Sukumar Mukhopadyay : Criminal Justice System –in relation to fiscal laws in India

Criminal Justice System –in relation to fiscal laws in India (part i)

Preamble: 
A criminal justice system is a set of legal and social institutions for enforcing the criminal law in accordance with a defined set of procedural rules and limitations. Systems differ in different countries.   In the United States, there are separate federal, state, and military criminal justice systems, and each state has separate systems for adults and juveniles.  But in India we do not have a separate federal system and also no separate systems for each state. I do not propose to discuss the defects of the criminal justice system such as delays involved, offenders getting away unpunished by manipulating the system etc. That is common knowledge.  It is same in tax laws also.  I have appeared as witnesses in one case for seven times after my retirement and in another case eight times in all but the cases are still in the judicial process.  I am here to discuss only the theoretical issues about the system.  
Criminal versus Quasi-Criminal:
Offences under IPC (Indian Penal Code) are criminal offences but offences under tax laws (fiscal laws or fiscal statutes) are quasi-criminal. Adjudication by the Department is quasi-criminal. But when prosecution is lodged against the  offender, it is a criminal case. In general the principles are similar but not same. Quasi-criminal means a law suit or equity proceedings that has some, but not all, of the qualities of a criminal prosecution. Quasi is used to indicate that it resembles criminal but there are intrinsic and material differences. The rigid procedures of criminal trial are not followed in a quail-criminal case. The other differences we shall discuss on specific issues later.  
Scope of discussion:
Tax Laws (known as fiscal statutes) are for both direct taxes (income tax) and indirect taxes such as Customs, Central Excise, State Excise, Service Tax, Sales Tax, VAT (Value Added Tax) and GST (Goods and Services Tax).  Indirectly Foreign Exchange Regulation Act (FERA) now it is Foreign Exchange Management Act (FEMA) is  also relevant.  I do not propose to discuss the taxes separately in relation to each of the relevant Sections since the principles involved are same for all taxes.  
Interpretation: (Jurisprudence includes interpretation)
Even interpretation of fiscal statutes, is similar, though slightly different, for civil statutes and criminal statutes.  The following two judgements are relevant to substantiate this point.  In the case of Commissioner of Wealth 

Tax vs. H. Begum – 1989(40) ELT 239(SC) relating to wealth tax the Supreme Court said, “I see no reasons why special canons of construction should be applied to any Act of Parliament and I know of no authority for saying that a Taxing Act  is to be construed differently  from any other Act”.  And in the case of C.I.T.  vs, Shahzada Nand and Sons – AIR 1966 SC 1342 also the Supreme Court observed, “The fundamental rule of construction is the same for all statutes whether fiscal or otherwise”.   However, over a period of time, several judgments given by the Supreme Court have underlined the differences in interpretation in specific cases.  There are also occasions which arise only in fiscal cases such as exemption notification, identity of goods, sections for charging tax, sections for prescribing machinery to effectuate the levy of the tax.  These do not arise in criminal cases.  These differences we shall notice as we proceed.
5. Adjudication of offences by the Department:  
The basic difference between criminal cases and quasi-criminal cases is that there is only prosecution in criminal cases ,whereas in the fiscal laws there is adjudication by the Department and also prosecution in the Court by filing a petition for prosecution in the Court.  Adjudication is done departmentally on a daily basis in large numbers in customs, excise and income tax.  The offending goods in the case of customs and central excise can be confiscated.  In the case of income tax the offending income can be confiscated.  Apart from that penalty also can be imposed.  The rule of interpretation of penal provisions in fiscal statutes is that they are to be interpreted not so strictly as in the case of criminal laws.  While imposing penalty on the person (offender) the interpretation has to be strict which means that the person to be penalised comes fairly and squarely within the plain words of the enactment (Maxwell on Interpretation of Statutes, 12th Edition, p.239).  If the language of the penal statutes is equivocal and there are two reasonable meanings of that language, the interpretation which avoids penalty is to be adopted (Crates on Statutes Law, 7th edition, S.G.G. Edgar, p.534).
Even confiscation (of goods) is also a penal provision.  The Supreme Court held in the case of Motibhai Fulabhai Patel  v.  Collector of Central Excise, Baroda – AIR 1970 SC 829 that Rule 40 of the Central Excise Rules, which provided for confiscation of goods was a penal provision and therefore “it would not be proper for us to extend the scope of that provision by reading into it words which are not there and thereby widen the scope of the provision relating to confiscation”.  What Supreme Court held here is that confiscation and penalty are both penal provision and therefore have to be interpreted strictly and not liberally.  The Supreme Court has held in several cases that strict interpretation should be made of penal provision in taxing statutes.  The cases are (i)  C.I.T., West Bengal  vs. Vegetable Products Ltd. – AIR 1973 SC 927, (ii) J.K. Synthetics  vs. State of Rajasthan – 1994 (94)STC 422 (SC), (iii) Goodyear India Ltd.  Vs. State of Haryana – 1990(76) STC 71(SC) (iv) CCE, Ahmedabad  vs. Orient Fabrics Pvt. Ltd. – 2003 (158) ELT 545 (SC).  
However, the Supreme Court held in the case of Gujarat Travancore Agency, Cochin vs. C.I.T., Kerala – AIR 1989 SC 1671 that in fiscal law the approach should not be so strict as in the case of criminal laws.  The court held the following, “A penalty imposed for tax delinquency is a civil obligation, remedial and coercive in its nature and is far different from the penalty for a crime or a fine or forfeiture provided as punishment for the violation of criminal or penal laws”.  The Supreme Court was talking here about Section 271(1)(a) providing for penalty if tax returns are not filed in time compared to Section 276(c) which provides for prosecution if the return is wilfully not filed in time.   For Section 271(1)(a) no mens rea is necessary.  
Adjudication needs far less degree of proof than prosecution.  
  Adjudication is only relating to confiscation of goods if there is no licence or if there is a violation of customs law such as misdeclaration of goods or violation of conditions of exemption etc which are quasi-criminal and not criminal in nature. And the nature of controversies is more straight forward. In the case of prosecution, the offender will go to jail if he is proved guilty. So all the criminal jurisprudence will come into play. That is why generally the Revenue Department first completes the adjudication and then goes for prosecution. Only in those fringe cases where the carriers of smuggled goods are involved, that the Department goes for prosecution first since the carriers are likely to run away if adjudication is done first when they are in bail.  Theoretically speaking the adjudication and prosecution are two different proceedings and can be launched simultaneously or prosecution can be launched before adjudication. This has been held by the Supreme Court in the case of Standard Chartared Bank vs Directorate of Enforcement , 2006 (197) ELT 18 (SC).But in effect it becomes impracticable to launch prosecution before adjudication since voluminous records are to be examined and also many other facts are to be scrutinised which is done during adjudication. In effect filing prosecution in cases of import and export, or excise and income tax matters before adjudication can turn out to be a case of harassment . It is not advisable and is not done usually. I was asked to file prosecution before adjudication in two very important cases and I did not. I pointed out that unless adjudication is done , one does not know whether the case is established or not. If in adjudication the case is dropped, then prosecution will be untenable. The law has now been set at rest by the Supreme Court in the case of Radheshyam Khejriwal vs State of West Bengal, 2011 (266) ELT 294 (SC) . It has been held in this case that where adjudication finds allegation against accused to be unsustainable on merit, criminal prosecution on same set of facts and circumstances cannot be allowed to continue, underlying principle being that higher standard of proof is necessary  in criminal cases. However if the acquittal in adjudication is on technical grounds, prosecution can continue. If the acquittal is on the basis of benefit of doubt, then also the prosecution is not affected. This was held by the Supreme Court in the case of AC customs v L.R.Malwani 1999 (110) ELT (SC).The reason was that , the Court pointed out, the adjudication before the Collector of Customs was not a prosecution and the Collector of Customs was not a court within the meaning of the Article 20(2) of the Constitution. 
To be continued