NOVEMBER 29,2010

  By Padmini Sundaram

"PENALTY" as the literal meaning goes is punishment prescribed by law and imposed by designated authority competent to do so as empowered by relevant legislation(s) to conclude or infer on such alleged crime or offence. The Customs law per se envisages two types of punishments; one which includes penalty for violation of statutory provisions involving a penalty of money and confiscation of goods – this is a civil liability and adjudged in Departmental adjudication process. The other form is imprisonment and fine – criminal punishment which can be granted only in a criminal court after prosecution.

It is settled judicial principle that in economic crimes and departmental penalties ‘mensrea' or ‘guilty mind' is not essential for imposing penalty. But before imposing penalty, the adjudicating authority has to come to the conclusion that provisions of the statute/ rules have been violated and the same gets inked in the Order which is appealable under law. All this is apparently clear and legally unambiguous. But, at times, one is sharply jostled out of such clarity by unlawful and bizarre actions – only to look around helplessly – No – I am not referring to scams, politicians, underworld, organized crime etc – One would say we are grown to live with the same - Here is the case where the highly decorated and so called reputed investigative agency, the Directorate of Revenue Intelligence (‘DRI') suomoto empowers itself with the mandate to impose and collect penalty amount during the investigation stage itself – no demand notice, no adjudication etc. Rather imposing penalty would not be apt word, it should be extorting “penalty' the DRI way. Is “Goonda Raj”, the right word… For more, read on !!!

Before going any further, let us have a glance at the relevant section on penalty in the Customs Act, 1962 which is very clear that penalty should be imposed only after determining the duty amount

Section 114A –“Penalty for short levy or non levy of duty in certain cases- where the duty has not been levied or has been short-levied or the interest has not been charged or paid or has been part paid or the duty or interest has been erroneously refunded by reason of collusion or any willful mis-statement or suppression of facts, the person who is liable to pay the duty or interest, as the case may be, as determined under sub-section (2) of section 28 shall also be liable to a penalty equal to the duty or interest so determined.”

The above Section is quite clear - Penalty can be imposed in any case related to customs duty evasion only after deciding whether a case for contravention of relevant provisions thereof is made out and thereafter determine the duty amount so evaded or sought to have been evaded. Exception to this position of law is the DRI and its dictates., which in many cases have been collecting duty, interest, and penalty at the investigating stage itself. The officers collect duty, penalty and interest under duress at investigating stage before issue of show cause and cover up this illegal activity under the term “ voluntarily paid by the assessee”. Even traffic cops collect fine/penalty for violating traffic rules only after issue of achallan/notice. The so called “super sleuths” however project themselves as beyond law of the land – extreme inhuman interrogation under the guise of investigation, highhandedness at its very best and complete disregard to the basic principles of law.

Before proceeding further, let me qualify –admit and agree that the above would not be the case with all zonal units of DRI or in all cases booked, but the fact remains that the seeds of the above referred illegal activity has already been sown into the system and hence one cannot rule out its cancerous spread across the length and breadth of the institution.

Coming back to the subject matter, in cases where the evidence is overwhelming and the evasion established beyond any iota of doubt, then one could still understand the justification of seeking duty evaded at the time of investigation. But, there have been many cases of late where DRI insists that the ‘trapped prey' should deposit the duty perceived to have been evaded in almost all cases along with penalty and interest . The modus operandi followed to cover up weak cases, equally poor investigations and lack of acumen and appreciation of the judicial precedents of the land, is to lure the importer/ evader with “false promises” – take this one for the latest trend – importers are told that show cause notice will not be issued once he pays the duty, penalty and interest at the investigation stage itself. The importer who is tempted to come out of this scary situation in the hands of DRI(he dares not say NO as he knows what is in the offing under the guise of interrogation) agrees to pay all at investigation stage and no sooner it is paid, the show cause notice follows immediately and then the importer realizes it was all cock n bull story by DRI.

What would follow thereof is plain logic – It would be a long journey of legal battle. Some would come out clean winners without being penalized but still their nightmare continues because they would then have to run from pillar to post to get back the refund of the penalty, attimes duty and interest also collected under duress by DRI.

May be the DRI's eagerness to collect duty, penalty and interest at investigation stage and making it look like a voluntary payment by assessee has got something to do with the “REWARD FACTOR”. In some cases, even after issue of show cause notice, the ‘offender' is ‘advised' by DRI to go to Settlement Commission so the matter is settled much earlier than any other legal remedy available – and the rewards also come soon after Settlement Commission disposes the cases. Otherwise the officers eligible for rewards have to wait till the assessee avails all legal remedies available to him, which will normally run to many years, and then there is this uncertainty of getting the reward depending on who wins the legal battle.

But is that all… is it only about rewards or is it that the above techniques are nothing but a façade to hide the inadequacies in the investigation and show cause notice?. The quality of investigation and show cause notice from DRI has hit an all time low. This may again sound as having generalized the entire working which is not the intent; I do admit that there are good officers and quality work also ..but they are very few and the malice has started to set within the organsiation…. it is high time that the Finance Ministry actually reviews the functioning of the DRI – we would now have in the new Chairman a person of very high integrity and with the experience of having headed the said organisation --- It is important that under this tutelage the working of this organization should be reviewed – Important first is to understand what are the selection norms, why is select individuals manage extension to work in the said organisation, how is that without cooling period they continue to be retained in the organisation, what is the agenda behind all this – why is that same individuals continue to remain in DRI for eternity, even if they leave they manage to come back as if their posting there is a “JanmSidhAdhikar” – what is the agenda behind all this. Second and most important, is, those in DRI - do they get the requisite training about the concepts of valuation under Customs, provisions relating to penalty, art of drafting show cause notice, art of investigations etc.

Before parting : It is quite astonishing that many a such illegal actions by DRI authorities go unnoticed by the higher ups in the Government or is it a deliberate attempt to turn a blind eye to all such “atrocities” by the authorities in the name of investigations, such as the issue highlighted – insisting on depositing duty, penalty and interest amount at investigation level itself? It is worth mentioning here that India is moving towards becoming one of the largest economies of the world and it is high time that the authoritieslook at the business community who are part of the collective growth of the economy. Unless this organisation of repute quickly reviews its own function and seriously lays down guidelines, looks at its entire machinery – rest assured this would peter down to the quality of local preventive office in some of the Commissionerates – may be they function in a more organized and technically well adept manner.

I leave it to the netizens to comment on ‘can penalty be decided and paid at the investigation stage itself' .. Are we looking at a new ‘upcoming law' under the tutorials of DRI ?? Amigosh !!! Where does the buck stop ?? Has the Government made a mistake by keeping this organisation out of RTI … many questions, any answers ??

(The Author is a Bangalore based Advocate)