Sukumar mukhopadyay : Criminal Justice system—in relation to fiscal laws

Criminal Justice system—in relation to fiscal laws (part ii)

Intelligence, Information, Seizure:
  Collection of intelligence is followed by verification when it becomes information which should be enough to form a reasonable belief that a place can be searched or goods seized. 
Examples:-In a case of cameras threatened to be seized by officers of customs,  where there were  very old cameras in an established shop in Calcutta, the officers were punished for threatening to seize without reasonable belief. In another case where an intelligence was verbally supplied by a political bigwig , no search was made since on verification it was found that the intelligence report was false. So there was no reasonable belief and no seizure was necessary.  
Reasonable belief—  Reason to belief is an expression which occurs in Section 100 & 101(power to search), 103 (power to screen or x-ray bodies), 104 (power to arrest), 105 (power to search premises), 106 (power to search conveyances), and 110 (seizure of goods, documents).  “Reasonably require for the purpose of ascertaining...” is an expression which occurs in Section 106A in regard to power to inspect goods and accounts.  Reasonable belief is an expression which occurs in Sections 110 and 123 of the Customs Act relating to discharging of burden of proof.
Necessary ingredient before searching premises or seizing goods is the existence of reasonable belief. Indiscriminate search and seizure are prevented by this requirement. There cannot be any fishing expedition in search and seizure. Catching fish is fun to people but not to the fish.  The same example is true for fiscal law. Catching fish by throwing a net in a river or in a big pond knowing that there must be some fish after all, is an activity which has been frequently likened in the judicial parlance with the activity of officers searching premises or vehicles or examining documents in the general belief that there must be some offence after all.  In a fishing expedition, there is no specific information about the existence of a particular fish at a particular point.  Therefore such activity of mounting a search or general audit has been described as fishing expedition in judicial parlance.  The question is whether it is legal or illegal.  The answer is that it is legal in respect of audit and illegal in respect of searches.
In respect of audit there is legal provision that the Revenue is entitled to audit the firms’ accounts.  There is no legal provision that there must be previous  information that there is a violence of law committed.  Therefore a routine audit is permitted in law, say, after every six months.  There is no need to have specific information about the existence of a particular violation. In respect of audit there is legal provision in VAT laws and in Central Excise Rules that the Revenue is entitled to audit the firms’ accounts.  There is no legal provision that there must be previous information that there is a violence of law committed.  Therefore a routine audit is permitted in law, say, after every six months.  There is no need to have specific information about the existence of a particular violation.
         In respect of searches, however, in all fiscal laws such as laws of income tax, customs, excise, there has to be specific information leading to a reasonable belief that a specific type of violation has been committed.  In the Customs Act, for example, there is provision in Sections 110 and 123 that the proper officer has reasonable belief before seizure of goods and the same is also true for search of premises as required under Sections 105 and 106 of the Act.  Any non-compliance of such requirement namely the non-existence of reasonable belief before search and seizure has been viewed very adversely by the Courts.  The Supreme Court in several judgements, such as in the case of Mohammad Serajuddin vs.  Misra – 1983(13) ELT 1370(SC), and in the case of Gopal Kishan vs. R.N. Sen – 1983 (13) ELT 1434 (SC), observed that the existence of reasonable belief is mandatory before the search can be held as valid.  In another judgement in the case of State of Gujarat vs. Mohanlal Porwal – 1987 (29) ELT 483 (SC), the Supreme Court held that the reasonable belief should not be based on mere presumption and there must be a prima facie material.   Without a properly formed reasonable belief it becomes a “fishing expedition”.  This legal requirement is a vaccine against indiscriminate search.  The seniors in the Department of Revenue are ideally required to keep a check on the number of what is known as infructuous searches.  
In a diamond seizure case worth 58 lakh rupees in Delhi airport in 1975, where I was present as an officer of Directorate of Revenue Intelligence , I recorded in the Panchnama on the grounds which had convinced me that there was a reasonable belief that the diamonds were smuggled. Then only I allowed the goods to be seized. The case is still going on from 1977 when the prosecution was filed and I have appeared in this case for eight times, including once after retirement.
   Retrospective effect
    Retrospective effect is not allowed in criminal law. Article 20 of the Constitution specifically bars it.   Article 20(1) reads thus:
“Protection in respect of conviction for offences – (1) No person shall be convicted of any offence except for violation of a law in force at the time of the commission of the act charged as an offence, nor be subject to a penalty greater than that which might have been inflicted under the law in force at the time of the commission of the offence”.
Retrospective effect is allowed in taxation law but even in tax law no retrospective effect can be given in penal provisions. Only in regard to levy of tax it is allowed with some limitations. It is well-established that in tax laws the Parliament can make laws retrospectively to collect taxes.  There are so many judgements on this issue from which we find that courts have successfully upheld the levy of taxes retrospectively both for validation as well as for explanation and clarification.  Clarificatory amendment has been held retrospective, though this has been challenged by the assessee as fresh levy.  It is well settled that there cannot be any retrospectivity in respect of penalty and confiscation .  This has been upheld in many judgements and the most famous judgement is in the case of JK Spinning & Mvg. Mills Ltd.  Vs. UOI – 1987 (32) ELT 234 (SC). The Court held in this case that tax could be retrospectively charged due to retrospective amendment of Central Excise Rules 9 and 49 but there could not be any retrospective imposition of penalty or confiscation of goods. The exact words of the judgment were thus: “It will be against all principles of jurisprudence to impose penalty on a person or to confiscate his goods for an act or omission which was lawful at a time when such an act was performed or omission made but subsequently made unlawful by virtue of a provision of law.”There are several judgments to the same effect following this leading judgment.  
Benefit of Doubt:
  In respect of benefit of doubt it is interesting to note that while the Courts have stressed the importance of benefit of doubt in fiscal cases, in not a single case the decision has  been given only on the basis of benefit of doubt. Just because there is a doubt, the benefit has not gone in favour of the tax payer. Only where the merit is also in favour of the party, that the court has given the decision in favour of the tax payer. So the benefit of doubt is not the first line but only the second line of defence. This distinguishes a fiscal case from a criminal case. In a criminal case an alleged murderer can be set free only due the doubt raised by the defence but not in a fiscal case. In a fiscal case the merit must go in favour of the tax payer and then only the benefit of doubt is given as an additional argument to strengthen the conclusion. There are so many judgments in fiscal cases relating to the benefit of doubt. The conclusion after taking into all these judgments is that in the case of doubt, the benefit goes to Revenue, if it is an exemption. In the case of other classification and fiscal issues, the benefit goes to the assessee but only if the merit also indicates the same. In fiscal cases no case is decided in favour of the tax payer just because there is a doubt .