Offences Under the Act

Offences under the Act CEA provides for penalties and punishments for violation of excise law. The word ‘Offence’ is not defined in Excise law. Section 3(8) of General Clauses Act defines Offence as any act or omission made punishable by any law for the time being in force. The Central Excise Law envisages two types of punishments. CIVIL LIABILITY - Penalty for violation of statutory provisions involving a penalty of money and confiscation of goods. This is a civil penalty and can be adjudged in departmental adjudication. This penalty can be imposed by excise authorities like Commissioner, Dy. Commissioner, Assistant Commissioner, etc. within the powers granted to them. These penalties are provided in various Central Excise Rules. In Indo-China Steam Navigation v. Jaswant Singh 1983(13) ELT 1392 = AIR 1964 SC 1140 = 1964(6) SCR 594 (SC - 5 member Constitution Bench), it was held that the adjudicating officer is not a Tribunal or Court, though he has to act in a quasi-judicial manner. CRIMINAL LIABILITY - Criminal punishment is of imprisonment and fine; which can be granted only in a criminal court after prosecution. These are provided in Central Excise Act itself. Section 34A of CEA and section 127 of Customs Act specifically provide that confiscation made or penalty imposed under the Act (by departmental authorities) shall not prevent infliction of any other punishment to which the person affected is liable. Thus, both departmental penalties and criminal prosecution for same offence is permissible. Penalties Excise authorities are empowered to impose penalties like fines, confiscation of goods, etc., which are provided in Central Excise Rules. Some rules themselves provide penalty for violating those rules, while some are general penalties. Excise Officers can impose (a) penalty for violation of law (b) Confiscate the goods (c) Give option to pay fine in lieu of confiscation i.e. redemption fine. Court of Law can impose fine, imprisonment as well as confiscation of goods. General Penalty provisions – Rule 25 of Central Excise Rules [earlier rules 173Q, 209 and 210] provide general provisions for breach of various rules. Rule 25 [earlier rule 173Q or rule 209] is applicable only to manufacturer, producer, registered person of a warehouse or registered dealer. Penalty on others (like transporter, person concealing goods etc.) can be levied only under rule 209A (Now rule 26) - confirmed in R K Induction Industries v. CCE - 1998(97) ELT 342 (CEGAT SMB). Under rule 25(1) of Central Excise Rules, [earlier rule 173Q or 209], following are offences : Removing excisable goods in contravention of Excise Rules or notifications issued under the rules. Not accounting for excisable goods manufactured, produced or stored Engaging in manufacture, production or storage of excisable goods without applying for registration certificate u/s 6 of CE Act Contravening any provision of Central Excise Rules or notifications issued under these rules with intent to evade payment of duty. Penalties imposable under rule 25 - Penalty for violations prescribed in rule 25 (earlier rule 173Q) is (a) confiscation of contravening goods (b) penalty upto duty payable on such contravening goods or Rs. 10,000 whichever is higher. [Till 12.5.2000, penalty upto three times value of goods could be imposed plus confiscation of plant and machinery could be ordered]. SEPARATE PENALTY IN RESPECT OF VIOLATION OF CENVAT RULES – Provisions in respect of violation of Cenvat Credit Rules are now contained in Cenvat Credit Rules. [Earlier, they were combined in rule 173Q / 209]. Mandatory penalty in case of fraud, suppression of facts etc. - Provisions of Rule 25(1) are subject to section 11AC, which means that provisions of section 11AC prevail over provisions of rule 25(1). MANDATORY PENALTY IN CASE OF FRAUD ETC. - A mandatory penalty equal to the duty short paid or not paid or erroneously refunded is payable if such non payment or short payment or erroneous refund was due to fraud, collusion, wilful mis-statement or suppression of facts etc. [section 11AC of CEA, similar section 114A of Customs Act ]. In case of non payment or short payment of duty due to fraud, wilful misstatement etc. there is mandatory penalty equal to duty evaded under section 11AC - neither more nor less. CBE&C has confirmed that under section 11AC, there is no discretion to adjudicating authority to impose penalty less than or more than the amount of duty evaded. Provisions of section 114A of Customs Act are similar, the only difference is that the section provides both for duty and interest. The distinction has been made as interest is payable under Customs Act if duty is not paid within five days from date of assessment on Bill of Entry. However, if the duty, interest and penalty is paid within 30 days from communication of order, penalty payable will be reduced to 25%. Mens Rea in Penalty provisions - Mens rea means guilty mind. Normally, penalty is levied if violation is intentional. However, in almost all aforesaid provisions, the liability is absolute, i.e. penalty is leviable irrespective of intention. Penalty is leviable for violation of rules - it does not matter whether it is a genuine mistake, lack of knowledge, negligence or intentional violation of rules. This can be considered only while deciding quantum of penalty leviable. Rule 25(1)(d) of Central Excise Rules provides penalty for contravention of rules if it is with intention to evade duty. Penalty provision in Rule 13 of Cenvat Credit Rules also makes no mention of state of mind. However, definition of ‘reasonable steps’ [Explanation to Rule 7(2) of Cenvat Credit Rules] states that the manufacturer should ‘satisfy himself’ about identity of supplier of goods on which Cenvat credit was taken. Except in these cases, other penalty provisions do not describe any state of mind. ‘Intention to evade’, ‘wilfully, ‘knowingly’, ‘satisfy himself’ etc. are states of mind. These are difficult to prove. Hon. Supreme Court, High Courts and Tribunals have consistently held that mens rea is not an essential ingredient for imposing a penalty unless statute specifically prescribes so. In economic crimes and departmental penalties, ‘mens rea’ is not essential for imposing penalty - R S Joshi v. Ajit Mills - AIR 1977 SC 2279 = (1977) 40 STC 497 = 1979 UPTC 171 (SC 7 member bench) Lenient view for technical lapses - Quantum of penalty can be (and in fact should be) lower if there is no mens rea. Penalty is allowed by law, but it does not mean that penalty must be imposed. Lenient view should be taken if the violation is technical in nature. Personal penalty on director / partner / employee/ transporter / driver etc - Normally, penalty is imposed on the company / firm which has committed an offence. The penalty under rule 25(1) is on the company or firm. However, though Company is an independent legal person, it works through Managing Directors, directors and employees. In case of firms, it works through partners and employees. Hence, in addition to penalty that may be imposed on the company / firm, personal penalty can be imposed on the person who was actually involved in committing the offence. Any person who acquires possession of, or is in any way concerned in transporting, removing, 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 the Act or rules, shall be liable to a penalty upto the duty payable on such goods or Rs 10,000 whichever is greater. – Rule 26 of Central Excise Rules. Thus, a director or partner or an employee will be personally liable to penalty if he is personally involved in clandestine removal etc. Note that rule 26 imposes personal liability only of penalty and not of duty involved. INDIVIDUAL DIRECTORS NOT LIABLE TO PAY DUTY, BUT PENALTY CAN BE IMPOSED - Liability of payment of duty and penalty is on the manufacturer. If the assessee is a Company, liability is that of company which is a separate legal entity. Liability cannot be imposed on individual directors of the company, in absence of a specific provision in the statute. Rule 209A (now rule 26) makes any person liable to penalty only if he is knowingly connected with goods liable to confiscation. Thus, unless the directors are individually involved in clandestine removal etc., they are not personally liable - S L Kirloskar v. UOI - 1993 (68) ELT 533 (Bom HC). Penalty on transporter/driver/ owner - Often the vehicle carrying the goods is also seized and penalty is sought to be imposed on driver/transporter. Usually, the drivers are not (in fact they cannot be) conversant with excise formalities and are not aware what documents are required for excise purposes. In Bhimraj Rathor v. CCE 1994 (74) ELT 810 (MP HC), it was held that a transporter or driver cannot be expected to know technical nature of goods or had ‘reason to believe’ that the goods they were transporting were liable to confiscation. Thus, seizure of the vehicle was held illegal and bonds and security furnished by transporter for release of vehicle was discharged. In this judgment, the MP High Court followed the decision in B R Sule v. UOI - 1990 (48) ELT 343 (Bom HC). Residual Penalty – Rule 27 of Central Excise Rules is a residual penalty, which is that for breach of any excise rule, if no penalty has been prescribed, the penalty would be Rs. 5,000 plus confiscation of goods in respect of which offence has been committed. [The rule does not use the word ‘notification’. Hence, it can be argued that no penalty can be imposed for violation of provision of any notification]. Confiscation of goods - Section 12 of CEA authorises Central Government to apply provisions of Customs Act regarding levy, exemption, drawback, warehousing, offences, penalties, confiscation and procedure relating to offences and appeal to Central Excise, making suitable modifications and alterations to adapt them to circumstances. Under these powers, notification No 68/63-CE dated 4th May, 1963 has been issued making some provisions of Customs Act applicable to Central Excise subject to some modifications. These are (a) section 105(1) - Powers of search (b) section 110 - seizure of goods, documents and things (c) section 115 - confiscation of conveyances (d) section 118(a) - confiscation of packages containing goods (e) section 119 - confiscation of goods for concealing goods (f) section 120 - confiscation of goods even if form changes (g) section 121 - confiscation of sale proceeds of contravening goods (h) section 124 - issue of show cause notice before confiscation of goods (i) section 142(1)(b) and 142(1)(c)(ii) - Recovery of duty (j) section 150 - procedure for sale of goods. Goods that can be confiscated - Following can be confiscated— CONTRAVENING GOODS LIABLE TO CONFISCATION - Under rule 25 of CE, following goods are liable to confiscation - * goods removed in contravention of Central Excise rules, * goods not accounted for * goods on which Cenvat credit is wrongfully taken * Goods manufactured without registration of the factory. CONFISCATION OF CONVEYANCE - Following conveyances are liable to confiscation under section 115(1) of Customs Act, as made applicable to Central Excise : (a) any conveyance from which goods are thrown overboard or destroyed to prevent seizure by officer of customs (b) conveyance which is required by Customs Officer to land or stop for inspection but fails to do so. (d) conveyance by which warehoused goods are cleared for export, but goods are unloaded without permission. (e) 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 vessel is able to account for the loss of or deficiency in goods. CONFISCATION OF CONVEYANCE FOR TRANSPORT OF SMUGGLED GOODS - Section 115(2) of Customs Act as made applicable to Central Excise provides that conveyance used as transport for removal of excisable goods in contravention of provisions of Central Excise Rules is liable for confiscation. However, conveyance used for transport of contravening goods will not be liable for confiscation, if the owner of conveyance proves that the conveyance was used without the knowledge or connivance of the owner, his agent or person in charge of the conveyance. Further, if the conveyance is normally used for hire, the owner shall be given option to pay fine not exceeding the market price of contravening goods being removed instead of confiscation of vehicle. CONFISCATION OF PACKAGES - When the goods are liable for confiscation, the packages in which contravening excisable goods are packed, such packages are also liable for confiscation (section 118 of Customs Act as made applicable to CE). NO CONFISCATION OF CONTAINER - It has been held that ‘container’ obtained on hire and in which goods are ‘stuffed’ is not a ‘package’. - United States Lines Agency v. CC (1998) 101 ELT 602 (CEGAT). * AP Muller v. CC 1994(69) ELT 425 (CEGAT) * Orient Ship Agency v. CC 1993(63) ELT 489 (CEGAT) * Kamal Shipping Services v. CCE 1999(113) ELT 723 (CEGAT). [This is quite fair and logical, as the person who has given container on hire cannot have idea what the hirer will stuff in the container.] CONFISCATION OF GOODS USED FOR CONCEALING - Goods used for concealing contravening excisable goods are liable for confiscation (except conveyance, for which separate provisions have been made) [section 119 of Customs Act as made applicable to CE]. CONFISCATION EVEN IF FORM CHANGES - Contravening goods are liable for confiscation even if there is any change in its form. If the contravening goods are mixed with other goods and they cannot be separated, whole goods are liable for confiscation. If the owner proves that he had no knowledge that the goods included contravening goods, only that part of goods, value of which is equal to value of contravening goods shall be liable to confiscation [section 120 of Customs Act as made applicable to CE] CONFISCATION OF SALE PROCEEDS - If the contravening goods are found to have been sold, sale proceeds of such sale are liable to confiscation [section 121 of Customs Act as made applicable to CE]. Effect of wrong confiscation - If goods are confiscated by Customs authorities and subsequently, the confiscation is set aside by Tribunal/Court; the person is eligible to get back the goods. However, if in the meanwhile, goods have been sold by customs authorities, market value of goods as on date of setting aside of the order of confiscation by the judgment is payable e.g. assume that goods are confiscated in June 90, goods sold by department in July, 1992 and after appeal, the confiscation is set aside in October 93. In such case, what value should be considered ? In Northern Plastics Ltd. v. CCE 1999(6) SCALE 9 = (2000) 1 SCC 545 = AIR 1999 SC 3643 = 1999 AIR SCW 3664 = 1999(113) ELT 3 (SC), it has been held that value at time or date when clearance ought to have been allowed by customs should be considered. Sale proceeds obtained by department (less customs duty payable) cannot be considered for refund. In this case, value of goods was Rs 33.04 lakhs when imported in January, 1989 and duty payable was Rs 47.07 lakhs. Department sold the goods for Rs 48.50 lakhs in May, 1990. After confiscation was set aside, department contended that after adjusting duty payable and storage charges of Rs 2.52 lakhs, nothing is payable to importer. It was held that department cannot be permitted to take advantage of its own wrong. In this case, payment of Rs 33.04 lakhs plus interest @ 12% right from February, 1989 were ordered. The principle is that, to the extent possible, the aggrieved party should be placed in the situation as if no confiscation had taken place, if confiscation was found to be wrong by appellate authorities. The broad principle was in fact laid out by Apex Court in UOI v. SS Works - AIR 1976 SC 1414. Redemption fine in lieu of confiscation - Section 125(1) of Customs Act provides that whenever confiscation of goods is ordered, the adjudicating officer may give option to owner of goods to pay ‘fine’ in lieu of confiscation, if the importation or exportation of goods was prohibited. However, if importation or exportation of goods was not prohibited, the option to pay redemption fine shall be given to owner of goods. This is called ‘redemption fine’. After payment of redemption fine, the goods are returned to the owner of goods. Section 125(2) of Customs Act makes it clear that where any fine in lieu of goods is imposed, the owner of goods or the person from whom the goods were seized, is liable to pay duty and charges in respect of such goods, in addition to the fine. LIMIT FOR IMPOSING REDEMPTION FINE – As per proviso to section 125(1) of Customs Act, redemption fine upto market price of goods less duty chargeable thereon can be imposed. Procedure after confiscation - Rule 28(1) of Central Excise Rules makes it clear that on confiscation, the goods shall vest in Central Government. The Central Excise Officer adjudging confiscation shall take and hold possession of things confiscated. Every Police Officer is required to assist excise officer in taking and holding such possession. – parallel provision in Customs section 126. If the assessee exercises option to pay fine in lieu of confiscation, he may be asked to pay storage charges as may be determined by adjudicating officer. [rule 30] If the assessee does not pay fine in lieu of confiscation, the goods will be sold, destroyed or otherwise disposed of in such manner as the Commissioner may direct. [rule 29]. Prosecution for Offences Excise Law provides stiff punishments of imprisonment and fines for violation of excise law. These can be imposed only by Court of Law and these are independent of penalties and confiscation that can be imposed by Excise Authorities through departmental adjudication. Hon. Supreme Court has held that both can be imposed simultaneously. Offences under the Act - Section 9 defines following as offences punishable: Contravening provisions of restrictions of possession of goods in excess of prescribed quantity as prescribed under section 8. Contravening provisions of rules regarding transit of excisable goods framed under clause (iii) of section 37(2). Contravening provisions of rules regarding registration of a unit (required under section 6 of Act) framed under clause (xxvii) of section 37(2). Evading payment of duty payable under CEA. Removing excisable goods or concerning himself with such removal, in contravention of provisions of Central Excise Act and Rules. Acquiring or in any way concerning himself with transporting, depositing, concealing, selling, purchasing or otherwise dealing with excisable goods where he knows or has reason to believe that the goods are liable to confiscation under Central Excise Act or Rules. Contravening any provision of Central Excise Act or rules in relation to Cenvat credit. Failure to supply information or knowingly supplying false information. Attempting to commit or abetting commission of an offence regarding evasion of duty or transit of goods or restriction on storage of goods or non-registration of a unit. Punishment that can be imposed - Punishment imposable is imprisonment upto seven years and fine (without limit) if (a) the duty leviable on the excisable goods exceeds one lakh of rupees [section 9(1)] or (b) a person already convicted for offence under Central Excise Act is convicted again [section 9(2)]. The imprisonment should be minimum for six months unless there are special and adequate reasons for granting lesser punishment. If the duty leviable on goods is less than Rs. 1 lakh, imprisonment upto three years or fine (without limit) or both can be imposed. FURTHER PUNISHMENTS - In addition to aforesaid, Court has powers to order following punishment (a) Forfeiture to Government of any goods in respect of which offence has been committed and packages, vehicles or conveyance, or machinery used in manufacture of the goods. - Section 10 of CEA. [The forfeiture is different than the power of confiscation available to Excise authorities. The difference is that if the goods are confiscated, option has to be given by departmental adjudicating authorities to the offender to redeem the goods i.e. take back the goods, on payment of prescribed penalty. In case of forfeiture, no such option is to be given by Court]. (b) Publication of names, place of business or residence, nature of contravention etc., under section 9B of CEA – parallel section 135B of Customs Act. Such publication will be at the cost of accused and in newspaper or otherwise as directed by Court. MENS REA PRESUMED - State of mind (culpable mental state) like intention, motive, knowledge of a fact or belief in a fact or reasons to believe in a fact are difficult to prove. Section 9C of CEA [parallel section 138A of Customs Act], therefore, provides that such mental state shall be presumed by Court. Prosecution (here the Excise / customs department) need not prove the guilty state of mind of the accused. If the accused claims that he did not have guilty mind, he has to prove the same. In legal terminology, it is explained as “burden of proof regarding non existence of ‘Mens rea’ is on the accused”. This proof has to be ‘beyond reasonable doubt’. This position has been reiterated in Bhanabhai Khalpabhai v. CC JT 1994(2) SC 591 * Devchand Kalyan Tandel v. State of Gujarat JT 1996(7) SC 256 = 1997(89) ELT 433 (SC) = AIR 1996 SC 2787 - in this case, it was held that once recovery of prohibited goods is made from accused within notified area, the statutory presumption is available. In ITC Ltd. v. CCE 1998(104) ELT 151 = 28 RLT 323 (CEGAT), it was held that this provision is applicable only in case of prosecution before Court and not to adjudication proceedings under the Act. BURDEN OF PROOF - In excise law, the commitment of offence has to be proved by department beyond reasonable doubt. However, the accused has to prove beyond reasonable doubt that there was no culpable state of mind like intention, knowledge, belief etc. In legal terminology, this means that burden of proof is on prosecution (i.e. excise department) to prove the commitment of offence. Once this is proved, burden of proof is on the accused to prove that he had no ‘mens rea’. Both these proofs must be beyond reasonable doubt. Relevancy of Statement before Excise / Customs Officer - Statement made and signed before any Central Excise Officer / customs officer of gazetted rank is allowed as evidence in the prosecution as follows : (a) in case of a person who is dead or if he cannot be found or whose presence cannot be obtained without undue delay or expenses, the statement will be allowed as evidence (b) In case of person who is present before the Court and is examined as witness, Court may admit the statement if it is of the opinion that the statement should be admitted in the interest of justice. Thus, discretion is given to Court in case of statements made before Excise Officer, only if such person is examined as witness. The provisions apply to adjudication and appeal proceedings also. [section 9D of CEA – parallel section 138B of Customs Act]. Person is not ‘accused’ when he is giving statement - As per Article 20(3) of Constitution “No person accused of an offence shall be compelled to be a witness against himself”. It was contended that in view of this, statement made before excise/customs authorities cannot be admitted as evidence. However, it was held that at the time of enquiry, the person is not ‘accused of an offence’ at that stage. Hence, his statements are not protected under Article 20(3) and it is admissible as evidence - Romesh Chandra Mehta v. State of West Bengal - AIR 1970 SC 940 = 1969 (2) SCR 461 = 110 ELT 324 (SC 5 member Constitution bench). Excise officer is not a police officer - A statement made before police officer cannot be admitted as an evidence. However, customs/excise officer is not ‘police officer’ though he is invested with some powers of a police officer. Hence, statement made before customs/excise officer can be admitted as evidence - Illias v. CC - 1969 2 SCR 613 = 1983 (13) ELT 1427 = AIR 1970 SC 1065 – (SC 5 member Constitution Bench). Statement must be voluntary - Statement should be voluntary. If it appears to be by inducement, threat or coercion, it has to be outright rejected - KTMS Mohammed v. UOI - 1992 (40) ECC 352 (SC) = JT 1992 (3) SC 129 = AIR 1992 SC 1831 = (1992) 3 SCC 178 = (1992) 1 SCALE 1006 = 197 ITR 196 = 1992 Cri LJ 2781 = 1992 AIR SCW 2062 = (1992) 65 Taxman 130 (SC). Confession has to be affirmatively proved to be free and voluntary - Hem Raj v. State of Ajmer 1954 SCR 1133 = AIR 1954 SC 462. Statement must be voluntary as well as true - It must not only be established that statement is voluntary but also it must be established that the statement is true. For purpose of establishing the truth, it is necessary to examine the confession and compare it with rest of the evidence on record - Sarwan Singh v. State of Punjab - AIR 1957 SC 637. Evidence by documents - Provisions regarding documentary evidence are as follows. PRESUMPTION REGARDING DOCUMENTS SEIZED FROM A PERSON - Any document seized from a person shall be presumed to be true about the contents therein. Signature and other part of hand written document on such seized document, purporting to have been of a person or reasonably assumed to be of that person shall be presumed to be of that person. If such person claims that the document is not true or not signed by him, the burden of proof is on him [section 36A(a) of CEA – parallel section 139(i) of Customs Act]. OTHER DOCUMENTS ADMISSIBLE - (a) A document which is required by law to be stamped, will be admissible as evidence even if it is not duly stamped. [Section 36A(b) of CEA – parallel section 139(b) of Customs Act] (b) Micro film or Photostat/Xerox copy of document or reproduction of image is admissible, without further proof of original [Section 36B(1)(a) & (b) of CEA – parallel section 138C(1) of Customs Act]. COMPUTER PRINT OUTS - Statement printed by Computer is admissible if (a) Computer print out was produced during the period when the computer was used for storing and processing the information (b) the information contained in the statement was regularly supplied to computer during the period (c) computer was operating properly during the period or breakdowns were not significant to affect accuracy of documents (d) the print out is reproduced in ordinary course of activities. [Section 36B(2) of CEA – parallel section 138C(2) of Customs Act]. The computer print outs will be allowed as evidence even if multiple computers or different computers or different combinations of computers were used. A statement or a certificate given by a responsible person to the best of his knowledge and belief identifying the statement or describing its contents or giving particulars of computers used in production of documents shall be evidence of any matter contained in the certificate. Ordering prosecution - CBE&C have issued instructions that prosecution can be approved only by Chief Commissioner of Central Excise or in certain cases by Director General of Central Excise Intelligence. - Chapter 17 Part II Para 2.6 of CBE&C’s CE Manual, 2001. OFFENCE NON-COGNIZABLE - Offences under section 9 of CEA are non-cognizable. [Section 9A of CEA]. - . – As per section 2(c) of CrPC, ‘cognizable offence’ means an offence for which a police office may arrest without warrant. As per section 155 of Criminal Procedure Code, a police officer cannot investigate a non-cognizable case without the order of a Magistrate [A police officer can investigate cognizable case without order of Magistrate]. No time limit for launching prosecution - Economic Offences (Inapplicability of Limitation) Act provides that there is no time limit for launching a prosecution. Limitation bar contained in Criminal Procedure Code is not applicable to offences under Central Excise and Customs Law. Immunity from prosecution by Settlement Commission – Settlement Commission can grant immunity from prosecution under Excise Act, Customs Act, FTDR Act, IPC etc. if required conditions are fulfilled. This aspect has been discussed in another chapter.