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Report No. 47

15.71. It may be stated that the word 'offence' (as defined in section 40 of the Indian Penal Code) denotes a thing punishable under the Penal Code or under any special law or local law. Therefore, in the absence of any special provision regarding abetment in the special enactments, in view of section 40 of the Penal Code, the provisions of the Penal Code would apply.

15.72. Failure to pay tax-punishment suggested.-

We may now refer to another suggestion relevant to taxation laws. It has been suggested1 that for the offence of failure, wilfully or without reasonable cause, to pay taxes which are assessed, provision may be made for a minimum punishment by way of imprisonment of the defaulter. This provision will (it is suggested) apply to all direct taxes except estate duty (for which a special procedure for consultation with the States will have to be undertaken according to the provisions of the Constitution). We see no objection in principle to the suggestion. But we do think that the provision should be confined to cases where the failure is wilful and without reasonable cause2-3. Further, we do not think that a minimum period of imprisonment is desirable for this offence.

1. Suggestion of a Ministry of the Government of India.

2. Amendment to be drafted.

3. See also para. 15.76, infra.

15.73. In a Madras case1, the following observations relevant to section 23F, Foreign Exchange Regulation Act, were made:-

"Whether section 23F can stand as it is in the Statute, is not a question raised in this case. It may be that this provision which makes mere failure to ,pay a penalty an offence without mens rea, (is) bad: but we are not concerned with it in these petitions. The intention of the Legislature is clear, that a new offence has been introduced under section 23F probably considering the gravity of the offences committed in respect of foreign exchange. I am, therefore, of the view that the nature and the characteristic of proceedings provided under sections 23(1)(a) and 23D are civil proceedings, and that their nature and character were not changed by virtue of the introduction of section 23F of the Act and section 23(1)(a) does not become a criminal proceeding."

1. M.R. Pratap v. Director of Enforcement, 1969 Cr LI 1582 (1589) (Mad), para. 35.

15.74. We have examined the matter at some length. A proposal that default in payment of tax should be treated as a criminal offence, does not, in our opinion, hit any particular provisions of the Constitution.

15.75. We have considered the position with reference to Article 14 of the Constitution also. Though the proposed provision will put Government dues in a preferred position, the classification would appear to be reasonable, it being in the public interest to secure due payment of taxes. It is true that the legislation at issue in State of Rajasthan v. Mukan Chand, AIR 1964 SC 1633, while providing for the reduction of the Jagirdar's debts (in view of the inability of the Jagirdar to pay debts in full after resumption) had made the provisions inapplicable to certain categories of debts due from the Jagirdars including debts due to the government or local authority. The court struck down the provision with regard to the exclusion of certain debts, as based on a discrimination not supported by any intelligible point.

15.76. But the position here is different. Decisions upholding the application of a special procedure for the recovery of government dues are well-known1.

Prima facie, a provision by which non-payment of the State dues alone is made a criminal offence, could, we think, be defended, with some force in the present state of the case-law. The proposed provision should not, however, treat all defaulters alike. It would be difficult to justify the equal treatment of those who have deliberately refused to pay their tax-dues and those who, owing to misfortune, are unable to pay it. We are accordingly recommending a provision penalising deliberate defaulters.

1. Munna Lal v. Collector of Jhalawar, (1961) 2 SCR 962: AIR 1961 SC 808.

15.77. Customs Act, section 135.-

We may now take up the Customs Act. It has been state1 that section 135, Customs Act, which provides for punishment by the court for offences of fraudulent evasion of duty or of any prohibition, has two parts:-

(a) for offences relating to goods to which section 123 applies such as gold, watches, diamonds, the punishment provided in section 135(i) is a minimum of six months' imprisonment and a maximum of 5 years, and fine, when the value of such goods involved in the case exceeds Rupees one lakh. The Court has discretion to award a lesser sentence than the prescribed minimum, for special and adequate reasons to be recorded in writing;

(b) for other offences, the punishment provided in section 135(ii) is imprisonment extending upto two years or fine or both.

Now, it has been suggested that the section should be amended as follows:-

(i) For offences punishable under section 135(i), the maximum period of imprisonment be raised from 5 years to 7 years, and the minimum from 6 months to one year.

(ii) For offences punishable under section 135(ii), the maximum period of imprisonment be raised from two years to three years, and it may also be provided that the fine, if any, imposed by the Court shall be in addition to the sentence of imprisonment and not as an alternative to it. The Court will have the discretion not to award the sentence of imprisonment, if it considers proper.

(iii) In addition, it is proposed to provide for longer period of imprisonment for second and subsequent offences under the Customs Act on the following lines:-

When a person who is prosecuted for. an offence punishable under section 135(i) has been convicted earlier whether under section 135(i) or 135(ii), then the minimum sentence of imprisonment shall be for two years instead of one year.

When a person, who is prosecuted for an offence punishable under section 135(ii), has been convicted earlier whether under section 135(i) or section 135(h), there will be minimum sentence of imprisonment of 6 months. In both these cases, the Court will have the discretion to order imprisonment for a lesser period than the prescribed minimum, but only in special circumstances and for adequate reasons to be recorded.

1. Suggestion of a Ministry of the Government of India.

15.78. Amendment of section 135, Customs Act as to punishment.-

In accordance with our general recommendation1 for increase in the maximum punishment and for minimum imprisonment, it will be necessary to revise section 135 of the Customs Act.

That is, in our view, sufficient.

1. Para. 7.20, supra.

15.79. Customs Act-Suggestion about public censure.-

It has been suggested1 that section 156, Customs Act, should be amended to provide for making rules for giving publicity to the names and other particulars of persons who are guilty of contraventions of the provisions of the Customs Act or of any rule or order or directions made thereunder, be introduced. Such a provision would be on the same lines as in section 27(2)(c) of the Foreign Exchange Regulation Act, 1947. This provision (it is stated) will put beyond doubt the authority already exercised on executive basis, by which the field formations have been instructed to give publicity to offences, including the names and particulars of offenders.

1. Suggestion of a Ministry of the Government of India.

15.80. The Study Team on Leakage1 of Foreign Exchange has made the following suggestion:-

"9.17. In the fight against fiscal and economic offences, it is not enough that the methods and machinery for detection of such offences should be improved and the punishment for proved cases made deterrent; it is also necessary that there is greater social awareness of the evils of such crimes, and as much social stigma attaches to them as to other crimes against society. The names of the persons who are proved to be guilty of under-invoicing/over-invoicing should be widely publicised. In the sphere of foreign exchange, by virtue of the powers conferred under section 27 of the Foreign Exchange Regulation Act, the Government have published rules which are called the Foreign Exchange Regulation (Publication of Names) Rules, 1970.

These rules provide that the Director shall cause to be published in the official gazette the names and addresses and other particulars of persons of certain categories mentioned in the rules. These include persons who have been convicted by a court for contravention of any of the provisions specified in sub-section (1) of section 23, and also persons who have been adjudged by the Director for contravention of these provisions, provided the exchange involved is Rs. 10,000 or more, or there has been a previous adjudication by the Director or conviction by a court in respect of the same person.

In addition, the Government has been empowered to publish the names of any other persons who have been found guilty of any contraventions of the provisions of the Foreign Exchange Regulation Act or of any rule, order or direction made thereunder, if it is satisfied that it is necessary or expedient in the public interest so to do. We recommend that similarly rules should also be framed for publication of the names of offenders in customs cases relating to under-invoicing or over-invoicing in imports and exports. Further, we are also of the view that such persons should be debarred, for a specified period, from getting any facilities or concessions which are given to importers or exporters under certain schemes, such as those relating to export cash assistance, and import entitlements under the Registered Exporters scheme."

1. Report of the Study Team on Leakage of Foreign Exchange through Invoice Manipulation, Ministry of Finance, (1971), p. 99, para. 9.17.

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