By TIOL News Service

NEW DELHI, OCT 24, 2015: IN a major step towards trade facilitation and to put restriction on misuse of power to prosecute which also creates room for corruption, the CBEC has revised the monetary limit for launching prosecution under the Customs Act, Central Excise Act and the service tax laws. Guillotining all the past Circulars on this issue, the CBEC has hiked the limit to Rs one crore for making arrests in Central Excise, Service tax and also misuse of Cenvat Credit. The earlier limits were Rs 25 lakh and Rs 10 lakh in case of misuse of input tax credit.

In case of evasion of tax under the Customs Act, the limits have been revised to Rs. 1 crore from Rs. 10 lakh in case of evasion of tax by wrongful availment of exemption or duty drawback. Similar, revisions regarding value of goods have been carried-out regarding appraisement of tax during import or export.

In cases of outright smuggling or mis-declaration of baggage, the limits regarding value of offending goods have been revised from Rs. 5 lakh to Rs. 20 lakh. As in the past, there shall be no lower limit for arrest and prosecution in the cases of smuggling of fake Indian currency notes, arms, ammunitions and explosives and endangered species.

The procedure to be followed for arrest and sanction of prosecution has been revised and specified with adequate safeguards in these instructions to ensure that only in cases of serious nature above the revised thresholds, where there is strong prima-facie evidence, these powers are exercised.

While granting relief to small business, the CBEC has clarified that strict measures should be taken in case of habitual evaders. A company is going to be treated as habitually evading tax/duty or misusing Cenvat Credit facility, if it has been involved in three or more cases of confirmed demand (at the first appellate level or above) of Central Excise duty or Service Tax or misuse of Cenvat credit involving fraud, suppression of facts etc. in past five years from the date of the decision such that the total duty or tax evaded or total credit misused is equal to or more than Rs. One Crore. Offence register (335J) may be used to monitor and identify assessees who can be considered to be habitually evading duty.

The Board Circulars states that sanction of prosecution has serious repercussions for the assessee and therefore along with the above monetary limits, the nature of evidence collected during the investigation should be carefully assessed. The evidences collected should be adequate to establish beyond reasonable doubt that the person, company or individual had guilty mind, knowledge of the offence, or had fraudulent intention or in any manner possessed mens-rea (guilty mind) for committing the offence.

To reduce litigation and to facilitate trade, the Board has said that prosecution should not be launched in cases of technical nature, or where the additional claim of duty /tax is based totally on a difference of opinion regarding interpretation of law. Before launching any prosecution, it is necessary that the department should have evidence to prove that the person, company or individual had guilty knowledge of the offence, or had fraudulent intention to commit the offence, or in any manner possessed mens-rea ( guilty mind ) which would indicate his guilt. It follows, therefore, that in the case of public limited companies, prosecution should not be launched indiscriminately against all the Directors of the company but it should be restricted to only against persons who were in charge of day-to-day operations of the factory and have taken active part in committing the duty /tax evasion or had connived at it.

The Circulars make it clear for the field officials that prosecution should not be filed merely because a demand has been confirmed in the adjudication proceedings particularly in cases of technical nature or where interpretation of law is involved. One of the important considerations for deciding whether prosecution should be launched is the availability of adequate evidence. The standard of proof required in a criminal prosecution is higher as the case has to be established beyond reasonable doubt whereas the adjudication proceedings are decided on the basis of preponderance of probability. Therefore, even cases where demand is confirmed in adjudication proceedings, evidence collected should be weighed so as to likely meet the test of being beyond reasonable doubt for recommending prosecution. Decision should be taken on case-to-case basis considering various factors, such as, nature and gravity of offence, quantum of duty /tax evaded or Cenvat credit wrongly availed and the nature as well as quality of evidence collected.

Pointing out the malaise in the present system the Circulars underline the fact that delays in the Court proceedings are often due to non-availability of the records required to be produced before the Magistrate or due to delay in drafting of the complaint, listing of the exhibits etc. It shall be the responsibility of the officer who has been authorized to file complaint, to take charge of all documents, statements and other exhibits that would be required to be produced before a Court. The list of exhibits etc. should be finalized in consultation with the Public Prosecutor at the time of drafting of the complaint. No time should be lost in ensuring that all exhibits are kept in safe custody. Where a complaint has not been filed even after a lapse of three months from the receipt of sanction for prosecution, the reason for delay shall be brought to the notice of the Principal Chief/ Chief Commissioner or the Principal Director General or Director General of DGCEI by the Principal Commissioner/ Commissioner in charge of the Commissionerate responsible for filing of the complaint.

Publication of names of persons convicted:

Section 9B of the Central Excise Act, 1944 also made applicable to Service Tax vide section 83 of the Finance Act, 1994 grants power to publish name, place of business etc. of the person convicted under the Act by a Court of Law. The power is being exercised very sparingly by the Courts. It is directed that in deserving cases, the department should make a prayer to the Court to invoke this section in respect of all persons who are convicted under the Act.

Transitional Provisions

All cases where sanction for prosecution is accorded after the issue of this circular shall be dealt in accordance with the provisions of this circular irrespective of the date of the offence. Cases where prosecution has been sanctioned but no complaint has been filed before the magistrate shall also be reviewed by the prosecution sanctioning authority in light of the provisions of this circular.

Compounding of offences

Section 9A(2) of the Central Excise Act, 1944 also made applicable to Service Tax vide section 83 of the Finance Act,1994 provides for compounding of offences by the Principal Chief/ Chief Commissioner on payment of compounding amount. Circular no. 54/2005-Cus dt 30-12-2005 and Circular no 862/20/2007-CX-8 dated 27-12-2007 on the subject of compounding of offences may be referred in this regard which inter alia provides that all persons against whom prosecution is initiated or contemplated should be informed in writing, the offer of compounding.