Part I Interplay of Criminal Code and Taxation Statutes and availability of Criminal law safeguards to fiscal statutes like Custom, Central Excise and GST cases

The provisions creating criminal liability in Central Excise Act 1944, Customs Act 1962 and Finance Act 1994(Service Tax statute) and CGST Act, 2017, are by and large pari materia. For the sake of simplicity in this article provisions contained in Customs Act 1962 alone are referred. Though tax laws are called civil laws because they fasten civil liabilities, but the way criminal liability portion in indirect tax statutes of India are drafted, they can be very well treated as a criminal statute. In the taxation laws of India irrespective of the quantum of tax evasion, law prescribes a criminal liability. It does not give a threshold of tax evasion below which liabilities will be purely civil. Technically for even a one paisa tax evasion civil as well as criminal prosecution can be launched. Section 108 statement is treated as gospel truth. Reliance on such confessionary statement is used to curtail liberty and fasten tax liability. Revenue Officials often advance argument that the admitted facts need not be proved and subsequently person is arrested as being tax evader. Very often, these untested statements which were relied to curb liberty and fasten tax liability don’t meet judicial standards during subsequent adjudication and appeal proceedings. Neither these untested statements are made as relevant evidence as enshrined in statute nor are they sufficient to prove relevant facts leading to confirmation of tax liability by higher courts. This criminal part of tax statute is major source of corruption and is abused left and right. In almost every tax investigation by agencies, the threat of arrest and criminal prosecution is used. Alleged Tax evaders are being treated as criminals. This situation is creating mistrust between government and tax payer and is not good for healthy growth of economy.

1.1. Attention is invited to Chapter XVI of Customs Act dealing with Offences and Prosecutions(From Section 132 to Section 140A)

• Section 132  False declaration, false documents
• Section 133  Obstruction of officer of customs
• Section 134  Refusal to be X-rayed
• Section 135  Evasion of duty or prohibitions
• Section 135A Preparation
• Section 135AA  Protection of data
• Section 135B  Power of court to publish name, place of business, etc., of  persons convicted under the Act
• Section 136    Offences by officers of customs
• Section 137    Cognizance of offences
• Section 138    Offences to be tried summarily
• Section 138A Presumption of culpable mental state
• Section 138B Relevancy of statements under certain circumstances
• Section 138C Admissibility of micro films, facsimile copies of documents and computer print outs as documents and as evidence
• Section 139    Presumption as to documents in certain cases
• Section 140    Offences by companies
• Section 140A Application of section 562 of the Code of Criminal Procedure, 1898, and of the Probation of Offenders Act, 1958

SECTION 132. False declaration, false documents, etc. - 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.

SECTION 135. Evasion of duty or prohibitions. (1) 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 misdeclaration 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 section 111 or section 113, 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 section 113; or (d) fraudulently avails of or attempts to avail of drawback or any exemption from duty provided under this Act in connection with 3[export of goods; or] 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 fifty 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 fifty lakh with imprisonment for a term which may extend to seven years and with fine: (E) obtaining an instrument from any authority by fraud, collusion, wilful misstatement or suppression of facts and such instrument has been utilised by any person, where the duty relatable to utilisation of the instrument exceeds fifty lakh rupees,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. (e) obtains an instrument from any authority by fraud, collusion, wilful misstatement or suppression of facts and such instrument has been utilised by such person or any other person,(2) **** (3) ****

II.  Availability of Criminal law safeguards in recording arrests and statements under Indirect tax statutes

2.  With today’s price level every investigation crosses crores in terms of tax dispute. Further even if the case is lesser than 50 lakhs, the authorities on some pretext or other drag it in the category of non bailable by stretching the case to above 50 lakh category. By the amendments in Finance Act 2013, departmental officers have got powers in cases tax involved as per their estimate exceeds 50 lakhs. Apart from civil investigation, Criminal investigation can be done suo moto by department without seeking permission of a trial court. Department can arrest the person on its own without taking approval of trial court during investigation, merely on allegation of evasion of more than 50 lakhs without any admissible or relevant evidence as it is not required to convince a criminal court before arrest that it is a fit case for arrest. The person so arrested does not have right of bail and bail becomes discretion of court. It must be noted that concerned person is not served with any Notice. Arrests are made as a part of investigation. In most cases, Notices are served after conclusion of investigation which often takes several years. Irony is that revenue officials adopt a procedure whereby statement of confession is extracted from person and based on confession, person is arrested. Even a copy of statement is not shared with person and at the same time confession is deemed to be a gospel truth because it is Section 108 statement for the revenue. Neither guideline has been framed for sharing of such statements nor for filing retraction of these statements. Arrest is used as means of punishment and not as a tool of investigation. Most of these arrests are made on the basis on inadmissible evidences on flimsy grounds. In majority of cases, revenue officials do not even seek Custom Custody of accused for purpose of interrogation. In 99% cases, accused are sent to judicial custody and no statements are recorded during such judicial custody. It must be noted that the same revenue officials don’t even launch prosecution proceedings in most of the cases where arrests were affected. As per CBIC guidelines, Persons involved in customs related offence cases who may be liable to prosecution should not be arrested in routine unless exigencies of certain situations demand their immediate arrest. Prior to prosecution, arrest (s) may be necessary to ensure proper investigations and penal action against the person (s), as otherwise the person involved in the offence may hamper investigations or disappear from the scene/area - such as in cases involving outright smuggling by Sea/Air/Land route. The arrest should be made only when it is intended to prosecute the offenders and the monetary limits or conditions provided for prosecution would apply equally to arrests. This vicious cycle of revenue officials arresting the concerned person but not prosecuting the person in 90% of cases despite Board guidelines shows the sorry state of affairs. It must be noted that in most of cases, even SCNs issued to assessee fall flat before CESTAT.