SEPTEMBER 01, 2015

By R Neshini Bharathi Doss

THE Founding Fathers of the Indian Constitution were of a clear conception that a person cannot be made to undergo the one and the same trial twice. This Article attempts to give a 'bird's eye view' on, how there can be two proceedings for tax evasion and yet not ultra vires our Constitution.

Double Jeopardy

Double Jeopardy is a defence that saves an accused from being tried twice for the same offence with the same set of facts. Double Jeopardy, as defined by the American Heritage Dictionary, is the act of putting a person through a second trial for an offence for which he or she has already been prosecuted or convicted. The roots of the doctrine against double jeopardy can be traced to and found in the well-established maxim of the English Common law, Nemo debet bis vexari, meaning that a man must not be put twice in peril for the same offence.

Article 20 (2) of the Indian Constitution says - "No person shall be prosecuted and punished for the same offence more than once." The object of this clause is to protect an individual from being besieged with prosecution more than once for the very same offence.

The above said principle was in existence in India even prior to the birth of the Indian Constitution, in Sec. 26 of the General Clauses Act, 1897 which reads as "Where an act or omission constitutes an offence under two or more enactments, then the offender shall be liable to be prosecuted and punished under either or any of those enactments, but shall not be liable to be punished twice for the same offence." Sec. 300 of Cr.P.C also proposes the Doctrine of Double Jeopardy wherein it says - "Person once convicted or acquitted not to be tried for same offence".

Criminal proceedings for Tax Evasion

This being the case in India, there are Tax statutes in which offences attract both Adjudicating procedure and Criminal prosecution. The Tax statutes propose criminal liability along with penalty when there has been a conscientious effort to evade tax by fabricating of or tampering with evidences, suppressing facts and providing false statements.

Chapter XXII of Income Tax Act, 1961; Chapter XVI (Sections 132 to 140A) of Customs Act, 1962; Sec. 9 of Central Excise Act, 1944 read with Sections 9A, 9AA, 13 and 18 of Central Excise Act; Sec.89 read with Section 91 of the Finance Act, 1994 - these provisions of the Tax Statutes deal with offences which are liable to be tried under the Criminal Procedure. The law in India treats tax offences not only as a criminal offence but also has fortified the same by statutory presumptions and rigorous imprisonment subject to a maximum period of seven years.

Thus when the department senses any voluntary tax evasion, there are two trials that begin, one before the adjudicating authority and the other in a criminal court. Adjudicating procedure and Criminal prosecution start walking side by side. They both deal with the same issue and facts. But they still do not amount to double jeopardy. The adjudication proceedings are not considered to be prosecution by a court of law. Thus, though both are simultaneous, they do not call for double jeopardy.

In the case of Thomas Dana Vs State of Punjab [1999 (110) ELT 63 (SC)] the Supreme Court held "In order to give protection under Article 20(2) of the Constitution it must be proved that there was prosecution, punishment and the same offence. Unless all these essential conditions are fulfilled, the protection does not become effective. Since the proceedings before the customs authorities under Section 167(8) of the Sea Customs Act, were not `prosecution' within the meaning of Article 20(2) of the Constitution, the prohibition against `double jeopardy' would not become operative."

They are considered two parallel lines when they walk side by side along each procedure. But they, being not parallel lines, meet at a point.

When the adjudicating procedure has declared a person not guilty of any fraudulent activity or suppression of facts to evade taxation/duty in the adjudicating procedure then the criminal trial on the same facts cannot continue. The trials, though individual in nature, meet at the concluding point.

The reason for this is simple - when both the trials are on the same ground, deciding on the same facts and evidences available, when one forum decides before the other, then the other case should also have the same finding. The assessee need not be burdened by one trial over another. The important element of criminal offence, mensrea, will not be present when the adjudicating authority has decided that the accused has not voluntarily taken any step to evade tax.

Mens Rea means the mind or intent to do something wrong, is essential to constitute a crime. The act alone is not enough. There has to be a wrongful intention based on which the act was done, so as to make it a criminal offence.

When the Tribunal decides that there has been no intention to evade tax then there is no mensrea present in the issue; thus the Criminal Proceedings cannot stand alone.

In the case of S.K. Sinha v. S.K. Shingal and Another, 1987 (30) E.L.T. 900 (Del.), the High Court of Delhi held that "It will be most unjust to require the petitioner to go through the entire process of prosecution in the circumstances of this case. This might virtually amount to persecution and in my view this will amount to abuse of the process of the Court. In view of the findings of the Tribunal, there is no case against the petitioner. It is as such not legal to prosecute the petitioner of a criminal offence on this set of facts and evidence"

The Hon'ble Supreme Court has observed that when the tribunal has set aside the contention of the department that the assessee has provided false statement, then can the criminal proceeding be sustained. [G.L. Didwania v. Income Tax Officer, reported in - 2002-TIOL-124-SC-IT.

In the case of Swathy Chemicals ltd. v. Union of India 2002 (139) E.L.T. 498 (Mad.), the Hon'ble High Court of Judicature at Madras held that when the department has not challenged the Tribunal order, it has become final and the criminal proceedings on the same grounds can be quashed.

In the case of K.C. Builder & Anr. v. Assistant Commissioner of Income Tax - 2004-TIOL-13-SC-IT, the Hon'ble Supreme Court held that "It is a well-established principle that the matter which has been adjudicated and settled by the Tribunal need not be dragged into the criminal courts unless and until the act of the appellants could have described as culpable. For the aforesaid discussions and reasons adduced, the questions of law are answered accordingly and the appeals stand allowed."

Supreme Court in Joseph P. Bangera v. State of Maharastra & Anr. - 2005-TIOL-146-SC-CUS, observed that there can be no prosecution when penalty is quashed on merits by Tribunal.

The Hon'ble Apex Court and High Courts in these cases have observed that the finding of the Appellate Tribunal on merits striking down the penalty, observing that the assessee has not committed any fraudulent activity, then the ground under IPC will not be applicable and thus the criminal trial will come to an end.

Guidelines for initiating and carrying on adjudication procedure and criminal procedure simultaneously

When it comes to two proceedings initiated and carried on at the same time,there needs to be a framework and code by which it works. Though the courts have been following the precedents, the department has made it mandatory to form these guidelines basing on the judicial views; this is to ensure that the procedure moves in an organized manner.

The guidelines are given by the Supreme Court in the case of Radheshyam Kejriwal Vs State of West Bengal & Anr. - 2011-TIOL-19-SC-FEMA. Based on the yardstick provided in the case, guidelines were issued by Circular No. 998/5/2015-CX, dt. 28-02-2015. The guidelines are as follows:

The Hon'ble Supreme Court has laid the following guidelines in paragraph 19 –

"The ratio which can be culled out from these decisions can broadly be stated as follows:-

i. Adjudication proceeding and criminal prosecution can be launched simultaneously;

ii. Decision in adjudication proceeding is not necessary before initiating criminal prosecution;

iii. Adjudication proceeding and criminal proceeding are independent in nature to each other;

iv. The finding against the person facing prosecution in the adjudication proceeding is not binding on the proceeding for criminal prosecution;

v. Adjudication proceeding by the Enforcement Directorate is not prosecution by a competent court of law to attract the provisions of Article 20(2) of the Constitution or Section 300 of the Code of Criminal Procedure;

vi. The finding in the adjudication proceeding in favour of the person facing trial for identical violation will depend upon the nature of finding. If the exoneration in adjudication proceeding is on technical ground and not on merit, prosecution may continue; and

vii. In case of exoneration, however, on merits where allegation is found to be not sustainable at all and person held innocent, criminal prosecution on the same set of facts and circumstances cannot be allowed to continue underlying principle being the higher standard of proof in criminal cases.

In our opinion, therefore, the yardstick would be to judge as to whether allegation in the adjudication proceeding as well as proceeding for prosecution is identical and the exoneration of the person concerned in the adjudication proceeding is on merits. In case it is found on merit that there is no contravention of the provisions of the Act in the adjudication proceeding, the trial of the person concerned shall be in abuse of the process of the court."

These guidelines clearly specify as to why, two proceedings on the same facts and grounds, will not amount to double jeopardy. Adjudication proceedings by the Enforcement Directorate does not tantamount to prosecution by a competent court of law.

In the guidelines, point (vii) has explicitly held that when the adjudicating procedure has declared a person not guilty of any fraudulent activity or suppression of facts to evade taxation/duty in the adjudicating procedure then the criminal trial on the same facts cannot continue.

Procedure to quash the criminal proceedings:

When the adjudicating authority has decided that the accused has not committed any offence to evade tax, then the criminal proceedings cannot stand alone and it has to be quashed.

Criminal Proceedings involving taxation issue is a private proceeding. Evidence has to be given by the officer to frame charges that mark the beginning of the criminal proceedings. In cases where there have not been any charges are framed, while the officer is giving evidences, the case can be closed by informing the court that the matter is closed before the adjudicating authority. In cases where the charges are framed and the trial has begun, the proceedings can be quashed by filing a petition before the High Court under Sec. 482 of Cr.P.C or a revision petition can be filed before the High Court under Sec. 397 read with Sec. 401 of Cr.P.C.

By these, the criminal proceedings can be brought to an end.