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

Burden of proof :
 A.  GAAR—Reasonable belief and burden of proof before GAAR is invoked
GAAR is General Anti Evasion Rules. Recently it has gained a lot of publicity more because of business arguing against its introduction . In the last Budget of 2012-13 presented on 16th March 2012 the Finance Minister proposed GAAR to be effective from 1st April 2013.  This has been done by incorporating Chapter X-A -- General Anti-Avoidance Rule which contains Sections 95, 96, 97, 98, 99, 100, 101 and 102.   The main features of this proposed regime are the following:
(i) An arrangement whose main purpose or one of the main purposes is to obtain tax benefit and which also satisfies one of the four tests, can be declared as an “impermissible avoidance agreement”.  
(ii)  The four tests referred to in (i) above are the following:
(These are enshrined in Section 96 of the Income Tax Act)
(a) The arrangement creates rights and obligations which are not normally created between parties dealing at arm's length [Section 96 (1)(a)].
(b) It results in misuse or abuse of provisions of tax laws [Section 96 (1)(b)].
(c) It lacks commercial substance (separately defined in a subsequent paragraph) and is deemed to lack commercial substance [Section 96 (1)(c)].
(d) Is carried out in a manner which is commonly not employed for bonafide purpose [Section 96 (1)(d)].
(iii) It shall be presumed that obtaining of tax benefit is the main purpose of an arrangement unless otherwise proved by the tax payer.  [Section 96(2)]
It is this Section 96(2) and the portion written in italics above (unless otherwise proved by the tax payer) which has created the most severe controversy.  The argument of the tax payers is that the burden of proof that the transaction is not sham has been thrown back to the tax payer.  This is just the opposite of the accepted principle of burden of proof.  The view of Revenue is that enough precaution has been built into the system by separate procedure for invoking GAAR so that there is no frivolous invocation .  
The procedure is that the Assessing Officer shall make a reference to the Commissioner for invoking GAAR.  The Commissioner will hear the taxpayer on this issue.  If he is convinced that it should be invoked he should refer the matter to an approving panel which will comprise of three Commissioners or more. This provision is equivalent of what is known in Customs Law as the formation of reasonable belief. 
       The issue of burden of proof continued to be an area of concern of the business. In the latest Report of the Partho Shome Committee, appointed by the Prime Minister to look into the whole issue, there is a provision for discussion with the assessee on the basic issue of the alleged tax avoidance before the assessing officer can write to the Commissioner. The Committee has now recommended that the assessing officer should clearly write the details of the transaction which he thinks are impermissible from the point of view of GAAR. And he also has to indicate what the view of the assessee is. So the burden of proof is discharged at different stages. First the Revenue does it by making certain tentative conclusions  about the impermissibility based on the four tests laid down in the Section 96 (1) and then it is discharged by the assessee by giving his version of the issue. Thereafter the assessing officer can , if he disagrees, write a clear reference to the CIT wherein he has to argue out why he disagrees with the assessee. The Committee has done a good job by designing the format for making reference to the higher authorities at every stage. That will avoid the normal temptation of the assessing officer or the CIT to make a sketchy reference without giving a detailed reasoning or speaking observation. Thus the onus of proof is discharged by both sides which is known as shifting of burden of proof. This will allay the fear of the assesses regarding discharging the burden of proof. The stakeholders having agreed that it is adequate safeguard, it must be said that the Committee has done a tremendously good job in regard to mitigating the fear about being at the receiving end in regard to the discharge of the burden of proof.   
  So on both counts, namely the formation of the reasonable belief and discharging the burden of proof, the recommendation of the Partho Shome Committee has been to dilute them in favour of the tax payer. Now the burden of proof is divided.

   B.   Burden of Proof in respect of goods penal in proceedings

In some Acts there are special provisions regarding burden of proof such as Section 123 of the Customs Act which lays down that in the case of gold, watches and other notified goods, if the goods are seized on the reasonable belief that they are smuggled, then the burden of proof that the goods are not smuggled lies on the person from whom the goods are seized.  The position in regard to such cases which are covered by Section 123 is clear.  The question arises about how the burden of proof is to be discharged where there is no specific provision such as Section 123.  This has been settled by several judgements that the burden lies on the department to prove that the goods are smuggled.  In the land mark judgement under the Sea Customs Act in the case of Ambala vs. UOI – Judgement delivered in 1960 reported in 1983(13)ELT1321(SC) the Supreme Court has held that the onus of proving the case against the appellant is on the customs authority.  However, subsequent judgements have laid down that the burden can be shifted if the Department can provide sufficient evidence which leads to adverse inference against the accused.  There are many judgements but the most important judgement of the Supreme court which has settled the issue properly is in the case of Collector of Customs, Madras  vs. D.Bhoormul – 1983(13)ELT 1546 (SC).  In this case the Supreme Court held that the broad effect of the application of the basic principle underlying Section 106 of the Evidence Act (when any fact is specially within the knowledge of any person, the burden of proving that fact is upon him) would be that the onus is discharged if the prosecution adduces so much evidence, circumstantial or direct, as is sufficient to raise a presumption in its favour with regard to the existence of the facts sought to be proved.  So the final position is that the burden of proof is on the Department which can shift it by providing circumstantial or direct evidence sufficient to raise the presumption in its favour and against the accused.
 C.   Burden of proof in respect of penalty and prosecution in penal proceedings 
The issue here is whether mens rea (guilty mind) has to be proved by the Department if it wants to impose penalty.  The first principle is that in penal proceedings as a general rule the burden of proving the mens rea is on the Department and not on the assessee.  While this is the general rule, there are modifications.  In the case of State of Maharashtra vs. Mayer Hans George – AIR1965SC722 under the Foreign Exchange Regulation Act 1947, the Supreme Court examined the relevant provisions of Section 8(1) and 23(1)(A) of the Act and found that there was no specific provision for proving the mens rea in the plain words of these Sections.  It held that there was no need to prove mens rea.  In this case the passenger in transit via India was carrying gold.  The Supreme Court observed that “the very object and purpose of the Act and its effectiveness as an instrument for prevention of smuggling would be entirely frustrated if a condition were to be read in to Section 8(1) or Section 23(1)(A) of the Act qualifying the plain words of the enactment, that the accused should be proved  to have knowledge that he was contravening the law before he could be held to have contravened the provision”.  In other cases also the Supreme Court has toned down the over emphasis on mens rea such as in the case R.S. Joshi  vs. Ajit Mills Ltd. – AIR 1977 SC 2279.  The Constitutional Bench of the  Supreme Court held in this case relating to Bombay Sales Tax Act 1959 that “no mens era no crime” has long ago been eroded, especially regarding economic crimes.  There are many judgements on the issue.
The conclusion is that the burden of proof of the existence of mens rea is on the Department only in those Sections which specially incorporate provisions in that effect.  In other Sections where penalty is prescribed for not doing or doing certain things according to the requirements of that particular Act, there is no burden of proof or mens rea on the Department.  Specifically speaking under the Customs Act 1962, mens rea is not to be proved in the cases under Sections 112(a), 114, 116 and 117 but has to be proved for Section 112(b).  In the Central Excises and Salt Act, 1944, mens era need not be proved for cases under Rule 173Q(a), (b) and (c) and Rule 209(a), (b) and (c) but has to be proved for cases under Rules 173Q (bb), (bbb), (d), 198(1), (2), (ccc), (d) and 209A. 
 D.    Burden of proof in respect of seized documents and accounts
From the various judicial pronouncements available in fiscal cases, we find that the initial burden is on the Revenue to prove that the seized documents belong to the relevant period.  It is also an accepted principle that the documents can be utilised by the Revenue to the detriment of the assessee only after disclosing its contents to the assessee, even if they are the assessee’s documents.  The burden of proof does not shift to the assessee only because the documents belong to the assessee.  It is also well settled that the initial burden is on the assessee to prove that the documents recovered from his business premises do not belong to him, if he claims so.  

 E.   Degree of proof in discharging the burden
Even when it is established that the burden of proof is on the assessee or on the Revenue the further question still arises as to how much of proof is necessary to discharge the burden of proof.  In this respect the judgement of the Supreme Court  in the case of C.C. Madras  v.  D. Bhoormull decided in 1974 but reported in 1983(13)ELT1546(SC), the Supreme Court has laid down the cogent principles about the degree of proof.  The Court held that “the prosecution or the Department is not required to prove its case with mathematical precision to a demonstrable degree; for, in all human affairs absolute certainty is a myth, and as Professor Brett felicitously puts it – “all exactness is a fake” ..... The law does not require the prosecution to prove the impossible.  All that it requires is the establishment of such a degree of probability that a prudent man may, on its basis believe in the existence of the fact in issue.  
This judgement proves that there has been a change in the attitude of a court towards the Revenue in respect of the requirement to discharge the burden of proof.  It is no longer required to be “proved to the hilt”, which is the requirement in a criminal case.  In a quasi criminal case such as economic offences under fiscal laws, the degree of proof is now only that much as is necessary to discharge the burden on the basis of circumstantial evidence to shift it on the accused.   There has been an evolution in the concept of burden of proof from an over emphasis in favour of an alleged evader to a reasonable sharing of burden by both sides. 
F.     Burden of proof in regard to other fiscal issues.
(1) Burden of proof in respect of manufacture is on Revenue.  
(2) In respect of marketability also (which is a part of the issue of manufacture) the burden of proof is on the Revenue.  
(3) Burden of proof in the case of clandestine removal of goods is on assessee so long as Revenue is able to prove that the goods which are on record are not physically  available.  
(4) Burden to prove allegation of discrimination or mala fide is on assessee.
(5) Burden of proving under invoicing is on Revenue.
(6) Burden of proof in case of fraudulent document is on assessee to prove that he has no knowledge