Analysis of the Amendments to Section 104 of The Customs Act, 1962

K. Prasanna, RMLNLU

Editor’s Note: Analysis of the amendment to Section 104 of the Customs Act, 1962 in light of the case of Om Prakash v. UOI”

ABSTRACT

A burning issue that has been making headlines in the legal world in recent times is the validity of the amendment that has been made to S. 104 of the Customs Act, 1962[1] by way of the Finance Act, 2013.[2] The amendment has generated a lot of diverse views among the legal fraternity. As is being claimed by many reputed jurists, these amendments are certainly bad in law. But why is it so? This article is an attempt to analyse the amendments and find out reasons as to why it should be scrapped out of the statute. It further aims to give solutions on how to punish heavy duty evaders, the end for which this amendment seems to have been passed by the legislature.

INTRODUCTION

  1. 104 of the Customs Act, 1962 provides for the power to arrest in case of offences related to the said Act. This provision also provided for the offences to be non- cognizable[3] and bailable.[4] There have been two amendments made to this provision by way of the Finance Act, 2012 and the Finance Act, 2013.

The amendments to S. 104 of the Customs Act, 1962 are as follows-

  1. Substitution of the earlier sub-section (4) by the Finance Act, 2012,[5] which now provides as follows-

(4) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, any offence relating to-

(a) prohibited goods; or

(b) evasion or attempted evasion of duty exceeding fifty lakh rupees, shall be cognizable.

  1. Substitution of sub-section (6) by the Finance Act, 2013, which now provides as follows-

(6) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, an offence punishable under section 135 relating to-

(a) evasion or attempted evasion of duty exceeding fifty lakh rupees; or

(b) prohibited goods notified under section 11 which are also notified under sub-clause (c) of clause (i) of sub-section (1) of section 135; or

(c) import or export of any goods which have not been declared in accordance with the provisions of this Act and the market price of which exceeds one crore rupees; or

(d) fraudulently availing of or attempt to avail of drawback or any exemption from duty provided under this Act, if the amount of drawback or exemption from duty exceeds fifty lakh rupees, shall be non- bailable.

The amendment which is in question in this article is the second amendment i.e. one by way of the Finance Act, 2013.

The relevant portion of S. 135 of the Customs Act, 1962 which is in dispute states the following:[6]

Evasion of duty or prohibitions. – “(1) Without prejudice to any action that may be taken under this Act, if any person —

(a) is in relation to any goods in any way knowingly concerned in misdeclaration of value or in any fraudulent evasion or attempt at evasion of any duty chargeable thereon or of any prohibition for the time being imposed under this Act or any other law for the time being in force with respect to such goods; or

(b) acquires possession of or is in any way concerned in carrying, removing, depositing, harbouring, keeping, concealing, selling or purchasing or in any other manner dealing with any goods which he knows or has reason to believe are liable to confiscation under Section 111 or Section 113, as the case may be; or

(c) attempts to export any goods which he knows or has reason to believe are liable to confiscation under Section 113; or

(d) fraudulently avails of or attempts to avail of drawback or any exemption from duty provided under this Act in connection with export of goods, he shall be punishable, —

(i) in the case of an offence relating to, —

(A) any goods the market price of which exceeds one crore of rupees; or

(B) the evasion or attempted evasion of duty exceeding fifty lakh of rupees; or

(C) such categories of prohibited goods as the Central Government may, by notification in the Official Gazette, specify; or

(D) fraudulently availing of or attempting to avail of drawback or any exemption from duty referred to in clause (d), if the amount of drawback or exemption from duty exceeds thirty lakh of rupees, with imprisonment for a term which may extend to seven years and with fine:

Provided that in the absence of special and adequate reasons to the contrary to be recorded in the judgment of the court, such imprisonment shall not be for less than one year;

(ii) in any other case, with imprisonment for a term which may extend to three years, or with fine, or with both.

THE OM PRAKASH CASE

In the year 2011, the Hon’ble Supreme Court of India, with the decision of Om Prakash v Union of India[7]concluded that the offences covered by Section 104 were bailable offences, by virtue of them being non- cognizable. The scope of the offences provided in the Customs Act, 1962 were equated with the provisions of the Central Excise Act, 1944 in order to arrive at this conclusion. It was categorically stated that-

“Offences under Section 135 of the Customs Act, 1962, are bailable and if the person arrested offers bail, he shall be released on bail in accordance with the provisions of sub-Section (3) of Section 104 of the Customs Act, 1962, if not wanted in connection with any other offence.”[8]

While it may be said that all the offences under Section 104 should not be non- cognizable and bailable, it is also not correct to accept this amendment as the only solution, in order to punish duty evaders whose liabilities are excessive. The said judgment of the Hon’ble Supreme Court seems to make a general classification of all duty evasion offences as non- cognizable and bailable. But in a special statute like the Customs Act, 1962, such a decision may have negative impacts and may result in intentional duty evasions due to the availability of a bail on every evasion. On the same note, the amendments can be discussed in the following manner-

  1. That the effect of the amendments should not be retrospective.
  2. That the amendments do not classify duty evaders in a rational manner.

THE EFFECT OF THE AMENDMENT SHOULD BE NON- RETROSPECTIVE

In criminal jurisprudence, there are two important principles-

  1. nullum crimen sine lege (there can be no crime without criminal law)
  2. nulla poena sine lege (there can be no punishment without criminal law)

The aforementioned principles require that there is a law that is certain, unambiguous and not retroactive.[9] A retroactive law (also known as a retrospective law) has been defined as a law which takes away or impairs vested rights acquired under existing laws.[10] Retrospective laws affect acts or facts occurring; or rights accruing, before it came into force.[11]

This principle of non- retrospectivity in penal statutes has been enshrined in Article 20(1) of the Constitution of India, 1950 which provides as follows-

No person shall be convicted of any offence except for violation of a law in force at the time of the commission of the act charged as an offence, nor be subjected to a penalty greater than that which might have been inflicted under the law in force at the time of the commission.[12]

In India, an offender can be liable only if he comes within the plain terms of the penal statute. Penal statutes which increase penalties for existing offences can only be prospective. This principle was applied in the case of Soni Devrajbhai Babubhai v State of Gujarat,[13] wherein it was held that S. 304B of the Indian Penal Code, 1860, which created a new offence of dowry death and brought into the statute on November 11, 1986, would not affect any act concerning the same before that date. Article 20(1) enumerates two consequences that criminal law must avoid, which are as follows-

  1. No person shall be convicted of any offence under any law not in force at the time of the commission of the offence.
  2. The penalty for an offence shall not be greater than that which might be inflicted for the offence under the law which was in force when the offence was committed.

But these principles are restricted only to penal legislations. The principle of non- retrospectivity has no effect on statutes which are procedural in nature. In Shiv Bahadur Singh Rao v State of Vindhya Pradesh,[14] the Hon’ble Supreme Court of India interpreted Article 20(1) as prohibiting only conviction and sentence under a retrospective legislation and not a trial under a procedure which is different from that which was obtained at the time of the commission of the offence. But there may be exceptional cases in which a change in procedure drastically alters the rights of the accused. If due to a change in procedure, there is creation of a new offence or increase in the penalty as it existed at the commission of the offence; Article 20(1) will be attracted.[15]

In cases of fiscal statutes, the ordinary principle of ‘presumption of innocence of the accused’ is not applicable. The onus is on the accused to prove that he is not guilty of the alleged offence. This principle is enshrined in the provisions of the different fiscal statutes. Under the Customs Act, 1962, Section 138A talks about the presumption of the culpable mental state. It states that the on a prosecution for an offence under this act, the court shall presume the existence of such mental state and it is for the accused to prove the non- existence of such mental state beyond reasonable doubt.[16]

The amendments to Section 104 of the Customs Act, 1962 have increased the scope of the punishment i.e. have created a greater penalty i.e. cognizable and non- bailable, for a specific category of offences under S. 135. The amendment of 2013 in particular, has increased the gravity of some of the offences under S. 135 of the said act.

The application of these amendments has been held to be retrospective in nature due to them merely being procedural in nature.[17] It appears that the Hon’ble Kerala High Court has erred onerously in holding so. In fiscal statutes, since the onus of proof of innocence falls squarely on the accused, the change in procedure which greatly increases the quantum of punishment takes away a substantial right from the already burdened accused. It also increases the burden of proof of innocence which is unreasonable. By making the offence non- bailable, the quantum of punishment has increased, since a non- bailable offence is more severe than a bailable offence, which in turn requires less proof of innocence by the accused. This amendment has taken away a substantial right of the accused by increasing the scope of punishment and requiring greater proof of innocence. And in any case, if an offence is made non- bailable, the gravity of the offence and the nature of the punishment also increase and therefore, affect the substantial rights of the accused.

Thus, this amendment is of a nature which has put a greater burden on the accused to prove his innocence, and has negatively affected a substantial right. Wherein he earlier had a less burden to prove his innocence due to the offence being bailable, the onus of proof of innocence increases greatly and the test also becomes more severe in order to acquit an accused. Therefore, it is violative of Article 20(1) and the general principles of criminal law as already mentioned at the beginning. The principle of retrospectivity must have no application in this amendment. If this principle is applied then an honest duty payer, who pays his duties correctly and on time, may suffer, if a change in economic situation (like a recession) pushes his duty liability above fifty lakhs of rupees.

THE AMENDMENT HAS INCREASED THE CHANCES OF MAKING AN ARREST WITHOUT ANY PROPER ASSESSMENT OF THE DUTY

Section 104 empowers an officer of customs, empowered by a general or special order to arrest a person if he has reasons to believe that an offence has been committed by that person. It states-[18]

If an officer of customs empowered in this behalf by general or special order of the Commissioner of Customs has reason to believe that any person in India or within the Indian customs waters has committed an offence punishable under section 132 or section 133 or section 135 or section 135A or section 136, he may arrest such person and shall, as soon as may be, inform him of the grounds for such arrest.

The expression ‘officer of customs’ seems to be restricted to one who is empowered by a general or special order of the Commissioner of Customs. The sub- section does not use the expression ‘proper officer’ who has been defined as-[19]

“proper officer”, in relation to any functions to be performed under this Act, means the officer of customs who is assigned those functions by the Board or the Commissioner of Customs;

In any case, while levying a customs duty on an assessee, an important function that must be carried out is a proper assessment of the goods imported. The two types of assessment under the Customs Act, 1962 are-

  1. Normal assessment of duty.[20]
  2. Provisional assessment of duty.[21]

In both the cases, it has been categorically stated that it is a proper officer who may carry out the functions in this regard. The expression ‘proper officer’ has been categorically used to denote the functions of such an officer. In Section 104, the expression ‘proper officer’ has not been used and with the result of the amendment of 2013, there is a high possibility that a person may be arrested even if there is no proper assessment carried out. Furthermore, even if the assessment has been carried out properly, since the ‘officer of customs’ under Section 104 does not have the function of carrying out the assessment, he may arrest any person on a mere belief on no proper grounds that a duty has been evaded. Since a duty evasion of more than fifty lakhs of rupees has been made non- bailable, there must be a proper assessment done before an arrest can be effected. As the ‘officer of customs’ is not a ‘proper officer’ in this regard, there may be unreasonable arrests made on even those who have properly paid their duties.

Furthermore, if the goods are abandoned due to non- assessment, there may still be a charge of an offence on the importer. This is again because of the ‘officer of customs’ under Section 104 of the Customs Act, 1962 not being a ‘proper officer’ empowered to make an assessment. An offence charged without a proper assessment in case of a fiscal statute is totally unreasonable. Sections 17 and 18 of the Customs Act, 1962 must be given proper effect in cases where duty evasions beyond a fixed limit are severely punished (in this case, made non- bailable). This is another situation that may arise as a result of the said amendment.

THE AMENDMENT DOES NOT CLASSIFY DUTY EVADERS IN A RATIONAL MANNER

Furthermore, if the amendments are analysed closely then it appears that the classification of the offences under Section 135 itself for the purposes of Section 104, does not have a reasonable basis. The offence of evasion of duty or prohibitions under S. 135 of the Customs Act, 1962 as a whole is covered under S. 104(1) which also has the effect of describing such an offence as non- cognizable. The said amendments only take out a select class of offences from S. 135 and make them cognizable and non- bailable. Furthermore, the evasion or attempted evasion of duty covered by these amendments is that exceeding fifty lakh rupees. Only the following offences under Section 135 are non- bailable:[22]

  1. Evasion or attempted evasion of duty exceeding fifty lakh rupees
  2. Prohibited goods notified under section 11 which are also notified under sub-clause (c) of clause (i) of sub-section (1) of section 135
  3. Import or export of any goods, the market price of which exceeds one crore rupees and which have not been declared in accordance with this Act
  4. Fraudulently availing of or attempt to avail of drawback or any exemption from duty provided under this Act, if the amount of drawback or exemption from duty exceeds fifty lakh rupees.

This classification of a select class of offences under Section 135 as non- bailable and the remaining offences as bailable does not have a sound basis. Especially on the basis of a sum of fifty lakh rupees prescribed for evasion or attempted evasion of duty,[23] which appears to be one without any proper calculation of the duty to be paid. The unreasonable classification creates different classes of duty evaders without any reasonable basis. It distinguishes between-

  • Those with a duty liability of more than fifty lakh rupees and those with a liability of less than the said amount.
  • Those duty evaders dealing with goods of market value of more than one crore of rupees and those dealing with goods of market value of less than one crore of rupees.

As already mentioned above, it appears that the value of fifty lakh rupees of duty or market value of one crore of rupees have not been arrived at by any proper computation. Based on this amendment, it can be concluded that duty evasion of Rs. 49.99 lakhs of rupees is less severe than a duty evasion of Rs. 50.01 lakhs of rupees. This does not keep all the duty evaders on the same pedestal and violates the right to equality as provided under Article 14 of the Constitution of India, 1950.[24] Furthermore, it provides for a fixed value of evasion of customs duty of fifty lakh rupees irrespective of the volume of goods imported. To take an illustration-

A imports ‘x’ quantity of diamonds from South Africa. B also imports ‘x’ quantity of diamonds, but from Australia. The exchange rates in both the countries are different. The diamonds imported from Australia are cheaper than those imported from South Africa. Since the customs duty is calculated out of the market value of the goods, B pays less duty than A, with A paying more than fifty lakh rupees while B paying less than this amount. If there is failure by both to pay their duties, B gets away with a bail and the payment of the fine, while A faces a harsher punishment due to his liability being more than fifty lakh rupees.

Since a customs duty evasion is a crime, it may be argued that all duty evaders must be kept on the same footing. But it is also understandable that some duty evasions can be awarded with lesser punishment if the amount is so less as to be negligible. A duty evasion to the tune of five lakhs of rupees cannot be equated with a duty evasion of fifty lakhs of rupees. The two duty evaders must be treated differently. But the question that arises is how to classify the duty evasions into different categories. As much as it appears that all duty evaders must be treated equally, the same is not practically possible due to the type of variations that may arise in duty evasions as stated above.

Due to the current amendment to the Customs Act, 1962, a classification has been made between the different duty payers as already pointed out above. The question which arises here is whether the classification is reasonable. In the case of State of West Bengal v Anwar Ali Sarkar,[25] the Hon’ble Supreme Court of India held that any classification must be based on a reasonable and sound basis. In this context, classification can be defined as-

“Classification means segregation in classes which have a systematic relation, usually found in common properties and characteristics. It postulates a rational basis and does not mean herding together of certain persons and classes arbitrarily.”[26]

This classification is a must in order to ensure equality among equals as enshrined in the Constitution of India, 1950.[27] The classification must have a rational or reasonable nexus with the object to be achieved. Such a differentiation/classification is inherent in the concept of equality under the Indian constitution.[28] If there are intelligible differentia which separate a group within a specific class from the rest and that differentia have a nexus with the object of classification, then such a classification can be said to be reasonable.[29] Thus, a differentia which is the basis of classification and the object of Article 14 of the Constitution of India are two distinct things, and what is necessary is that there must be a nexus between them.[30]

It is in this regard, that the amendment made to the Customs Act, 1962 must be analysed. As already stated above, the effect of this amendment has led to a classification between the payers of Customs duty into two categories i.e. a) those who have to pay a duty which is over fifty lakhs of rupees and b) those who have to pay a duty which less than fifty lakhs of rupees.[31] It may be argued that the object of this amendment is to punish those who escape paying heavy customs duties and bring them on par with the other duty payers. But such a classification treats only duty evasions of more than fifty lakhs of rupees to be heavy duty evasions. There is no reasonable basis as to quantify the amount of rupees fifty lakhs and creating two different classes of duty evaders. There has been no proper computation given in order to arrive at the aforementioned figure. In fact, any type of specific quantification of duty in order to increase the severity of punishment for duty evasion, above that quantified duty would be unreasonable. The same can be explained with the help of the factual situation as already given above.

Since evasion of duty is to be punished, it may be contended that this is a good law that seeks to punish duty payers heavily. But this also leads to a situation in which a duty evader who marginally falls short of the limit of fifty lakhs of rupees, may get away with just a bail. The amendment also does not take into consideration the type of commodity imported and the quantity imported. For example, an importer, importing 50 tonnes of cotton may pay a marginally higher duty than another importer who imports 25 diamonds. The nature of the commodities in the present case i.e. cotton and diamond, are extremely different and the quantum of fifty lakhs of rupees as specified by the amendment does not take this into account. Furthermore, classification of an economic offence on the basis of market values of goods (in this case one crore of rupees) without any reference to the quantity of goods is also completely unreasonable, since two different commodities having a market value of one crore of rupees may differ in quantity. The type or category to which a particular commodity belongs to is also not taken into account. The classification of the duty evaders into two categories fails the test of intelligible differentia since it is not capable of being understood[32] due to a lack of a reasonable basis.

Another situation that is not taken into account by the amendment by way of the Finance Act, 2013 is where bona fide belief by an assessee with regard to valuation, classification, interpretation of the statute and allied matters is disregarded with that of the department. Due to this amendment, the revenue department(s) will have absolute power to arrest the assessee for alleged evasion on the basis of the alleged belief as pointed out above.

The situations given above are just a few of the many situations where the classification as created by the amendment is violative of the concept of equality. Punishing duty evaders whose liabilities exceed beyond a reasonable limit is acceptable, but fixing a minimum specific limit of fifty lakh rupees or any value without any reasonable justification, beyond which the evasion is non- bailable is not the correct way of punishing such duty evaders. But the nagging question that arises here is how to punish unreasonably high duty evasions?

SUGGESTIONS

One of the ways of achieving this objective is by fixing such a duty based on the type of goods, which must be considered only for the purpose of punishment after the assessment and its finality at the level of the tribunal. The duty can be fixed according to the different categories of goods such as necessity goods, luxury goods, raw materials etc. These different categories may be treated differently. Also, the type of industry must be taken into account in order to classify the goods into different categories. Since quantity of goods imported is also an important factor for imposing a customs duty, it must be given the utmost importance while computing the duty along with the categorisation of goods as mentioned above.

Special situations of imports such as import during the time of recession (or depression, as the case may be) must be taken into account and the duties levied based on the suggestion pointed out above should be flexible, based on reasonable considerations. Failure to pay a duty on time must not be punished until and unless there are compelling reasons to do so. If the duty evasion is unreasonably high even after the specific considerations as pointed out above, then such an offence may be severely punished. The aforementioned suggestions may also be taken into account in order to fix the market value of the goods imported. Fixing a value of one crore of rupees for classifying such related offences as bailable/non- bailable is also unjust as already stated earlier. The duty limit must be fixed as a percentage or ratio, which is reasonable.

Thus, it can be said that the following criterion must be taken in order to calculate the customs duty as a percentage or ratio on imports for the purpose of punishment of heavy duty evaders-

  1. Type of goods based on different categories.
  2. Type of industry.
  • Quantity of goods imported.
  1. Economic situation at the time of import and also at the time of levy of duty.

In order to avoid ambiguities, it must also be made sufficiently clear by way of an amendment, that an ‘officer of customs’[33] must be a ‘proper officer’ who has made the assessment for the given case. Also, an assessment must be made an important basis to form a ‘reason to believe’ as given in section 104 of the Customs Act, 1962. The ‘proper officer’ in this case must have completed the assessment and the assessment should be final before any prosecution can be initiated against the assessee. Such amendments are a must in situations where duty evaders are to be classified and evasion beyond a particular limit is to be severely punished.

CONCLUSION

Cases relating to duty evasions have been increasing in the recent past. The different forums such as the appellate tribunals, the High Courts of different states as well as the Hon’ble Supreme Court of India are regularly engaged in the adjudication of such disputes between the revenue department(s) and the assessee(s). The effect of the latest amendment is bound to increase the no. of cases to be dealt by these forums and increase the scope of the revenue departments to punish marginal/non- duty evaders in an unjust manner. The amendment has been brought with effect to punish duty evasions which are unreasonably high. But the legislature seems to have brought effect to this amendment in haste, without considering the consequences of such a law.

In the light of the expected impacts of the amendment to the Customs Act, 1962, by way of the Finance Act 2013, it can, therefore, be said that the amendment is bad in law and must be scrapped out from the statute. Severely punishing duty evasions which are very high is a commendable objective of the legislature. But it must be done by taking into account some important factors which are necessary and paramount to the computation of such a duty. The limit of the duty must not be arbitrarily fixed for all goods. Even while computing the limit of duty, it should be in the form of a percentage or ratio, which is reasonable. This method of fixing the limit of customs duty would be reasonable and classify the duty evaders in a proper manner. Also, the officer making an arrest must be guided by a reasonable belief on reasonable grounds (in this case assessment) in order to achieve the objective of punishing duty evaders whose liabilities are unreasonably high. Such changes can make the tax laws more balanced and equitable.

Edited by Amoolya Khurana

[1] Act 52 of 1962 [always referred to as the Customs Act, 1962].

[2] Act 17 of 2013, w.e.f. 10-05-2013 [hereinafter referred to as the Finance Act, 2013].

[3] S. 104(5), The Customs Act, 1962.

[4] Earlier provided under S. 104(6), The Customs Act, 1962. Now provided by S. 104(7), The Customs Act, 1962.

[5] Act 23 of 2012, w.e.f. 28-05-2012.

[6] Section 135(1), The Customs Act, 1962.

[7] 2011 (272) ELT 321 (SC).

[8] Om Prakash v Union of India, 2011 (272) ELT 321 (SC).

[9] Durga Das Basu, Commentary on the Constitution of India, Volume 3, 8th Edition (2007), Pg No. 2953, LexisNexis Butterworths Wadhwa Nagpur.

[10] Black’s Law Dictionary, Fifth Edition, Pg No. 1184, West.

[11] Id.

[12] Article 20(1), The Constitution of India, 1950.

[13] AIR 1991 SC 2173.

[14] AIR 1953 SC 394.

[15] Randhira v State, AIR 1954 MB 83.

[16] Section 138A (1), The Customs Act, 1962.

[17] The Kerala High Court Judgment

[18] Section 104(1), The Customs Act, 1962.

[19] Section 2(34), The Customs Act, 1962.

[20] Section 17, The Customs Act, 1962.

[21] Section 18, The Customs Act, 1962.

[22] Section 135, The Customs Act, 1962.

[23] Finance Act, 2013.

[24] Article 14, The Constitution of India, 1950.

[25] AIR 1952 SC 75.

[26] State of West Bengal v Anwar Ali Sarkar, AIR 1952 SC 75.

[27] Article 14, The Constitution of India, 1950.

[28] Durga Das Basu, Commentary on the Constitution of India, Volume 3, 8th Edition (2007), Pg No. 1397, LexisNexis Butterworths Wadhwa Nagpur.

[29] Durga Das Basu, Commentary on the Constitution of India, Volume 3, 8th Edition (2007), Pg No. 1397-98, LexisNexis Butterworths Wadhwa Nagpur.

[30] State of West Bengal v Anwar Ali Sarkar, AIR 1952 SC 75.

[31] Finance Act, 2013.

[32] Durga Das Basu, Commentary on the Constitution of India, Volume 3, 8th Edition (2007), Pg No. 1427, LexisNexis Butterworths Wadhwa Nagpur.

[33] Section 104(1), The Customs Act, 1962.

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