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

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

Part II….Continue ….

2.1.   In OM PRAKASH and CHOITH NANIKRAM HARCHANDANI Versus UNION OF INDIA - 2011 (9) TMI 65 - Supreme Court, the Apex Court held that “offences under the Customs Act and the Central Excise Act, 1944 were non-cognizable and bailable. Therefore, an officer could arrest an individual only after obtaining a warrant from a Magistrate under Section 416 of the CrPC. Prior to Om Prakash, offences under the Customs Act were considered non-bailable by the courts. Subsequent amendments to Section 104 of the Customs Act, which deals with the power to arrest, altered this framework. The Union carried out certain amendments through the Finance Acts of 2012, 2013 and 2019 to Section 104 of the Customs Act, which deals with the power to arrest. The amendments added cognizable offences (one where an officer can arrest without warrant) and modified the conditions for arrest. The amendments also made certain offences non-bailable. In simple words, designated offences under the Customs Act were made  cognisable and non-bailable and all other offences under the Act became non-cognizable and bailable, unless specifically designated otherwise. On 27 February 2025, a three-judge bench of the Supreme Court, in RADHIKA AGARWAL Versus UNION OF INDIA AND OTHERS - 2025 (2) TMI 1162 - Supreme Court (LB) unanimously held that the provisions of the Code of Criminal Procedure, 1973 (CrPC), and the Bharatiya Nagarik Suraksha Sanhita, 2023 “are equally applicable” to arrests made under the Central Goods and Services Tax Act, 2017, and the Customs Act, 1962. This decision places crucial checks on tax authorities, requiring them to adhere to constitutional safeguards and procedural fairness before making arrests. It limits the powers of arrest stating that they cannot be made on mere suspicion and must be backed by concrete evidence. By holding that CrPC provisions apply to custom officers, the Court effectively binds them to the same procedural constraints as police officers, even while maintaining that Customs and GST officers are not “police officers” under Indian law. SC reiterated that custom officers are not police officers and the reasoning is that customs officers do not have all the powers of police officers, especially the authority to file a report under Section 173 of CrPC. Supreme Court, held that a Magistrate has the power under Section 167(2) of CrPC to authorize the detention of a person arrested under the Customs Act in the custody of a customs officer. The judgment emphasizes that customs officers must inform the arrestee about the grounds of arrest. This obligation arises from Article 22(1) of the Constitution and Section 50 of CrPC. The ruling in Arvind Kejriwal v. Directorate of Enforcement highlights that reasons for arrest must be communicated to allow the arrestee to challenge the legality of the arrest. The bench stated that GST Acts are not a complete code when it comes to the provisions of search and seizure, and arrest. So when any provision is not mentioned in the GST Act then the provision on CRPC would be applicable.

2.2. The Supreme Court in ARVIND KEJRIWAL Versus DIRECTORATE OF ENFORCEMENT - 2024 (7) TMI 760 - Supreme Court emphasized the following conditions before making an arrest, namely, Material must be in possession of the customs officer ; 'Reasons to believe' must be recorded in writing before arrest and arrest under Customs and GST Act should not be on mere suspicion; The person arrested must be informed of the grounds of arrest immediately; The decision to arrest must be based on admissible evidence, not arbitrary discretion. Apex Court Order interpreted provisions of Customs Act and clarified that the person being “guilty of an offence” and a person “committing an offence” are both same and is used interchangeably;  That Section 104(1) does not explicitly require a customs officer to have “material in their possession” does not imply that a customs officer can conclude that an offence has been committed out of thin air or mere suspicion; That the framework of the Customs Act, which explicitly classifies offences into bailable and non-bailable, as well as cognizable and non-cognizable, the “reasons to believe” must reflect these classifications when justifying an arrest. The reasoning must weigh in why an arrest is being made in a specific case, particularly given the specific severity assigned to the offence by the legislature. The rights of the arrestee which should fundamentally be provided while making an arrest either under Customs or GST Acts are as follows: Right to be informed of the grounds of arrest (Article 22(1) of the Constitution, Section 50 of CrPC); Right to meet an advocate during interrogation but not throughout.’ Right to have a relative or friend informed of the arrest (Section 50A of CrPC); Right to reasonable care of health and safety while in custody (Section 55A of CrPC).

2.3. In terms of said decision, a statutory duty is enjoined on customs officers to inform the arrestee about their grounds of arrest. This duty flows from the rigours imposed by Article 22(1) of the Constitution of India and Section 50 of the Code. While customs officers do not undertake an investigation akin to Chapter XII of the Code, they enjoy analogous powers such as the power to investigate, arrest, seize, interrogate, etc under the Customs Act. Thus, the obligation to provide grounds of arrest is incumbent upon them. Customs officers must also maintain records of their statutory functions including details like the name of the informant, name of the person who has violated the law, nature of information received by the officers, time of arrest, seizure details, and statements recorded during the course of detection of the offence(s).  

2.4. It has been held that Section 41-D of the Code is applicable for offences under the Customs Act. Accordingly, a person arrested by a customs officer has the right to meet an advocate of his choice during interrogation, but not throughout interrogation.

2.5. Reference can also be made to Section 50A of the Code, which states that every police officer or other person making an arrest under the Code shall forthwith give information regarding such arrest and place where the arrested person is being held to any of his friends, relatives, or other person as may be disclosed or nominated by the arrested person for the purpose of giving such information. The arrested person must be informed of this right. It has been held that the details of compliance with this mandate must be entered into the diary maintained by customs officer. It is the duty of the Magistrate, when an arrested person is produced, to satisfy himself that the requirements of Section 50A(2) and (3) have been complied with. Apex Court held that these stipulations will apply in cases of arrests made by the customs officers.

2.6.  Section 55A states that it shall be the duty of the person having custody of the accused to take reasonable care of their health and safety. It has been held that this provision shall be equally applicable to arrests under the Customs Act.

2.7. In Arvind Kejriwal case, a combined reading of Pankaj Bansal Versus Union of India & Ors. - 2023 (10) TMI 175 - Supreme Court, Prabir Purkayastha Versus State (NCT of Delhi) - 2024 (5) TMI 1104 - Supreme Court and VIJAY MADANLAL CHOUDHARY & ORS. Versus UNION OF INDIA & ORS. - 2022 (7) TMI 1316 - Supreme Court (LB) was adopted by Apex Court. It was held that the power to arrest a person without a warrant and without instituting a criminal case is a drastic and extreme power. Therefore, the legislature had prescribed safeguards in the language of Section 19 itself which act as exacting conditions as to how and when the power is exercisable. These safeguards include the requirement to have “material” in the possession of DoE, and on the basis of such “material”, the authorised officer must form an opinion and record in writing their “reasons to believe” that the person arrested was “guilty” of an offence punishable under the PML Act. The “grounds of arrest” are also required to be informed forthwith to the person arrested. The contention of the DoE that while “grounds of arrest” were mandatorily required to be supplied to the arrestee, “reasons to believe”, being an internal and confidential document, need not be disclosed, was decisively rejected in Arvind Kejriwal case. It was held that “reasons to believe” are to be furnished to the arrestee such that they can challenge the legality of their arrest. Arvind Kejriwal (supra) also holds that the courts can judicially review the legality of arrest. This power of judicial review is inherent in Section 19 as the legislature has prescribed safeguards to prevent misuse. After all, arrests cannot be made arbitrarily on the whims and fancies of the authorities. This judicial review is permissible both before and after criminal proceedings or prosecution complaints are filed.

2.7.1. On the nature of “material” examined by the DoE, Arvind Kejriwal (supra) states that such “material” must be admissible before a court of law. This is because the designated officer is required to arrive at a conclusion of guilt based on the “material” examined and such guilt can only be based on admissible evidence. The investigating officer is also required to look at the whole material and cannot ignore material that exonerates the arrestee. A wrong application of law or arbitrary exercise of duty by the designated officer can lead to illegality in the process. The court can exercise judicial review to strike down such a decision.

2.7.2. Section 104(1) stipulates that arrests may be made if a customs officer, empowered by general or special order of the Principal Commissioner of Customs or Commissioner of Customs, has “reasons to believe” that an offence has been “committed” in terms of Section 132 or Section 133 or Section 135 or Section 135-A or Section 136 of the Customs Act. Thus, Section 104(1), effectively incorporates safeguards similar to those outlined in Section 19(1) of the PML Act. The semantical distinction, however, between Section 19(1) and Section 104(1), is twofold: first, Section 104(1) does not explicitly stipulate the requirement of a customs officer having “material in their possession”; and second, Section 104(1) does not explicitly state that the customs officer must reasonably believe that the arrestee is “guilty of an offence”. Instead, Section 104(1) states that the customs officer must have “reasons to believe” that the arrestee has “committed an offence”. Apex Court held that there is substantively no difference between a person being guilty of an offence and a person committing an offence. In a catena of judgments of Apex Court, it has been held that words of a statute must be understood in their natural, ordinary or popular sense and construed according to their grammatical meaning, unless such construction leads to some absurdity or unless there is something in the context or in the object of the statute to suggest to the contrary. Applying these principles to the Customs cases, the Cambridge Dictionary defines “guilty party” as “someone who has done something wrong or who has ‘committed’ a crime”. According to the Oxford Dictionary, the etymology of “guilty” also traces back to the Old English Period (pre-1150), referring in the context of law to someone who “has ‘committed’ some specified offence”. Thus, when one applies a plain language interpretation, a person being “guilty” of an offence and a person “committing” an offence is self-same and identical insofar as Section 19(1) vis-à-vis Section 104(1) is concerned. The Code also uses the terms interchangeably. For instance, Section 173 of the Code, relating to filing of a chargesheet, stipulates in sub-section (2)(i)(d) that the police officer must state in the chargesheet, “whether any offence appears to have been ‘committed’ and, if so, by whom”. Would this then mean that chargesheet, a prosecution document based on which a court takes cognizance of a matter, does not relate to the guilt of a person? Naturally, such an interpretation would lead to anomalous circumstances and hence cannot be sustained.

2.7.3. Secondly, the fact that Section 104(1) does not explicitly require a customs officer to have “material in their possession” does not imply that a customs officer can conclude that an offence has been committed out of thin air or mere suspicion. The threshold for arrest under Section 104(1) of the Customs Act is higher than that under Section 41 of the Code. Section 41 allows the police to arrest a person without a warrant, if a “reasonable complaint has been made”, or “credible information has been received”, or “a reasonable suspicion exists” that the person has committed a cognizable offence. In contrast, Section 104(1) sets a higher threshold, stipulating that customs officers may only arrest a person if they have “reasons to believe” that a person has committed an offence. A person is said to have a “reason to believe” a thing, if they have sufficient cause to believe that thing but not otherwise. This represents a more stringent standard than the “mere suspicion” threshold provided under Section 41.

2.7.4. Thirdly, given the framework of the Customs Act, which explicitly classifies offences into bailable and non-bailable, as well as cognizable and non cognizable, the “reasons to believe” must reflect these classifications when justifying an arrest. The reasoning must weigh in why an arrest is being made in a specific case, particularly given the specific severity assigned to the offence by the legislature. The reasoning must also state how the monetary thresholds outlined in the Act are met. Sub-clauses (b) to (d) of Section 104(4) provide monetary thresholds for cognizable offences, while sub-clauses (a) and (c) to (e) of Section 104(6) provide those for non-bailable offences. The “reasons to believe” must include a computation and/or an explanation, based on factors such as the goods seized, from which a conclusion of guilt can be drawn. This level of detail is crucial, as it facilitates judicial review of the exercise of the power to arrest. The department’s authority to arrest under Section 104 hinges on satisfying these statutory thresholds.

2.7.5. Moreover, the framework of the Customs Act clearly reflects the legislative intent to establish a distinct and unique procedure for the exercise of arrest powers by a customs officer. For example, Section 104(4), specifies only 4 categories of offences as cognizable, outlined under sub-sections (a) to (d). Section 104(5) clarifies that all other offences under the Customs Act are non cognizable in nature, meaning that arrests for these offences cannot be made without a warrant. Apex Court has cautioned in Arvind Kejriwal (supra) how the unbridled exercise of the power to arrest without a warrant can result in arbitrariness and errors in decision making process. A similar error made by a customs officer can lead to a frustration of the constitutional and statutory rights of the arrestee. For the aforesaid reasons, Court donot find any inconsistency between Section 19(1) of the PML Act and Section 104(1) of the Customs Act. Court was of the opinion that principles and ratio developed in the case of Arvind Kejriwal (supra), are equally applicable to the power of arrest under Section 104 of the Customs Act.

2.7.6. Lastly, Section 104(1) requires that a person arrested as soon as may be is required to be informed of the grounds of such arrest. The grounds of arrest must be given in writing to the arrestee before he is produced before the Magistrate in terms of Section 104(2). This is necessary as it enables the accused to contest and challenge his arrest and seek bail from the court. To deny and not give the grounds in writing would be to deprive the accused of his right in terms of Section 104(1) and also to seek right of bail under the provisions of the Code. This interpretation would be in consonance with Article 22(1) of the Constitution which states that no person who is arrested shall be detained in custody without being informed as soon as may be of the grounds of such arrest, nor shall such arrest be denied the right to consult and to be defended by a legal practitioner of his choice.

2.8. The Supreme Court ruled that arrest should not be used as a tool of harassment. Arrests must be based on 'reasons to believe' and proper material, not mere suspicion or external pressure. Judicial review is available to challenge illegal or arbitrary arrests. The bench stated that “The authorities exercise due care and caution as coercion and threat to arrest would amount to a violation of fundamental rights and the law of the land. It has been held desirable that the CBIC promptly formulate clear guidelines to ensure that no taxpayer is threatened with the power of arrest for recovery of tax in the garb of self-payment. Apex Court has rightly clarified about availability of safeguards available in criminal laws while dealing with provisions of tax statute like Section 104 and Section 108 of Customs Act etc.