Digipro Import & Export Pvt. Ltd vs. UOI (Delhi High Court)

(i) Today the Court has been shown the five undated cheques for sum of Rs.1.25 crores which were collected from the Petitioner during the visit to the premises of the Petitioner on 10th March, 2017. The Court specifically asked Mr. Harpreet Singh, learned counsel appearing for the Respondents, to show any provision in Central Excise Act 1944 (CE Act) or the Rules made thereunder or any circular or notification that permitted the officers of the Department to collect “undated cheques” constituting the differential duty liability and in particular authorising officers to collect such differential duty liability during the process of a visit/search or survey. Mr. Harpreet Singh could point out to no such provision or notification or circular. What was repeated before the Court was what is stated in the affidavit viz., that since the Petitioner expressed its difficulty in making the payment of the entire duty liability, it was at the Petitioner’s insistence that the officers agreed that no date would be put on the cheques.

(ii) The above affidavit makes it appear that officers of the Department who go on a visit/survey etc to detect evasion of CE duty, have the discretion to decide on the spot what the evaded duty amount is; to collect such duty by way of cheques; to decide again on the spot the terms on which such duty should be paid; to decide again on the spot whether to grant such duty evader the facility of postponement/late payment by ‘agreeing’ not to put any date on such cheques. It is indeed extraordinary that officers at the level of a Superintendent would have such vast powers of collecting duty on the spot without even a quantification of the duty amount preceded by a show cause notice (SCN). No attempt has been made to demonstrate that the above is a procedure known to law. It actually points to the opposite. And that is what makes it inexcusable.

(iii) At this stage, at the risk of some digression, it requires to be noticed that the Court has come across instances where a similar practice of ‘collecting’ purported differential duty/tax from dealers/assessees alleged to have evaded payment of statutory duties/taxes has come to the notice of the Court in the context of the proceedings under the Delhi Value Added Tax Act, 2004 (“DVAT Act”) as well as the Finance Act, 1994 in a detailed judgment in Capri Bathaid Private Limited v. Commissioner of Trade & Taxes 2016 (155) DRJ 526.

(iv) The Court rejects the attempts of the ADC to distinguish the above judgment in Capri Bathaid Private Limited v. Commissioner of Trade & Taxes 2016 (155) DRJ 526 on the ground that the search and seizure operation in the above case under the DVAT Act was without authorisation whereas in the present case it was duly authorised. The ADC is obviously missing the point. The ADC has been unable to point out any provision of law or any notification or any circular that permitted the officers who visited the Petitioner’s business premises to collect undated cheques which purportedly constitute the differential duty. He is further unable to explain how these undated cheques were kept with the Department and why indulgence was shown by the Department to the Petitioner when the Petitioner requested for some time to arrange for the duty amount.

(v) This illegal practice adopted by the Anti-Evasion Department of Central Excise requires a deeper investigation. The Court has every reason to believe that this has come to light only because the Petitioner has approached this Court. This practice is perhaps being adopted in a number of instances which are yet to come to the notice of the Court. There will be serious ramifications if this practice is allowed to continue unchecked. In the first place, it must be realised that the officers of the Anti Evasion Wing of the Central Excise Department have to function within the four corners of the law. They are bound by not only the CE Act and the Rules made thereunder but all the notifications/circulars/instructions issued from time to time including those issued by the CBEC. There is no scope at all to collect duty and that too without even quantifying the extent of duty evasion.

(vi) The most glaring feature here is that when the note dated 14th March, 2017 was put up before the ADC, his three instructions were to “1. Release the cheques early” (which is a tacit acceptance of the practice of collection of undated cheques); “2. To quantify the statutory liability” (which is a clear admission that till then the duty was not quantified) and “3. To again put up the file as soon as the cheques are realised” (which is a clear admission of the fact that it is not known when that is going to happen). It is telltale that even after the Court issued notice to the Department in the present petition, the above instructions of the ADC have not been complied with. The undated cheques remained with the Department. What loss this entailed to the Government Exchequer is a different issue altogether. Then there is the loss of interest on the said amount. At least two scenarios are possible when such unbridled power of ‘collection’ of duty, on the spot, is allowed to go unchecked. One is that since there is nothing written down anywhere, the unscrupulous officers who constitute the survey/search team can ‘negotiate’ an amount of evaded duty and also agree to waiver of interest and penalty. This is without quantification and without a SCN. The duty evader gets away with a lighter amount and this is prejudicial to the interest of the Revenue. The second scenario is where an Assessee refuses to comply with an illegal demand and under threat and coercion is compelled to issue cheques or pay cash which is supposed to constitute the differential duty. This is undoubtedly prejudicial to the Assessee and is harmful to public interest. It is not rule of law but anarchy unleashed by holders of public office. Neither is it an acceptable scenario in a system governed by the rule of law. It metamorphises into a system of rule by law and, worse still, by abuse of law. It has to be stopped.

(vii) The Court would like the matter to be carried out to its logical conclusion. The cheques brought to the Court are directed to be kept in a sealed cover with the Registrar General of this Court. The Court would like the Commissioner of Central Excise, Delhi-II to personally file an affidavit in this Court in light of the present order to explain to the Court what steps he proposes to take to immediately stop this illegal practice adopted by his officers of collecting undated cheques. This affidavit should be filed on or before 29th May, 2017. The Commissioner is also requested to remain personally present in Court on the next date to assist the Court with the queries that the Court may have.

(viii) The Commissioner of Central Excise, Delhi-II is directed to immediately institute an enquiry to ascertain which of the officers were involved in this illegal exercise. He will seek a proper explanation from them as to how they proceeded to collect undated cheques in the manner indicated above and that too without any authorisation to do so under the CE Act, the rules made thereunder or under any circular/notification etc. In his affidavit to be filed in pursuance to the present order, the Commissioner of Central Excise, Delhi-II will detail all the consequential steps that he has taken in this regard including fixing responsibility on such of those officials who have crossed the line.

(ix) The Court would also like a copy of this order to be sent forthwith to the Central Vigilance Commissioner (CVC) in view of the seriousness of the issue. The CVC will also be sent a copy of the judgment of this Court in Capri Bathaid Private Limited v. Commissioner of Trade & Taxes (supra). The CVC is probably aware that there is a pattern in several Departments of the Government which are entrusted with powers of collection of duties and taxes, and vested with search and seizure powers, resorting to such illegal practice of collecting cheques some time undated and some time even cash from persons and entities who may have evaded payment of taxes and duties. The extent of harm this can cause to the government exchequer and the harassment it can cause to innocent persons is immense. It symbolises what economists term as ‘rent seeking behaviour’ of public servants. It also raises serious issues about accountability and transparency of the functioning of these Departments. It is imperative for the CVC to issue clear guidelines.