadly penalty is imposed by the
departmental authorities but punishment is given only in court of
law. However penalty and punishment can be provided
simultaneously. The hon’ble Supreme Court of India has held
that a person can be prosecuted in criminal court and at the
same time penalty can be imposed by departmental authorities.4
The hon’ble Supreme Court has held that major difference in
both these provisions of penalty and punishment is with regard
to scope of mens rea, which is essential ingredient of any
4 Director of Enforcement v. MCT M Corporation (P) Ltd., 1996, RLT, p 365
(SC).
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criminal offence5 but it has also been held that the same is not
essential in penalty provisions unless statute specifically provide
so.6
2. Confiscation - Legal provisions
There are many provisions for confiscation of seized goods,
plant and machinery, vessels, vehicles etc. along with the
contraband goods. These provisions are discussed in detail here
separately in respect Central Excise and Customs matters.
(i) Central Excise
The powers of confiscation and penalty can be traced to
Rule 25 of the Central Excise Rules 20027 and Rule 15 of the
Cenvat Credit Rules, 20048 both issued under Section 37 of the
Central Excise Act, 19449. It has been provided vide Rule 25
sub-rule (1) of the Central Excise Act, 1944 10 that subject to the
provisions of section 11AC of the Central Excise Act, 194411, if
any producer, manufacturer, registered person of a warehouse 5 Kalpnath Rai v. State, AIR, 1998, SC, p 201. 6 R S Joshi v. Ajit Mills, AIR, 1977, SC, p 2279. 7 Supra note 1, p 2.23. 8 Id., p 2.40. 9 Id., p 1.146. 10 Id., p 2.23. 11 Id., P 1.117.
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or a registered dealer,(a) removes any excisable goods in
contravention of any of the provisions of the rules or the
notifications issued under the rules i.e. the Central Excise
Rules,2002, or (b) does not account for any excisable goods
produced or manufactured or stored by him or (c) engages in
the manufacture, production or storage of any excisable goods
without having applied for the registration certificate required
under section 6 of the Central Excise Act, 1944,12 or (d)
contravenes any of the provisions of these rules or the
notifications issued under these rules with intent to evade
payment of duty, then, all such goods shall be liable to
confiscation and the producer or manufacturer or registered
person of the warehouse or a registered dealer, as the case may
be, shall be liable to a penalty not exceeding the duty on the
excisable goods in respect of which any contravention of the
nature referred to in clause (a) or clause (b) or clause (c) or
clause (d) has been committed, or rupees two thousand,
whichever is greater.
Further it has also been provided vide sub rule (2) of this
rule that an order under sub-rule (1) shall be issued by the
12 Id., p 1.111.
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Central Excise Officer, following the principles of natural
justice13.
Similarly, it has also been provided under Rule 15 of the
Cenvat Credit Rules, 200414 that if any person, takes CENVAT
credit in respect of input or capital goods, wrongly or in
contravention of any of the provisions of these rules in respect of
any input or capital goods, then, all such goods shall be liable to
confiscation and such person, shall be liable to a penalty not
exceeding the duty on the excisable goods in respect of which
any contravention has been committed, or two thousand rupees,
whichever is greater.
This is also provided that in a case, where the CENVAT
credit in respect of input or capital goods has been taken or
utilized wrongly on account of fraud, willful mis-statement,
collusion or suppression of facts, or contravention of any of the
provisions of the Excise Act or the rules made there under with
intention to evade payment of duty, then, the manufacturer shall
also be liable to pay penalty in terms of the provisions of section
13 Id., p 2.23. 14 Id., p 2.40.
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11AC of the Central Excise Act, 1944.15
Further if any person, takes CENVAT credit in respect of
input services, wrongly or in contravention of any of the
provisions of these rules in respect of any input service, then,
such person, shall be liable to a penalty which may extend to an
amount not exceeding two thousand rupees.
But in a case, where the CENVAT credit in respect of input
services has been taken or utilized wrongly by reason of fraud,
collusion, willful mis-statement, suppression of facts, or
contravention of any of the provisions of the Finance Act or of
the rules made there under with intention to evade payment of
service tax, then, the provider of output service shall also be
liable to pay penalty in terms of the provisions of section 78 of
the Finance Act 199416.
15 Id., p 1.117. 16 R. K. Jain’s Service Tax Law Guide, 7th edition, 2009 (September), Centax
Publication Pvt. Ltd., p 1498.
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It is also specifically provided that these orders of
confiscation or imposition of penalty shall be issued by the
Central Excise Officer following the principles of natural justice.
Therefore, it means that these orders cannot be issued
arbitrarily.
(ii) Customs
The Customs law relates to the goods relating to coming
into the country or going out of the country. There can be
violations of certain provisions relating to the movement of these
goods. In case of serious violations, the contraband goods,
packing of these goods and even the vehicles, vessels, ships,
boats etc. can be confiscated.
According to S. 111 of the Customs Act, 196217 improperly
imported goods can be confiscated. The following goods brought
from a place outside India shall be liable to confiscation: –
(a) any goods imported by sea or air which are unloaded or
attempted to be unloaded at any place other than a customs
port or customs airport appointed under clause (a) of section
17 Supra note 2, p 1.97.
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7 of the Customs Act, 196218 for the unloading of such
goods;
(b) any goods imported by land or inland water through any
route other than a route specified in a notification issued
under clause (c) of section 7 of the Customs Act, 196219 for
the import of such goods;
(c) any dutiable or prohibited goods brought into any bay, gulf,
creek or tidal river for the purpose of being landed at a place
other than a customs port;
(d) any goods which are imported or attempted to be imported
or are brought within the Indian customs waters for the
purpose of being imported, contrary to any prohibition
imposed by or under this Act or any other law for the time
being in force;
(e) any dutiable or prohibited goods found concealed in any
manner in any conveyance;
(f) any dutiable or prohibited goods required to be mentioned
under the regulations in an import manifest or import report
18 Id., p 1.60. 19 Ibid.
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which are not so mentioned;
(g) any dutiable or prohibited goods which are unloaded from a
conveyance in contravention of the provisions of section 32
of the Customs Act, 1962,20 other than goods inadvertently
unloaded but included in the record kept under sub-section
(2) of section 45 of the Customs Act, 196221;
(h) any dutiable or prohibited goods unloaded or attempted to
be unloaded in contravention of the provisions of section
3322 or section 34 of the Customs Act, 196223;
(i) any dutiable or prohibited goods found concealed in any
manner in any package either before or after the unloading
thereof;
(j) Any dutiable or prohibited goods removed or attempted to
be removed from a customs area or a warehouse without the
permission of the proper officer or contrary to the terms of
such permission;
(k) any dutiable or prohibited goods imported by land in respect
20 Id., p 1.79. 21 Id., p 1.81. 22 Id., p 1.79. 23 Id., p 1.79.
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of which the order permitting clearance of the goods required
to be produced under section 109 the Customs Act, 196224 is
not produced or which do not correspond in any material
particular with the specification contained therein;
(l) any dutiable or prohibited goods which are not included or
are in excess of those included in the entry made under this
Act, or in the case of baggage in the declaration made under
section 77 of the Customs Act, 196225;
(m) any goods which do not correspond in respect of value or
in any other particular with the entry made under this Act or
in the case of baggage with the declaration made under
section 77 of the Customs Act, 196226 in respect thereof, or
in the case of goods under transshipment, with the
declaration for transshipment referred to in the proviso to
sub-section (1) of section 54 of the Customs Act, 196227;
(n) any dutiable or prohibited goods transited with or without
transshipment or attempted to be so transited in
contravention of the provisions of Chapter VIII of the
24 Id., p 1.96. 25 Id., p 1.90. 26 Ibid. 27 Id., p 1.83.
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Customs Act, 196228;
(o) any goods exempted, subject to any condition, from duty or
any prohibition in respect of the import thereof under this Act
or any other law for the time being in force, in respect of
which the condition is not observed unless the non-
observance of the condition was sanctioned by the proper
officer;
(p) any notified goods in relation to which any provisions of
Chapter IVA of the Customs Act, 196229 or of any rule made
under the said Act for carrying out the purposes of that
Chapter have been contravened.
Similarly S. 113 of the Customs Act 1962,30 provides for
the confiscation of goods attempted to be improperly exported.
The following export goods shall be liable to confiscation :-
(a) any goods attempted to be exported by sea or air from any
place other than a customs port or a customs airport
appointed for the loading of such goods;
(b) any goods attempted to be exported by land or inland water
28 Id., p 1.82-1.83. 29 Id., p 1.61-1.63. 30 Id., p 1.98.
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through any route other than a route specified in a
notification issued under clause (c) of section 7of the
Customs Act, 196231 for the export of such goods;
(c) any goods brought near the land frontier or the coast of
India or near any bay, gulf, creek or tidal river for the
purpose of being exported from a place other than a land
customs station or a customs port appointed for the loading
of such goods;
(d) any goods attempted to be exported or brought within the
limits of any customs area for the purpose of being
exported, contrary to any prohibition imposed by or under
this Act or any other law for the time being in force;
(e) any goods found concealed in a package which is brought
within the limits of a customs area for the purpose of
exportation;
(f) any goods which are loaded or attempted to be loaded in
contravention of the provisions of section 3332 or section 34
31 Id., p 1.60. 32 Id., p 1.79.
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of the Customs Act, 196233;
(g) any goods loaded or attempted to be loaded on any
conveyance, or water-borne, or attempted to be water-
borne for being loaded on any vessel, the eventual
destination of which is a place outside India, without the
permission of the proper officer;
(h) any goods which are not included or are in excess of those
included in the entry made under this Act, or in the case of
baggage in the declaration made under section 77 of the
Customs Act, 196234;
(i) any goods entered for exportation which do not correspond
in respect of value or in any material particular with the
entry made under the said Act or in the case of baggage
with the declaration made under section 77 of the Customs
Act, 196235;
(j) any goods entered for exportation under claim for drawback
which do not correspond in any material particular with any
information furnished by the exporter or manufacturer under
33 Id., P 1.79. 34 Id., p 1.90. 35 Id., p 1.90.
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this Act in relation to the fixation of rate of drawback under
section 75 of the Customs Act, 196236;
(k) any goods on which import duty has not been paid and
which are entered for exportation under a claim for
drawback under section 74 of the Customs Act, 196237;
(l) any goods cleared for exportation which are not loaded for
exportation on account of any willful act, negligence or
default of the exporter, his agent or employee, or which
after having been loaded for exportation are unloaded
without the permission of the proper officer;
(m) any specified goods in relation to which any provisions of
Chapter IVB of the Customs Act, 196238 or of any rule made
under the said Act for carrying out the purposes of that
Chapter have been contravened.
Further as per the provisions contained in S. 115 of The
Customs Act, 196239 conveyances used for transporting the
goods liable for confiscation can also be confiscated. The
following conveyances shall be liable to confiscation:-
36 Id., p 1.88. 37 Id., p 1.87. 38 Id., p 1.63-1.64. 39 Id., p 1.100.
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(a) any vessel which is or has been within the Indian customs
waters, any aircraft which is or has been in India, or any
vehicle which is or has been in a customs area, while
constructed, adapted, altered or fitted in any manner for the
purpose of concealing goods;
(b) any conveyance from which the whole or any part of the
goods is thrown overboard, staved or destroyed so as to
prevent seizure by an officer of customs;
(c) any conveyance which having been required to stop or land
under section 106 of the Customs Act, 196240 fails to do so,
except for good and sufficient cause;
(d) any conveyance from which any warehoused goods cleared
for exportation, or any other goods cleared for exportation
under a claim for drawback, are unloaded, without the
permission of the proper officer;
(e) any conveyance carrying imported goods which has
entered India and is afterwards found with the whole or
substantial portion of such goods missing, unless the
master of the vessel or aircraft is able to account for the
loss of, or deficiency in, the goods.
40 Id., p 1.95.
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It has also been provided that any conveyance or animal
used as a means of transport in the smuggling of any goods or in
the carriage of any smuggled goods shall be liable to
confiscation, unless the owner of the conveyance or animal
proves that it was so used without the knowledge or connivance
of the owner himself, his agent, if any, and the person in charge
of the conveyance or animal. Also has been provided that where
any such conveyance is used for the carriage of goods or
passengers for hire, the owner of any conveyance shall be given
an option to pay in lieu of the confiscation of the conveyance a
fine not exceeding the market price of the goods which are
sought to be smuggled or the smuggled goods, as the case may
be.
It is significant to note that no separate provisions have
been provided under the Central Excise law for confiscation of
vehicles or conveyances but these provisions have been made
applicable to Central Excise under Notification No. 68/63-CE
dated 04-05-6341 with some exceptions. There is no provision for
confiscation of goods or the conveyances under Finance Act,
1994 as under the said Act, Service Tax is levied only on
41 Supra note 1, p 4.24.
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services provided which can not be seized or taken into custody
for confiscation.
3. Procedure for Confiscation
The contraventions of the provisions of Central Excise
Law, Customs Act and also of the connected Import / export and
foreign exchange laws are also punishable through departmental
adjudication by way of confiscation of goods / conveyances and
imposition of penalties. Before the goods can be confiscated
these are first required to be seized or taken into custody.
4. Seizure of Contraband goods / Conveyances
By virtue of the powers vested under Section 110 of
Customs Act, 196242 as also made applicable to Central Excise
by virtue of Notification No. 68/63-CE dated 04-05-6343 the
departmental officers can seize the contraband goods involving
any contravention of the provisions of these Acts and the Rules
framed there under which are prima facie liable to confiscation
42 Supra note 2, p 1.96. 43 Supra note, 41.
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under the said Acts. They have power to investigate or
interrogate a person in connection with the enquiry under the
said Acts.
5. Adjudication
The departmental adjudication is done mainly by officers of
and above the rank of the Assistant Commissioner and the
powers and jurisdiction being delegated to them by the executive
instructions of the Board on the basis of the amount of duty
involved in the case. These provisions have already been
discussed in detail in chapter III of this Thesis, but for the sake of
necessity, relevance and for the sake of avoiding repetition,
these are discussed here in brief (for details, chapter III may be
seen). It has been seen that these powers of officers are fixed
as per monetary limits.
It has been provided vide S. 122 of the Customs Act
196244 that in every case in which anything is liable to
confiscation or any person is liable to a penalty, such
confiscation or penalty may be adjudged,
44 Supra note 2, p 1.101.
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(a) without limit, by a Commissioner of Customs or a Joint
Commissioner of Customs;
(b) where the value of the goods liable to confiscation does not
exceed two lakh rupees, by an Assistant Commissioner of
Customs or Deputy Commissioner of Customs;
(c) where the value of the goods liable to confiscation does not
exceed ten thousand rupees, by a Gazetted Officer of
Customs lower in rank than an Assistant Commissioner of
Customs or Deputy Commissioner of Customs.
These monetary limits have been subjected to change by
way of enhancement and the same have been discussed in
detail in chapter III.
(i) Procedure
The procedure for adjudication of such cases has been
contained in Section 122A of the Customs Act, 1962,45 and
section 33A of the Central Excise Act, 1944.46 It has been
provided that the adjudicating authority shall, in any proceeding
under the provision of these Acts, give an opportunity of being
45 Id., p 1.101. 46 Supra note 1, p 1.135.
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heard to a party in a proceeding, if the party so desires.
It has also been categorically provided that the
adjudicating authority may, if sufficient cause is shown at any
stage of proceeding, grant time, from time to time, to the parties
or any of them and adjourn the hearing for reasons to be
recorded in writing. It has also been provided that no such
adjournment shall be granted more than three times to a party
during the proceeding.
(ii) Issue of show cause notice
It has been provided vide Section 124 of the Customs Act
196247 as made applicable to the Central Excise Act, 1944 and
Finance Act, 1994 that issue of show cause notice to the
affected parties to the case is mandatory before ordering
confiscation of the goods. This has also been specifically
provided that every order for confiscation / imposition of penalty
shall be issued after following the principles of natural justice.
The provisions stipulate that no order confiscating any goods or
imposing any penalty on any person shall be made unless the
47 Supra note 2, p 1.102.
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owner of the goods or such person:-
(a) is given a notice in writing with the prior approval of the
officer of Customs not below the rank of a Deputy
Commissioner of Customs, informing him of the grounds
on which it is proposed to confiscate the goods or to
impose a penalty;
(b) is given an opportunity of making a representation in
writing within such reasonable time as may be specified in
the notice against the grounds of confiscation or imposition
of penalty mentioned therein; and
(c) is given a reasonable opportunity of being heard in the
matter
It has also been provided that this notice can be given
orally if the concerned person makes a request for the same to
be given orally.
(iii) Service of show cause notice or the orders of
Confiscation
Show cause notices / orders under these Acts are required
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to be served upon the accused as per the more or less identical
procedure mentioned in Section 37C of the Central Excise Act,
1944,48 and Section 153 of Customs Act, 196249. However
,Section 37C of the Central Excise Act, 1944, provides that any
decision or order passed or any summons or notices issued
under the said Act or the rules made there under, shall be
served, -
(a) by tendering the decision, order, summons or notice, or
sending it by registered post with acknowledgment due, to
the person for whom it is intended or his authorised agent, if
any;
(b) if the decision, order, summons or notice cannot be served
in the manner provided in clause (a), by affixing a copy
thereof to some conspicuous part of the factory or
warehouse or other place of business or usual place of
residence of the person for whom such decision, order,
summons or notice, as the case may be, is intended;
(c) if the decision, order, summons or notice cannot be served
in the manner provided in clauses (a) and (b), by affixing a
48 Supra note 1, p 1.150. 49 Supra note 2, p 1.126.
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copy thereof on the notice board of the officer or authority
who or which passed such decision or order or issued such
summons or notice.
Every decision or order passed or any summons or notice
issued under the said Act or the rules made there under, shall be
deemed to have been served on the date on which the decision,
order, summons or notice is tendered or delivered by post or a
copy thereof is affixed in the manner.
It is seen that the stakes are very high in the cases relating
to seizure and confiscation of goods, machinery conveyances
and also the imposition of penalty in these cases. There can be
instances that unscrupulous persons and corrupt officers resort
to find lacunae in the provisions which are so elaborately given
in the statute. Many a time the procedural lapses result in failure
of cases.
In a case the order was dispatched by speed post without
proof of delivery and it was held that the simultaneous affixing of
order on notice board does not fulfill the legal requirement. It was
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held that the order is not served by simultaneous affixation of
order on notice board50 and service is to be effected by resorting
to sub-sections of Section 153 of Customs Act, 196251 and
Section 37C of Central Excise Act, 1944.52 It has also been held
that delivery of order/decision/summon/notice in post office for
onward transmission to addressee by registered post is not
sufficient proof of valid service. Dispatch by speed
post/registered post does not amounts to valid service when
proof of delivery absent. Simultaneous affixing of order not
sustainable and affixing of order on notice board to be
considered after failure of first two modes. Service of show
cause notice on the person concerned detailing the allegations
against him and not mere deemed service.
In a case of clandestine removal of capital goods imported
without payment of duty, show cause notice though called upon
various persons including appellant to explain the same not
addressed to appellant and not served on appellant. It was held
by the Tribunal that the show cause notice is not issued to
appellant though proposal for confiscation of machinery seized 50 Margra Industries Ltd. v. CCE, 2006(202), ELT, p 352(Tri-LB). 51 Supra note 2, p 1.126. 52 Supra note 1, p 1.150.
136
from premises has been made. Confiscation is not sustainable
in the absence of notice to appellant who are owner of goods.
Confiscation and penalty imposed on appellant was set aside
and Appeal was allowed.53
In one case show cause notice was served upon the
present owner of the goods. It was held that in show cause
notice, proposal to confiscate goods has been made to importer
who had already sold goods to appellant. In the absence of show
cause notice to appellant who is owner of goods, confiscation is
not sustainable under S. 111 of the Customs Act, 196254.
It has also been held that sale proceeds of smuggled
goods are liable to confiscation either in the hands of the
smuggler or his accomplices under Section 121 of the Customs
Act, 196255 and not after they mingle with and part of Indian
currency or otherwise available in the country.56
53 Trilex Electric Pvt. Ltd. v. Commissioner of Customs, Bangalore, 2006 (205)
ELT, p 1184 (Tri. Bang.). 54 Cuddapah Spinning Mills Ltd. v. Commissioner of Customs, Hydrabad, 2008
(232) ELT, p 718 (Tri. Bang.). 55 Supra note 2, p 1.101. 56 Wall Street Finance Limited v. CCE Prev., 2007(209), ELT, p 427 (Tri.).
137
It is also held that the liability to confiscation or penalty
does not arise where the goods imported by a fictitious unit
remained within the customs barrier and the foreign supplier who
remained the owner of goods wanted re-export of the goods.57
It has also been observed that once the goods confiscated
under one clause of S. 111 of the Customs Act, 1962 are
released on payment of redemption fine and allowed entry in the
open market, it is not open to the department to initiate another
proceeding under another clause of Section 111 of the Customs
Act. 196258.
There is also provision for option to redeem the goods
confiscated in the statutes. The confiscated goods after the issue
of the order for confiscation vest with the Government of India.
However, the adjudication officers are empowered under
Sections 125 of Customs Act, 196259 and Section 34 of Central
Excise Act, 194460 to give option to redeem such goods on
payment of fine in lieu of confiscation. The amount of fine should
57 Bin Sabt Jewellary v. Commissioner, 2000(120), ELT, p 169 (Tri.). 58 Mohan Meakin Ltd. v. Commissioner, 2000(115), ELT, p 3(SC). 59 Supra note 2, p 1.102. 60 Supra note 1, p 1.135.
138
be reasonable so as to make the redemption real and
worthwhile. Adjudication authority has the power to extend the
period during which the redemption option may be exercised.
It is also provided that the goods are liable to confiscation
only once even if several provisions of the Act or the rules have
been violated. It has been held that redemption fine is also
payable only once.61 Further the hon’ble Supreme Court of India
has held that redemption fine can be imposed even after release
of goods on execution of bond.62
The hon’ble Supreme Court of India has even held that if
the party has paid the duty, fine and penalty but the goods have
been sold by the department without notice at much lesser value
than the adjudicated value, the party is entitled to receive the
value as fixed by the department in adjudication together with
interest from the date of auction.63
61 Sunny Enterprises v. Collector, 1995(80), ELT, p 895(Tri.). 62 Western Components Ltd. v. Commissioner, 2000(115), ELT, p 278(SC). 63 Shilps Impex v. Union of India, 2004(174) ELT, p A130 (SC).
139
It has also been provided under Section 110A of Customs
Act, 196264 that seized goods can be released provisionally. The
seized goods pending the process of adjudication can be
released to the owner of the goods or the person from whose
custody the goods have been seized. It is the discretion of the
adjudicating authority to allow the provisional release of the
goods subject to the condition as may be imposed or on the
execution of bond with or without security keeping in view the
facts and the circumstances of each case.
Further Confiscation or penalty does not interfere with
other punishments. The confiscation of goods under the
provisions of these Acts or any of the rules made there under
shall not prevent the infliction of any other punishment to which
person affected thereby is liable under the provisions of this Act
or under any other law.
In many cases it is seen that the goods confiscated are not
redeemed by the persons due to various reasons. These goods
lie with the Government and may be disposed off for the
64 Supra note 2, p 1.97.
140
expedience and realization of government revenue. The
procedure for the disposal of confiscated goods has been
provided under Rule 29 of Central Excise Rules, 2002.65 It has
been provided that if the confiscated goods in relation to which
the option for paying redemption fine has not been exercised
shall be sold, destroyed or otherwise disposed of in such manner
the commissioner may deem fit.
6. Prosecution
Prosecution means the institution or commencement of
criminal proceedings, the process of exhibiting formal charges
against an offender in the court of law on behalf of the
Government. Thus in Central Excise and Customs, the
prosecution set in motion is a legal process by which the
government attempts to obtain punishment of companies and
persons concerned with the evasion of duty of Central Excise
and Customs in the court of law.
65 Supra note 1, p 2.23.
141
The legal provisions relating to prosecution are discussed
here in after. Prosecution is often resorted to in cases of serious
contravention and involving huge amount of duties. However, it
is also provided in the statutes that in the case of habitual
offenders or the outright smuggling of contraband
goods/narcotics etc. the prosecution against these type of
offenders is launched as matter of course.
(i) Legal provisions under Central Excise
As per the provisions of Section 9 of the Central Excise
Act, 194466 prosecution against the persons or the Companies
whoever commits any of the following offences can be launched
along with other penal provisions having been invoked.
(a) contravenes any of the provisions of section 8 of the
Central Excise Act, 194467 or of a rule made under clause
(iii) or clause (xxvii) of sub-section (2) of section 37 of the
Central Excise Act, 194468;
(b) evades the payment of any duty payable under this Act;
66 Id., p 1.111. 67 Id., p 1.111. 68 Id., p 1.146.
142
(c) removes any excisable goods in contravention of any of the
provisions of this Act or any rule made there under or in any
way concerns himself with such removal;
(d) acquires possession of, or in any way concerns himself in
transporting, depositing, keeping, concealing, selling or
purchasing, or in any other manner deals with any excisable
goods which he knows or has reason to believe are liable to
confiscation under this Act or any rule made there under;
(e) contravenes any of the provisions of this Act or the rules
made there under in relation to credit of any duty allowed to
be utilised towards payment of excise duty on final
products;
(f) fails to supply any information which he is required by rules
made under this Act to supply, or supplies false information;
(g) attempts to commit, or abets the commission of, any of the
offences mentioned above.
(a) Punishment
The above said section also provides for the punishment
for the above said offences, these as under;
143
(i) in the case of an offence relating to any excisable goods, the
duty leviable thereon under this Act exceeds one lakh of
rupees, with imprisonment for a term which may extend to
seven years and with fine . It has also been provided that in
the absence of special and adequate reasons to the contrary
to be recorded in the judgment of the Court such
imprisonment shall not be for a term of less than six months;
(ii) in any other case, with imprisonment for a term which may
extend to three years or with fine or with both.
However, if any person convicted of an offence under this
section is again convicted of an offence under this section, then,
he shall be punishable for the second and for every subsequent
offence with imprisonment for a term which may extend to seven
years and with fine. But the following shall not be considered as
special and adequate reasons for awarding a sentence of
imprisonment for a term of less than six months, namely:-
(i) the fact that the accused has been convicted for the first
time for an offence under this Act;
(ii) the fact that in any proceeding under this Act, other than a
prosecution, the accused has been ordered to pay a
144
penalty or the goods in relation to such proceedings have
been ordered to be confiscated or any other action has
been taken against him for the same act which constitutes
the offence;
(iii) the fact that the accused was not the principal offender
and was acting merely as a carrier of goods or otherwise
was a secondary party in the commission of the offence;
(iv) the age of the accused.
(b) Offences by Companies
The power to launch a prosecution against the Companies
is provided under Section 9AA of the Central Excise Act 1944,69
which is as under:-
(1) Where an offence under this Act has been committed by a
company, every person who, at the time the offence was
committed was in charge of, and was responsible to, the
company for the conduct of the business of the company,
as well as the company, shall be deemed to be guilty of the
69 Id., p 1.112.
145
offence and shall be liable to be proceeded against and
punished accordingly. It has also been provided that
nothing contained in this sub-section shall render any such
person liable to any punishment provided in this Act, if he
proves that the offence was committed without his
knowledge or that he had exercised all due diligence to
prevent the commission of such offence.
(2) where an offence under this Act has been committed by a
company and it is proved that the offence has been
committed with the consent or connivance of, or is
attributable to any neglect on the part of, any director,
manager, secretary or other officer of the company, such
director, manager, secretary or other officer shall also be
deemed to be guilty of that offence and shall be liable to be
proceeded against and punished accordingly.
Section 9AA of the Central Excise Act, 194470 above is a
deeming provision. If the two vital ingredients are met i.e. an
offence has been committed and the accused was in charge of
the company them he would be deemed to be guilty. The proviso
to sub section (i) enables a person in charge to prove his
70 Ibid.
146
innocence. Thus the prosecution need not prove that the
contravention was done intentionally and deliberately by the
accused. Instead, it would be sufficient to prove that an offence
has been committed and the person was the in charge of the day
to day functioning of the company. In other words, the
prosecution need not prove the “mens rea” of the accused in the
court of law.
(c) Presumption of culpable mental state
It has been provided under S. 9C of the Central Excise
Act, 194471 that in any prosecution which requires a culpable
mental state on the part of the accused, the court shall presume
the existence of such a mental state. This section is an important
departure from the general principle that no act is an offence in
the absence of “mens rea” i.e. a guilty mind. This is an essential
ingredient of a statutory offence but the same has been rebutted
by the express words in these acts. This section also provides
that it is for the accused to prove that there is no such mental
state. Thus the burden of proof has been shifted from the
prosecution to the accused. This section further provides that a
71 Id., p 1.113.
147
fact taken to be proved only when the court believes it to exist
beyond a reasonable doubt. Therefore, the accused has to prove
the absence of “mens rea” beyond a reasonable doubt to prove
his innocence. This section the indication of the gravity and
seriousness with which these offences are viewed by the
legislature.
(ii) Legal provisions under Customs Act, 1962
Similar provisions for prosecution are found in sections
132 to 135A of Customs Act, 196272. According to the provisions
contained in S. 132 of the Customs Act, 1962, it is provided that
whoever makes, signs or uses, or causes to be made, signed or
used, any declaration, statement or document in the transaction
of any business relating to the customs, knowing or having
reason to believe that such declaration, statement or document
is false in any material particular, shall be punishable with
imprisonment for a term which may extend to two years, or with
fine, or with both.
72 Supra note 2, p 1.116-1.117
148
According to the specific provisions contained under S.
133 of the Customs Act, 196273 if any person intentionally
obstructs any officer of customs in the exercise of any powers
conferred under this Act, such person shall be punishable with
imprisonment for a term which may extend to two years, or with
fine, or with both.
Further according to the provisions of S. 134 of the
Customs Act, 196274 if any person,
Resists or refuses to allow a radiologist to screen or to
take X-ray picture of his body in accordance with an order made
by a Magistrate under section 103 of the Customs Act, 196275, or
resists or refuses to allow suitable action being taken on the
advice and under the supervision of a registered medical
practitioner for bringing out goods liable to confiscation secreted
inside his body, as provided in section 103 of the Customs Act,
1962,76 he shall be punishable with imprisonment for a term
which may extend to six months, or with fine, or with both.
73 Id., p 1.116. 74 Id., p 1.116. 75 Id., p 1.94. 76 Ibid.
149
There are several provisions for prosecution of the
offenders for evasion of duty or prohibitions. It is provided vide S.
135 of the Customs Act, 1962 77 that without prejudice to any
action that may be taken under this Act, if any person
(a) is in relation to any goods in any way knowingly concerned
in mis declaration of value or in any fraudulent evasion or
attempt at evasion of any duty chargeable thereon or of
any prohibition for the time being imposed under this Act or
any other law for the time being in force with respect to
such goods; or
(b) acquires possession of or is in any way concerned in
carrying, removing, depositing, harbouring, keeping,
concealing, selling or purchasing or in any other manner
dealing with any goods which he knows or has reason to
believe are liable to confiscation under S. 111 of the
Customs Act, 196278 or S. 113 of the Customs Act, 196279,
as the case may be; or
(c) attempts to export any goods which he knows or has
reason to believe are liable to confiscation under S. 113 of
77 Id., p 1.116. 78 Id., p 1.97. 79 Id., p 1.98
150
the Customs Act, 1962; or
(d) fraudulently avails of or attempts to avail of drawback or
any exemption from duty provided under this Act in
connection with export of goods,
he shall be punishable,
(i) in the case of an offence relating to, —
(A) any goods the market price of which exceeds one crore of
rupees; or
(B) the evasion or attempted evasion of duty exceeding thirty
lakh of rupees; or
(C) such categories of prohibited goods as the Central
Government may, by notification in the Official Gazette,
specify; or
(D) fraudulently availing of or attempting to avail of drawback
or any exemption from duty referred to in clause (d), if the
amount of drawback or exemption from duty exceeds thirty
lakh of rupees, with imprisonment for a term which may
extend to seven years and with fine :
151
It is also provided that in the absence of special and
adequate reasons to the contrary to be recorded in the judgment
of the court, such imprisonment shall not be for less than one
year;
(ii) in any other case, with imprisonment for a term which may
extend to three years, or with fine, or with both.
Further if any person convicted of an offence under this
section or under sub-section (1) of section 136 of the Customs
Act, 196280 is again convicted of an offence under this section,
then, he shall be punishable for the second and for every
subsequent offence with imprisonment for a term which may
extend to seven years and with fine. It is also provided that in the
absence of special and adequate reasons to the contrary to be
recorded in the judgment of the court such imprisonment shall
not be for less than one year.
80 Id., p 1.118.
152
However, following shall not be considered as special and
adequate reasons for awarding a sentence of imprisonment for a
term of less than one year, namely :-
(i) the fact that the accused has been convicted for the first
time for an offence under this Act;
(ii) the fact that in any proceeding under this Act, other than a
prosecution, the accused has been ordered to pay a
penalty or the goods which are the subject matter of such
proceedings have been ordered to be confiscated or any
other action has been taken against him for the same act
which constitutes the offence;
(iii) the fact that the accused was not the principal offender
and was acting merely as a carrier of goods or otherwise
was a secondary party to the commission of the offence;
(iv) the age of the accused.
According to the provisions contained in S. 135A of the
Customs Act, 196281 if a person makes preparation to export any
goods in contravention of the provisions of this Act, and from the
81 Id., p 1.117.
153
circumstances of the case it may be reasonably inferred that if
not prevented by circumstances independent of his will, he is
determined to carry out his intention to commit the offence, he
shall be punishable with imprisonment for a term which may
extend to three years, or with fine, or with both.
(a) Procedure for prosecution
Though the provisions relating to prosecution are fairly
stringent, the Central Board of Excise & Customs has issued
guidelines vide its circular No. 15/90-CX.6 dated 09-08-199082 to
ensure its proper use in the public interest and prevent its
misuse. These guidelines are issued for efficient utilization of
limited manpower, time and resources of the department so that
the objective of prevention of tax evasion is achieved. These
guidelines inter alia are as under;-
Prosecution should be launched with the final approval of
the Principal Collector after the case has been carefully
examined by the Collector in the light of the guidelines.
82 P. Veera Reddy’s Effective Circulars of Board(CBEC) on Central Excise,
Asia Law House Hyderabad, 2000, p 389.
154
Prosecution should not be launched in cases of technical
nature, or where the additional claim of duty is based totally on a
difference of interpretation of law. Before launching any
prosecution, it is necessary that the department should have
evidence to prove that the person, company or individual had
guilty knowledge of the offence, or had fraudulent intention to
commit the offence, or in any manner possessed mens rea
(mental element) which would indicate his guilt. It follows,
therefore, that in the case of public limited companies,
prosecution should not be launched indiscriminately against all
the Directors of the company but it should be restricted to only
against such of the Director like the Managing Director, Director
in charge of Marketing and Sales, Director (Finance) and other
executives who are in charge of day-to-day operations of the
factory. The intention should be to restrict the prosecution only to
those who have taken active part in committing the duty evasion
or connived at it. For this purpose, the Collectors should go
through the case file and satisfy themselves that only those
Chairman/Managing Directors/Directors/ Partners/ Executives/
Officials against whom reasonable evidence exists of their
involvement in duty evasion, should be proceeded against while
launching the prosecution. For example, Nominee Directors of
155
financial institutions, who are not concerned with day-to-day
matters, should not be prosecuted unless there is very definite
evidence to the contrary. Prosecution should be launched only
against those Directors/Partners/Officials etc. who are found to
have guilty knowledge, fraudulent intention or mens rea
necessary to bind them to criminal liability.
In order to avoid prosecution in minor cases, a monetary
limit of Rs. 10,000/- was prescribed in the instructions contained
in Board’s letter F.No. 208/6/M-77- CX.6 dated 26-7-1980.
Based on experience, and in order not to fritter the limited man-
power and time of the Department on too many petty cases, it
has now been decided to enhance this limit to Rs. 1 lakh, which
now stands at Rupees 25 lacs as enhanced vide CBEC circular
issued vide F. no. 208/31/97-CX.6 dated 4-4-94.83 But in the
case of habitual offenders, the total amount of duty involved in
various offences may be taken into account while deciding
whether prosecution is called for. Moreover, if there is evidence
to show that the person or the company has been systematically
engaged in evasion over a period of time and evidence to prove
83 Id., p 395.
156
malafides is available, prosecution should be considered
irrespective of the monetary limit.
One of the important considerations for deciding whether
prosecution should be launched is the availability of adequate
evidence. Prosecution should be launched against top
management when there is adequate evidence/material to show
their involvement in the offence.
Persons liable to prosecution should not normally be
arrested unless their immediate arrest is necessary. Arrest
should be made with the approval of the Assistant Collector or
the senior most officer available. Cases of arrest should be
reported at the earliest opportunity to the Collector, who will
consider whether the case is a fit one for prosecution.
Decision on prosecution should be taken immediately on
completion of the adjudication proceedings.
157
Prosecution should normally be launched immediately
after adjudication has been completed. However, if the party
deliberately delays completion of adjudication proceedings
prosecution may be launched even during the pendency of the
adjudication proceedings if it is apprehended that undue delay
would weaken the department’s case.
Prosecution should not be kept in abeyance on the ground
that the party has gone in appeal/revision. However, in order to
ensure that the proceedings in appeal/revision are not unduly
delayed because the case records are required for purpose of
prosecution, a parallel file containing copies of the essential
documents relating to adjudication should be maintained. It is
necessary to reiterate that in order to avoid delays, Collector
should indicate at the time of passing the adjudication order itself
whether he considers the case to be fit for prosecution so that it
should be further processed for being sent to Principal Collector
for sanction.
Consequent upon the creation of the post of Principal
Collector, the procedure for sanctioning of the prosecution is
158
being modified. In all such cases where the Collector of Central
Excise in charge of judicial work is satisfied that prosecution
should be launched, an investigation report for the purpose
should be launched, an investigation report for the purpose of
launching prosecution should be carefully prepared and signed
by an Assistant Collector, endorsed by the Collector and
forwarded to the Principal Collector for decision within one
month of the adjudication of the case. The format of this report is
annexed to this letter. A criminal complaint in a Court of Law
should be, filed only after the sanction of the jurisdictional
Principal Collector has been obtained.
It is hardly necessary to emphasize that prosecution, once
launched, should be vigorously followed. The Collector of
Central Excise in charge of judicial work should monitor cases of
prosecution at monthly intervals and take the corrective action
wherever necessary to ensure that the progress of prosecution is
satisfactory. In large cities, where a number of Central Excise
division are located at the same place, all the prosecution cases
could be centralised in one office so that it will be easier for the
officers to deal with the cases.
159
In order that the prosecution may have a deterrent effect, it
is necessary that conviction should be secured with utmost
speed. This can only be done if regular monitoring of the
progress of the prosecution is undertaken.
It has been reported that delays in the Court proceedings
are often due to non-availability of the records required to be
produced before the Magistrate. As a matter of practice,
whenever a case is taken up for seeking the approval of the
Principal Collector for launching prosecution, the concerned
officers should immediately take charge of all documents,
statements and other exhibits that would be required to be
produced before a Court. The list of exhibits etc. should be
finalised in consultation with the Public Prosecutor at the time of
drafting of the complaint. No time should be lost in ensuring that
all exhibits are kept in safe custody.
Section 9 of the Central Excise Act, 194484 provides that
imprisonment for a term which may extend to 3 years or a fine or
both may be imposed on a person convicted for offences under
84 Supra note 1, p 1.111.
160
this Section. It has been found, however, that most Courts do not
impose prison sentences inspite of the statutory provision of the
Act. In relation to offences where the duty leviable on the
excisable goods exceeds one lakh of rupees, Section 9 of the
Central Excise Act, 1944 provides that the convicted person
shall be punishable with imprisonment for a term not less than 6
months, which could extend to 7 years. In addition, the person
would also be liable to a fine. In such cases a Court can order
imprisonment of a term less than 6 months only where there are
special and adequate reasons to impose a lighter sentence and
such reasons have to be duly recorded by the Court in the
judgment. It has been found that in one case where the amount
of duty involved was more than Rs. 1 lakh and the accused had
even pleaded guilty, simple imprisonment till the rising of the
Court was awarded. It is apparent that generally in cases of
sizable evasion persons convicted under the Central Excises
Act, 1944 suffer very light penalties which is contrary to the spirit
of the Central Excise Act, 1944 as well as the purpose of
launching prosecution.
161
The Board, therefore, desires that the Collectors of Central
Excise responsible for the conduct of prosecution, should study
the judgments of the Courts and, where it is found that the
accused persons have been let off with light punishment than
what is envisaged in the Act, the question of filing appeal under
the law should invariably by examined with reference to the
evidence on record within the stipulated time. This is equally
applicable to cases in which a Court orders acquittal without
recording sufficient reasons in the judgment even though
adequate evidence was available and was provided in the Court.
Section 9B of the Central Excise Act, 194485 grants power
to publish name, place of business etc. of person convicted
under the Act by a Court of Law. The power is being exercised
very sparingly by the Courts. The Board desires that in ail cases,
the department should make a prayer to the Court to invoke this
section in respect of all persons who are convicted under the
Act.
85 Id., p 1.113.
162
A Prosecution Register in a prescribed form may be
maintained in the prosecution Cell of the Commissionerate
Headquarters.
(b) Launching or withdrawal of prosecutions
The Board has further issued guidelines for launching and
withdrawal of prosecutions vide its Circular No. 30/30/94-CX,
dated 4-4-1994 [From F.No. 208/20/93/CX.6]86 which are as
under:-
(i) Before launching any prosecution, it is necessary that the
department should have evidence to prove that the person,
company or individual had guilty knowledge of the offence
or had fraudulent intention to commit the offence or in any
manner possessed mens rea (mental element) which would
indicate his guilt. The letter further emphasizes that
prosecution once launched, should be vigorously followed.
(ii) Consequent to issue of above guidelines, Board had
received references regarding the procedure to be followed
for withdrawal of prosecution on the ground that certain
factors like weak evidence on record; age of the accused
86 Supra note 82, p 387.
163
and prompt payment of duty, fine and penalty etc. have
come to the notice of the department after a decision has
already been taken to launch the prosecution or the
complaint filed in the court.
(ii) The issue has been examined by the Board in consultation
with Ministry of Law. Ministry of law has opined that the
authority to withdraw prosecution should rest with an
authority superior to the authority which approves launching
of prosecution. However, where the complaint has already
been filed in the court the discretion to allow withdrawal of
prosecution ultimately rests with the court.
(iv) In view of above it has been decided that where a decision
has been taken by the concerned Chief Commissioner to
prosecute entity or a corporate body but the complaint has
not been filed in the court and in the interim period however
facts come to the notice of the Chief Commissioner which
are against initiating prosecution, in such cases Chief
Commissioner may recommend to Board for considering
the withdrawal of prosecution.
(v) In cases where a complaint has already been filed in the
court, it will be up to the court to decide whether or not to
164
pursue prosecution in terms of Sections 25787 and 32188 of
Criminal Procedure Code, 1973. If the order for withdrawal
has been given by a court, the prosecution can be
withdrawn by the Assistant Collector after getting a formal
order from the Chief Commissioner.
(vi) Board desired that each case for withdrawal of prosecution
should be closely scrutinized by the Chief Commissioner
concerned and if found fit he should forward it with his
recommendation for Board’s consideration. It is however
reiterated that in cases where complaint is already filed by
the court it is for the court to pass the order.
7. Power to Arrest
The power of arrest in matters of fiscal offences is a
draconian power. The power to arrest a person under these Acts
invariably precedes the launching of prosecution in the court of
law. These Acts provide for the ample powers in varying
circumstances to arrest the accused and also providing for
87 D.D.Basu, Criminal Procedure Code 1973, 3rd ed.,(II), Asoke K. Ghosh,
Prentice-Hall of India Private Limited, M-97, Cannaught Circus, New Delhi-110001,1996, p 140.
88 Id., p 226.
165
different safeguards to prevent the misuse of this power by the
departmental officers.
(i) Legal provisions
The provisions relating to power to arrest a person are
contained in sections 13 of Central Excise Act, 194489 and
Section 104 of Customs Act, 196290 which are almost identical.
These sections provide that a Central Excise officer not below
the rank of an inspector of Central Excise may, with the prior
approval of the Commissioner of Central Excise, arrest any
person whom he has reason to believe to be liable to
punishment under the Act or the rules made there under.
Section 19 of the Central Excise Act, 194491 provides that
every person arrested shall be taken to the nearest /
jurisdictional magistrate without unnecessary delay to the
Central Excise officer empowered to send arrested persons to a
magistrate or in case there is no such officer within the
reasonable distance then in such cases to the nearest police
89 Supra note 1, p 1.123. 90 Supra note 2, p 1.95. 91 Supra note 1, p 1.125.
166
station. For the purpose of sections 19 and 21 of the Central
Excise Act, 194492, all officers not below the rank of
Superintendent of Central Excise are empowered vide
notification No. 9/99-CE(NT) dated 10-2-99. It has been provided
vide section 20 of the Central Excise Act, 194493 that the officer-
in charge of the police station shall admit him to bail to appear
before the magistrate having jurisdiction or in default of bail
forward him in custody to such magistrate.
There is a provision under S. 21 of the Central Excise Act,
194494 as to how the enquiries are to be conducted against the
arrested person forwarded to him under S. 19 of the Central
Excise Act, 1944. He shall enquire the charges against him. The
central excise officer empowered under this section has the
same powers as that of officer-in-charge of the police station. If
the officer is of the opinion that that there is sufficient evidence
or reasonable suspicion against the accused, he shall either
admit him to bail to appear before a magistrate having
jurisdiction, or forward him in custody to the said magistrate. If it
appears to the competent officer that there is no sufficient
92 Id., p 1.125. 93 Id., p 1.125. 94 Id., p 1.125.
167
evidence or the reasonable ground of suspicion he shall release
the person on his executing a bond with or without surety as the
Central Excise Officer directs, to ask such person to appear
before the Magistrate and also the officer shall make a full report
of all the particulars of the case to his superior.
8. Concluding remarks
Therefore it is seen that In practice, the arrest is resorted
to in the following situations95:-
(a) The offence is of serious nature involving a substantial
loss of revenue,
(b) Fraudulent intent is clear and
(c) The preliminary evidence is considered sufficient to obtain
a conviction under the Act.
The arrest can be made prior to the issue of the show
cause notice or during the pendency of the adjudication
proceedings in cases of above mentioned nature. Arrest during
the investigation cannot be resorted unless it is unavoidable. It is
95 Id., p 1.123.
168
a tool to further the interest of the investigation. The actual
punishment on the basis of the evidences collected squarely lies
with the judiciary. The other factors which are of importance
while considering arrest at the stage of investigation are as
under:-
(a) Whether the person concerned is co-operating in the
investigation or not;
(b) Possibility of his tempering with the evidence;
(c) Possibility of influencing the co-accused or the witnesses
of the case; and
(d) Possibility of absconding / fleeing from the justice.
After arrest the accused is required to be produced before
the jurisdictional magistrate who may release him on bail or
remand him to judicial custody. However the accused can be
kept in judicial custody for the period of maximum 60 days. If the
complaint in the case is not filed before the competent court
within 60 days, the accused person is granted bail as matter of
right by virtue of the provisions of S. 167(2) of the Criminal
169
Procedure Code.96 In practice it is never done in the cases
pertaining to indirect taxes of tax evasion. For filling a complaint,
the investigation has to be completed, show cause notice has to
issued, it has to adjudicated. These things always time
consuming and the arrested persons are granted bail by Courts.
The statutory provisions of arrest lack clarity as to who
should exercise the power of arrest and who should authorize
the exercise of such power of arrest. For instance, this power
under S. 13 of the Central Excise Act, 194497 empowers any
officer ‘not below the rank of inspector to arrest a person with
the prior approval of the Commissioner of Central Excise. This
section is silent as to the form of approval i.e. whether it should
be in the form of a note or an arrest warrant. No such procedure
has been laid down. However as a matter of prudence, any
order of arrest must be in writing so as to satisfy the courts that
due process of law has been followed. It is far too important a
matter to be left to the verbal dictates of the Commissioner. The
vagueness of the nature of prior approval itself is sufficient to
raise issues about the manner of exercise of power of arrest or 96 D.D.Basu, Criminal Procedure Code 1973, 3rd ed.,(I), Asoke K. Ghosh,
Prentice-Hall of India Private Limited, M-97, Cannaught Circus, New Delhi-110001,1996, p 545.
97 Supra note 1, p 1.123.
170
the power of prior approval. The hon’ble High Court of Punjab
and Haryana has held that a duly authorised Central Excise
officer is not debarred from arresting a person without a warrant
when he has reason to believe that the person is liable to
punishment under Central Excise Act, 1944.98
As per the provisions of S. 2(c) of Criminal Procedure
Code, 197399 the offences under criminal law have been divided
into two categories i.e. cognizable or non cognizable. The
cognizable offences/ cases are defined as meaning an offence in
which a police officer can arrest a person without warrant as per
the provisions of S. 156 of Criminal Procedure Code, 1973100
and the non–cognizable offences / cases are in which the police
officer has no authority to arrest without warrant of the
Magistrate competent to try such cases.
Now, it is seen that the offences under Central indirect
taxes are non- cognizable. The immediate implication is that
offences under these Acts can not be investigated by a police
officer unless specifically ordered by the Magistrate. The
98 Sunil Gupta v. Union of India, 2000(118) ELT, p 8(P&H). 99 Supra note 96, p 7. 100 Id., p 506.
171
legislatures who framed the laws had clear vision in their mind
that dual jurisdiction will unnecessarily create bickering and will
hamper the very purpose of the legislations. These Acts are
Special Acts framed for the levy and collection of duty, to combat
smuggling with the prime object of strengthening the economy of
the country. It is seen that FERA and Customs Act were passed
for their ostensible purposes, vital of which being economic
development of the country and augmentation of revenue. A
question is generally asked whether arrest of a person for the
offence committed under these Acts can be made without
obtaining a warrant from the magistrate. The argument in this
regard advanced is that – when a police officer, within the
provisions of Criminal Procedure Code, 1973, can not make
such arrest without obtaining warrant from the Magistrate, then
how a Central Excise or Customs officer can arrest without such
warrant when they are also required to adhere to the provisions
of Criminal Procedure Code, 1973 and the case being non-
cognizable.
172
This issue came up before the hon’ble High Court and it
was held101 that duly authorized Central Excise officer is not
debarred from arresting a person without warrant if he has
reason to believe that the person is liable to be punished under
Sections 9,9A, 13, 18 of the Central Excise Act, 1944.102
The hon’ble Supreme Court of India has stipulated the
following requirements to be observed by the officers of the
Customs and Central Excise while arresting any person103:-
(i) The personnel carrying out the arrest and handling the
interrogation of the arrestee should bear accurate, visible
and clear identification and name tags with their
designation.
(ii) The officer carrying out the arrest should prepare a memo
of arrest at the time of arrest and such memo shall be
attested by at least one witness, who may be either a
member of the family of the arrestee or a respectable
person of the locality from where arrest is made. The
memo should also be countersigned by the arrestee and
shall contain the date/ time of arrest. 101 Supra note 98. 102 Supra note 1, p 1.111, 1.112, 1.123, 1.125. 103 D.K. Basu v. State of West Bengal, 1997, SCC(1), p 416.
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(iii) A person who has been arrested or detained, shall be
entitled to have one friend or relative or other person
known to him or having interest in his welfare being
informed as soon as practicable, unless the attesting
witness of the memo of arrest is himself a friend of the
person arrested.
(iv) The time, place of arrest and venue of custody of arrestee
must be notified, where the next friend or relative of
arrestee lives outside the district or town, through the
Legal Aid organization in the District and the Police station
of the area concerned telegraphically within a period of 8-
12 hour after the arrest.
(v) The person arrested must be made aware of this right to
have someone informed of his arrest or detention as soon
as he is put under arrest or is detained.
(vi) An entry must be made in the diary, at the place of
detention regarding the arrest of the person which shall
also disclose the name of the next friend of the person who
has been informed of the arrest and the names and the
particulars of the officials in whose custody the arrestee is.
(vii) The arrestee should, where he so requests, be also
examined at time of his arrest and major and minor
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injuries, if any present on his/her body, must be recorded
at that time. The “ Inspection Memo”, must be signed both
by the arrestee and the officer effecting the arrest and its
copy must be provided to the person arrested.
(viii) The arrestee should be subjected to medical examination
by trained doctor every 48 hour of his detention in custody
by a doctor on the panel of approved doctors appointed by
the Director of Health Services of the concerned State or
Union Territory.
(ix) Copies of all the documents including the mempo of arrest,
referred to above, should be sent to the ’illaqa’ Magistrate
for his record.
(x) The arrestee may be permitted to meet his lawyer during
interrogation, though not throughout the interrogation.
Therefore, it is seen that very harsh provisions of penalty,
prosecution and even arrest are provided in these statutes
against the tax evaders. These provisions are prone to misuse
by the officers. In order to make slush money the imposition of
penalties could be waived by the officers in cases. The discretion
of waiver of penalty to some extent has been taken away by
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introduction of provisions of mandatory penalty vide S. 11AC of
the Central Excise Act, 1944104 for imposition of equal penalty as
to tax evaded in cases involving serious frauds, collusion etc.
Further, it has been provided that this penalty is reduced to 25%
if the same is paid within 30 days of its imposition along with the
taxes and interest on the taxes.
Therefore, it is seen that no doubt efforts are being made
to rationalise these provisions, so that these are not misutilised
and faith is generated in the honest tax payer and public at large.
But still it required that drastic changes are required to be made
so that these are not misutilised by corrupt officers and wrong
persons.
During the personal visits undertaken, it was disclosed on
the condition that the identity of the officers should not be
disclosed, that in some places the figures reflected in monthly,
quarterly and annual reports of pendency with the particular
officer are manipulated. These figures are usually not correct.
These things are done with motive of complying with various
requirements of law and pleasing the bosses besides concealing
104 Supra note 1, p 1.117.
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their inefficiency and shortcomings. This kind of practice is being
done blatantly and is done with approval of bosses. This kind of
practice should be discouraged and the same should be done in
transparent manner at least in the era of Right to Information
Act, 2005.
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