Illegal Search and Arrest - DGCEI lambasted by Delhi High Court - Make Your Trip within framework of Law - Cost Imposed
BE you ever so high, the law is above you
The Delhi High Court yesterday proved the adage once again. "Yadayada hi dharmasya" - whenever and wherever there is a decline in Dharma, God appears - sometimes, in the form of judges of High Courts.
The Delhi High Court was dealing with the writ petitions filed by Make My Trip, IBIBO and EBIZ who were all victims of the high handedness of the premier investigative agency, the Directorate General of Central Excise Intelligence. The High Court orders are a sad commentary on the knowledge (rather the lack of it) of law and procedure.
A search was conducted in the premises of eBIZ on 19th January 2016 by the officers of the DGCEI and various documents/records were seized with a panchnama being prepared on the same date. Five summons dated 19th January 2016 were also issued to various officers of eBIZ including Mr. Pawan Malhan, MD by the Senior Intelligence Officer ('SIO'), DGCEI. It is stated that the SIO forced Mr. Pawan Malhan to record in his statement that he has evaded Rs.17 crores service tax. When Mr. Malhan refused to do so, he was arrested late in the evening at 7:40 pm on 20th January 2016 under Section 91 of the FA and sent to judicial custody. It was alleged that eBIZ had committed an offence under Section 89 (1) (ii) of the FA. The bail application of Mr. Malhan dated 21st January 2016 was rejected by the learned Metropolitan Magistrate (MM) by an order dated 25th January 2016. While Mr. Malhan was still in custody, two more summons were issued to two officers of eBIZ by the DGCEI on 21st January 2016.
The story is similar in the case of Make My Trip and IBIBO. Some extracts from the High Court Orders will be of interest.
What do they keep secretly in sealed covers? It could be a newspaper report! The DGCEI produced before the Court a sealed cover containing 'information' about the case and the court was requested to not open the cover in the court as even the mere sight of the papers in the file might give an indication to the counsel for the Petitioner the nature of the documents contained therein and might reveal the identity of the informer who gave the information.The Court on opening the packet found that there was absolutely nothing in the said documents. The Court found nothing in the said information which was not already part of the record of the case. In any event, it was not information which was not already available with the ST Department.
A summoned day - What happens if you are summoned by Intelligence Officers? Consequent to the letter dated 8th April 2016 of the DGCEI requiring the MD of eBIZ to submit documents requested therein, Mr. Rajveer Singh along with the Mr. Hitik Malhan, visited the office of the DGCEI on 18th April 2016 carrying the documents in original in 123 cartons loaded in a truck. It is stated that at the reception of the DGCEI office, the deponent's as well as Mr. Malhan's mobile phones were seized by the officer present at the reception citing rules and regulations that had to be followed by anyone entering the office of the DGCEI. It is stated that one Mr. Ravindra Tyagi, Intelligence Officer was directed to take possession of the documents. However, Mr. Tyagi on reaching the truck was stated to have used abusive language and made the advocate and the client wait till 4:30 p.m. and thereafter stated that they would not be taking possession of the documents since they were irrelevant. It is stated that some wrong statements were recorded in the panchnama and therefore the advocate and his client requested for a change to be made. It is stated that Mr. Tyagi was again abusive at that stage. With the intervention of Mr. Shivendu Pandey, SIO, the officer, Mr. Tyagi, was made to apologise and thereafter the panchnama was signed after necessary modification.
Illegal Search by DGCEI: The officers of the DGCEI, without referring to the requirements of the FA (Finance Act), entered the premises and made the Assessee agree to pay the alleged service tax dues without even an SCN. This is in violation of Section 82 of the FA and is also unconstitutional since it impinges on the life and liberty of the employees of the entities involved. The Court, therefore, finds that the search of the premises of eBIZ was contrary to law and, therefore, legally unsustainable.
Voluntary Payment? when the MD of a company is in judicial custody, the offer made to pay the alleged arrears of service tax dues of such company even without an SCN can hardly be characterised as 'voluntary'. The loss of liberty, and more disconcertingly, the loss of reputation, is bound to compel even the most rational person to succumb to the extreme pressure that such circumstance subjects him to. The Court is satisfied that in the present case the payment of Rs. 17 crores by eBIZ was not 'voluntary' but under coercion and duress and is required to be returned to eBIZ by the DGCEI forthwith.
Arrest: The scheme of the provisions of the Finance Act 1994 (FA), does not permit the DGCEI or for that matter the Service Tax Department (ST Department) to by-pass the procedure as set out in Section 73A (3) and (4) of the FA before going ahead with the arrest of a person under Sections 90 and 91 of the FA. The power of arrest is to be used with great circumspection and not casually. It is not to be straightway presumed by the DGCEI, without following the procedure under Section 73A (3) and (4) of the FA, that a person has collected service tax and retained such amount without depositing it to the credit of the Central Government.
Where an assessee has been regularly filing service tax returns which have been accepted by the ST Department or which in any event have been examined by it, as in the case of the two Petitioners, without commencement of the process of adjudication of penalty under Section 83 A of the FA, another agency like the DGCEI cannot without an SCN or enquiry straightway go ahead to make an arrest merely on the suspicion of evasion of service tax or failure to deposit service tax that has been collected.
The decision to arrest a person must not be taken on whimsical grounds; it must be based on 'credible material'.
In the present case, without even an SCN being issued and without there being any determination of the amount of service tax arrears, the resort to the extreme coercive measure of arrest followed by detention of Mr. Malhan was impermissible in law.
Guidance for Future: The Court cannot decline to exercise its jurisdiction and must clarify the legal position so that future errors and exercise of such powers of the officers of the DGCEI or, as the case may be, the ST Department can be prevented.
Damages/Compensation: the right of the Petitioners and any of their officials aggrieved by the actions of the officials of the DGCEI to institute appropriate proceedings in accordance with law to recover damages and/or compensation is reserved.
Cost imposed: Cost of Rs. 1 lakh is imposed which will be paid by DGCEI to each petitioner.
Amounts paid willingly to be refunded: The Court has directed DGCEI to refund the amounts which the assessees were coerced into paying. But can the DGCEI really make the refunds. Do they have easy access to the Consolidated Fund of India?
This judgement should be made part of the syllabus in NACEN and every officer of the Department should be made to read it. They should be made to read it again before going for a raid or arresting an assessee.
The story will not end here - the aggrieved DGCEI is sure to take the case to the Supreme Court.
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