The relevancy and admissibility of statements obtained by officers under the Central Excise Act, 1944 (“Excise Act”) or the Customs Act, 1962 (“Customs Act”) in proceedings under the respective enactments is a matter of continuous debate.[3] The recent judgment of the Chhattisgarh High Court in Hi Tech Abrasive [TS-900-HC-2018(CHAT)-EXC]^[4] has dealt with some important concepts in this context. Two constitutional guarantees viz., protection against self-incrimination and double jeopardy are involved in this case. 

The Court dealt with the relevancy of the statement recorded by a central excise officer from a director of the assessee company during a search and seizure operation. The central excise department relied on Section 9D of the Excise Act[5] to justify the relevancy of such statement. The Court also dealt with the justifiability of levy of penalty under Section 11 AC of the Excise Act as well as under Rule 25 of the Central Excise Rules, 2002 (“Excise Rules”) for the same offence. 

This comment discusses some aspects that have been dealt with by the Hon’ble High Court and some other facets which deserve a mention in light of the aforesaid constitutional guarantees. 

Relevancy of the statements 

A brief outline of the facts of the case is necessary. Central excise authorities visited the factory of Hi Tech Abrasives and carried out verification.[6] During the process, the officers found shortage of inputs as well as finished goods. They carried out investigation, where during the interrogation, a director of Hi Tech Abrasives gave a “confessional” statement[7]. The Adjudicating Authority relied on this confessional statement and confirmed the demand along with interest and penalty. The penalty was imposed under Section 11 AC of the Excise Act as well as under Rule 25 of the Excise Rules. The Commissioner (Appeals) allowed the appeal filed by Hi Tech Abrasives. The Central Excise Department (“Department”) appealed and the CESTAT allowed the Department’s appeal.^[8] Hi Tech Abrasives approached the High Court, which set aside the judgment of the CESTAT and restored the order of the Commissioner (Appeals). It remains to be seen if the Department will challenge the High Court’s judgment. 

The provision of law under which the statement of the director of Hi Tech Abrasives was recorded is not mentioned either in the judgment of CESTAT or the judgment of the High Court. CESTAT proceeded on the basis that the said statement was a confessional statement. It drew additional support from the fact that it was not retracted.[9] Before the High Court, the Department referred to Section 9D of the Excise Act to justify the relevancy of and reliance on the said statement. The Court rejected this contention. 

There is no provision under the Excise Act empowering the authorities to record any statement; much less any “confessional” statement except under Section 14 of the Excise Act. If any statement is recorded by the authorities without following the procedure prescribed under Section 14[10] of the Excise Act, the action is vitiated.^[11] Section 15A of the Excise Act vests the authorities with the power to call for information from an assessee. Given the existence of Section 15A, if any summons is issued under Section 14 of the Excise Act to the assessee or its employees to give a statement in order to use it against them such an action would be void as violating Article 20(3) of the Constitution of India. 

The Code of Criminal Procedure, 1973 provides elaborate guidelines for recording the confession statement of an accused.[12] The confession statement can be recorded only by a Magistrate. The Evidence Act, 1872[13] prescribes the extent of relevancy of the confessional statements recorded by the Magistrate and how such confessional statements must be proved. Recording any statement from any person by administrative authorities and relying on the same as a confessional statement for the purpose of levying penalty is a clear violation of Article 20(3) of the Constitution of India. In criminal cases, a confessional statement has to be recorded before a Judicial Magistrate before it can be relied on before another Judicial Magistrate. The law provides for several safeguards to ensure that the persons accused are not coerced or unfairly treated to give a confessional statement. The facts of Hi Tech Abrasives[14] show that statements were taken without any such safeguards; relied upon and multiple penalties imposed. A Constitutional Court had to step in and remedy the situation at the third appeal stage. 

The High Court, in our submission, rightly rejected the reference made by the Department to Section 9D. But such reference is also required to be condemned strongly. Such actions should be discouraged by treating them as misuse of powers. The facts of this case show that while alleging violation of the provisions of the Excise Act and Excise Rules by Hi Tech Abrasives, the Department has not acted in conformity with the provisions of the Excise Act and Excise Rules. 

In Noor Aga v. State of Punjab[15], the Supreme Court has categorically held that any statement recorded under Section 108 of the Customs Act must give way to Article 20(3) of the Constitution, where there is a conflict between the two. On facts, the court granted relief to the appellant and left the question as to whether a customs officer is a police officer open. Reconsideration of such a question is necessary.[16] The definitions of police, offence, prosecution, penalty, punishment, confession etc. need to be revisited. The rights and liberties of persons subjected to enquiries, who may be required to give statements and the constitutional guarantees that the State is prohibited from interfering with, would be crucial factors in such reconsideration. The perceived economic interest of the State and the resultant destruction of individual rights in order to protect such economic interest would also be an issue in such enquiry.  

Double Penalty 

In Hi Tech Abrasives[17]  in addition to the demand and interest, penalty under Section 11 AC and Rule 25 were also imposed. The investigation was carried out and show cause notice issued in the year 2003. The rate of interest prescribed for the period is 13%, which is 23.8% more than the PLR for the same period, being 10.5%.[18] The court is required to determine whether the rate of interest prescribed is compensatory or punitive. Section 11 AC of the Excise Act provides for imposition of penalty equal to the amount of duty involved. In addition, the Assessing Authority also imposed penalty under Rule 25 of the Excise Rules which provides for confiscation and penalty under certain circumstances. 

The courts have repeatedly held that the interest levied is compensatory in nature as the State was deprived of the duty allegedly involved. If the rate of interest prescribed is punitive, then such interest acts as punishment to ensure compliance.  If the excessive rate of interest is justified on the ground that it was for the purpose of ensuring compliance, it loses its character as compensatory and gets hit by Sections 73 and 74 of the Indian Contract Act, 1872. If the penal interest is justified for ensuring compliance, then the penalty under Section 11 AC would amount to double penalty. Imposition of double penalty is hit by Article 20(2) of the Constitution. When the imposition of penalty under Section 11 AC itself amounts to double jeopardy, imposition of further penalty under Rule 25 cannot be justified under any circumstances. The High Court has noted that these proceedings might also lead to prosecution. Thus, the same set of facts or the same act would result in four penalties all under the premise that it was to ensure compliance or deter non-compliance. We are yet to see the justification for a law that seeks to profit from non-compliance of a law in addition to penalising the wrong-doer. 

Concluding Thoughts 

In Hi Tech Abrasives[19], certain aspects are visible on the face of the judgment while certain other aspects are not seen. Firstly, there are enabling provisions in the Excise Act which provide for double penalty or at least that is how the Department has understood them. All these provisions are ultra vires as they offend Article 20(2) of the Constitution. Secondly, the Central Board of Excise and Customs (“Board”) issued a circular to authorities directing that penalties under Section 11 AC of the Excise Act and Rule 25 of the Excise Rules should not be imposed together. In this case, the authorities have acted in contravention of the binding circular of the Board.[20] All these actions amount to insubordination as well as contravention of the provisions of excise law. Thirdly, in addition to ignoring binding circulars, these authorities have also ignored the judgments holding that these circulars are binding on them. In Kamlakshi Finance[21], the Supreme Court has held that such acts of judicial indiscipline amount to contempt. 

These actions resulted in avoidable harassment to the assessee. In this case, the CESTAT and the High Court have dealt with the allegations made against the assessee. The follies of the Department have been considered only for the purpose of rejecting these allegations and no more. When constitutional guarantees of the tax giver are subjugated on account of mistakes by the state, then such actions and taxes become far more burdensome to the people than they are beneficial to the sovereign. [22]