CHAPTER - V

112

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).

114

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.

115

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.

116

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.

117

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.

118

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.

119

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.

120

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.

121

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.

122

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.

123

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.

124

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.

125

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.

126

(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.

127

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.

128

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.

129

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.

130

(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.

131

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.

132

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

133

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.

134

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

135

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.

173

(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

174

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

175

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.

176

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.

-o-o-o-o-o-