Loopholes in Administration of Prosecution & Penalties in Central Excise & Service Tax

Summary of Recommendations by Comptroller and Auditor General  of India on Administration of  Prosecution and Penalties in   Central Excise and Service Tax  vide Report No. 29 of 2014 (Performance Audit)

• Ministry may ensure that all long‐pending prosecution cases are reviewed at periodic intervals by Chief Commissioners at field level to ensure adequacy of action taken to satisfy the Court about existence of sufficient grounds for permitting withdrawal of complaint where warranted.
• Board may strengthen its monitoring mechanism at the Chief Commissionerate level through the MIS/Monthly Technical Reports it receives from its various field formations.
• The Ministry may consider discussing the pendency of prosecutions during monthly Monitoring Committee meetings to be convened by As on date, such meetings are being convened regularly at all Commissionerates to discuss internal audit findings.
• The Board may consider having a specially trained group of personnel to handle issues relating to prosecution cases and courts to have an efficient monitoring over its cases and its revenue.

• The Board needs to examine critically the reasons as to why the adjudicating authorities are not explicitly concluding whether a case is fit for prosecution or not and take corrective action accordingly.
• The Board may consider issuing comprehensive instructions on the approvals issued for prosecution and its follow up by the subordinate field formations in the case of both DGCEI and the Chief Commissioners of Central Excise.

Detailed Analysis – ‘Administration of Prosecution and Penalties in Central Excise and Service Tax’ 

1.  Introduction

Central Excise and Service Tax laws provide stiff punishments of imprisonment and fines for specific violations. Such an imposition is possible only by a Court of Law. These are independent of the penalties and confiscation that can be imposed by Excise authorities through departmental adjudication.

1.1. Prosecution

Prosecution is the commencement of a criminal proceeding, where the Government exhibits before a Court of Law the formal charges against a person accused of an offense and seeks to impose on such person a suitable punishment and penalty. Thus, in Central Excise, prosecution sets in motion a legal process by which Government seeks to ensure punishment of companies and persons concerned with evasion of Central Excise duty.

The Prosecution Cell at the Commissionerate headquarters is responsible for the entire prosecution proceedings as and when sanctioned by the Commissioner against any Proprietor, Firm, Company or Individual who are found guilty of an offence punishable with imprisonment in terms of Section 9 of the Central Excise Act, 1944. The responsibility of this Cell starts from arresting a person found guilty, remanding him to judicial custody, to arrange for a speedy and successful trial before the competent Magisterial Court.

1.2   Penalty

The Central Excise Act and the Finance Act provide for penalties and punishments for their violation. Penalties covered under the performance audit encompass the criminal punishment of imprisonment and fine which can be granted only by a Criminal Court, after prosecution.

1.3      Legal Provisions

1.3.1    Punishable offences under the Central Excise Act, 1944

Section 9 of the Central Excise Act, 1944 defines commission of the following offences as punishable:‐

1. contravening any of the provisions of Section 8 or of a rule made under specific clauses sub‐section (2) of Section 37;
2. evading payment of duty under the Act;
3. removing excisable goods or concerning himself with such removal in contravention to the Act and Rules;
4. acquiring or in any way concerning himself with transporting, depositing, concealing, selling, purchasing or otherwise dealing with excisable goods where he knows or has reason to believe that the goods are liable to confiscation under the Act and Rules;
5. contravening any provision in relation to Cenvat Credit under the Act and Rules;
6. failure to supply information or knowingly supplying false information;
7.  attempting to commit or abetting commission of an offence relating to evasion of duty or transit of goods or restriction on storage of goods or non‐registration of a unit.

1.3.2 Punishable offences under the Finance Act, 1994

Section 89 of the Finance Act, 1994 defines the following offences as punishable in relation to Service Tax:

1. knowingly evade payment of service tax;
2. availing and utilising Cenvat credit without actual receipt of taxable service or excisable goods either fully or partially;
3. maintaining false books of accounts, failure to supply any information or supplying false information;
4. collecting an amount as service tax but failure to deposit it for a period of more than six months.

1.3.3 Offences by a company/firm

The punishable offences by a company or firm are provided under Section 9AA of the Central Excise Act. This Section provides that:‐

• Where an offence has been committed by a company, every person who, at the time the offence was committed was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly unless he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence.
• Where an offence has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.

Section 9AA is a deeming provision. If two vital ingredients are satisfied i.e. ‘an offence’ has been committed and the accused was ‘in charge of’ the company, then he is deemed to be guilty. The proviso to the sub-section (1) enables a person in charge to prove his innocence. Thus, the prosecution need not prove that the contravention was done intentionally and deliberately by the accused. It would be sufficient for the prosecution to establish that ‘an offence’ has been committed and the accused is the ‘person-in charge’ of the day-to-day functioning of the company.

1.3.4 Cognizance of an offence

Offences under Section 9(1)(b) {evading payment of excise duty} and Section 9(1)(bbbb) {violation of Cenvat Credit Rules} of the Central Excise Act are cognizable and non-bailable, if the duty exceeds fifty lakh (with effect from 10 May 2013). Other offences are non-cognizable.

Except for the cognizable offence of collecting Service Tax but not depositing it with Government for more than six months under Section 90(1) of Finance Act, 1994 other offences specified in Section 89 are non-cognizable.

1.3.5 Compounding of offences

Section 9A(2) of Central Excise Act, 1944 provides the Chief Commissioner of Central Excise to compound any offence under the Act. An amendment to Section 83 of the Finance Act, 1994 with effect from 8 April 2011 provides for the compounding of offences relating to Service Tax. ‘Compound’ means to settle amicably. Compounding is essentially a compromise between the prosecuting authority and the prosecuted entity. The prosecuted person/entity agrees to pay the composition amount through this procedurein lieu of dropping prosecution.

Compounding can be either before or after the institution of prosecution procedures. If the case is pending, then the Court is informed about the compromise arrived and requested not to proceed with the case.

1.3.6 When offences cannot be compounded

In the following cases, compounding is not permissible: -

a)      If a person has been allowed to compound offence once in respect of offences under Section 9(1)(a),(b),(bb),(bbb),(bbbb) or (c) of Central Excise Act, 1944.

b)      In case of Excise offences under Narcotics Drugs and Psychotropic Substances Act, 1985.

c)      If a person was allowed to compound case once in respect of any offence for goods of value exceeding rupee one crore.

d)      If a person was convicted by the Court under Central Excise Act, 1944 on or after 30 December 2005.

Central Excise (Compounding of Offences) Rules, 2005 and Service Tax (Compounding of Offences) Rules, 2012 prescribe the respective compounding procedures.

2 : Administration of Prosecution and Penalties

The Board in its Circular dated 9 August 1990 issued instructions to its field formations with reference to the launching of prosecution cases and the procedures to be followed.

2.1        Launching of Prosecution

The provisions relating to prosecution in the Central Excise Act are stringent. Further, the Board issues guidelines from time to time to regulate prosecution related practices and procedures. These guidelines are issued to ensure that the limited manpower, time and resources of the Department are utilised efficiently. The main guidelines are contained in Circular No.15/90‐CX.6 dated 9 August 1990. They, inter alia, state that:‐

a) Launching of prosecution shall be with the final approval of the Chief Commissioner after the Commissioner in the light of the guidelines has carefully examined the case.

b) Prosecution should not be launched in cases of technical nature, or where the additional claim of duty is based totally on a difference of interpretation of law. Before launching any prosecution, it is necessary that the department should have evidence to prove that the guilty had knowledge of the offence, or had fraudulent intention to commit the offence.

c) The monetary limit for launching prosecution has been enhanced to ` 25 lakh by the Board, vide its letter of F. No. 208/31/97‐CX.6 dated 12 December 1997. In the case of habitual offenders, the total amount of duty involved in various offences may be taken into account while deciding whether prosecution is called for. If there is evidence existing to show mala fide intentions and systematic engagement of a person or company involving evasion over a period of time, prosecution should be considered irrespective of the monetary limit.

d) One of the important considerations for deciding whether prosecution should be launched is the availability of adequate evidence. Prosecution should be launched against top management when there is adequate evidence/material to show their involvement in the offence.

e)   Persons liable for prosecution should not normally be arrested unless their immediate arrest is necessary.

f) Prosecution should normally be launched immediately after adjudication has been completed. However, if the party deliberately delays completion of adjudication proceedings, prosecution may be launched even during the pendency of the adjudication proceedings if it is apprehended that undue delay would weaken the department’s case.

g) Prosecution should not be kept in abeyance on the ground that the party has gone in appeal/revision. However, in order to avoid delays, the Commissioner should indicate at the time of passing the adjudication order itself whether he considers the case to be fit for prosecution so that it should be further processed for being sent to the Chief Commissioner for sanction.

2.2  Procedure for Prosecution

Procedure envisaged for prosecution in the Circular dated 9 August 1990 is as follows:‐

a)      In all such cases where the Commissioner of Central Excise in charge of judicial work is satisfied that prosecution should be launched, an investigation report for the purpose should be carefully prepared and signed by an Assistant Commissioner, endorsed by the Commissioner and forwarded to the Chief Commissioner for decision within one month of the adjudication of the case. A criminal complaint in a Court of Law should be filed only after the sanction of the jurisdictional Chief Commissioner has been obtained.

b)      Prosecution, once launched, should be vigorously followed. The Commissioner of Central Excise, in‐charge of judicial work should monitor cases of prosecution at monthly intervals and take corrective action wherever necessary, to ensure that the progress of the prosecution is satisfactory. In large cities, where a number of Central Excise Divisions are located at the same place, all the prosecution cases are to be centralised in one office to facilitate the officers to deal with the cases.

c)      To ensure the deterrent effect of prosecution, department must secure convictions with utmost speed through regular monitoring of the progress of the prosecution.

d)      Ensure avoiding delays in the court proceedings due to non‐ availability of the records required for production before the Magistrate. To do this, whenever a case is taken up for seeking the approval of the Chief Commissioner for launching prosecution, the concerned officer shall immediately take charge of all documents, statements and other exhibits that would be required to be produced before a Court. The list of exhibits etc. should be finalised in consultation with the Public Prosecutor at the time of drafting of the complaint. No time should be lost in ensuring that all exhibits are kept in safe custody.

e)      Section 9 of the Central Excise Act provides that imprisonment for a term which may extend to three years or a fine or both may be imposed on a person convicted for offences under this Section. Wherever Courts did not impose prison sentences despite statutory provisions or had let off the accused with light punishments, the Commissioners responsible for prosecution should study such judgements and shall examine filing of appeal under the law within the stipulated time with reference to the evidence on record. This is equally applicable to cases in which a Court orders acquittal without recording sufficient reasons in spite of adequate evidence provided to the Court.

f)       A Court of Law has the power to publish name, place of business etc. of a person convicted under the Act but exercises it sparingly. Department should make a prayer to the Court to invoke this Section in respect of all persons convicted under the Act.

g)       A Prosecution Register may be maintained in the Prosecution Cell of the Commissionerate Headquarters.

In cases where prosecution is to be launched and there is one Adjudication Officer for a number of factories located under the jurisdiction of different Commissionerates, the Circular No. 35/35/94-CX dated 29 April 1994 is to be followed.

2.4  Age‐wise analysis

A compilation of pending prosecution cases with reference to age‐wise analysis from the records made available from the selected Commissionerates revealed the following:‐

(Amount in lakh of Rupees)

Sl. No.	Age‐wise pendency of prosecution cases as on 31 December 2013	No. of cases	Amount
1.	Cases more than 30 years old	11	1.82
2.	Cases more than 20 and less than 30 years old	141	1,127.25
3.	Cases more than 10 and less than 20 years old	91	7,579.45
4.	Cases less than 10 years old	182	1,02,790.81
5.	Pendency period not known	43	3,150.03
	Total	468	1,14,649.36

Source: Figures furnished by Commissionerates of Central Excise and Service Tax.

Audit notes that the long pendency was notwithstanding the fact that statistical details of prosecution cases are collected on monthly basis by Board/Directorate of Legal Affairs from its field formations through monthly technical report (MTR).

Despite specific instructions of the Board (vide Circular dated 9 August 1990) to DG (Inspection) to check the procedure and follow up of pending prosecution cases during inspection of Commissionerates, it appears that this item was not given adequate attention as thrust on this point was lacking in most of its reports checked by audit.

Even after introduction of the provision to withdraw pending prosecution cases vide Board’s Circular dated 4 April 1994, it appears that periodic review exercise was not given due attention.

The Ministry’s reply is awaited in respect of the specific instances raised (August 2014).

Audit recommended review of all pending prosecution cases where the delay is more than 10 years so that cases where prosecution might still have the intended deterrent effect could be focussed upon.

The Ministry replied (August 2014) that Circular dated 4 April 1994 gives clear guidelines on the subject.

Audit noted that long pendency of prosecution cases involves substantial expenditure for the Government. During the Exit Conference on 14 August 2014, Member (Central Excise) acknowledged that there were several prosecution cases where there is significant delay. However, once a prosecution case has been filed in a Court of Law in respect of any offence, the State has become a party to the proceedings and only the Court has the authority to bring the same to a close, unlike in a civil suit. Circular of 1994 depicts the position in this regard that only so long as the case has not been filed, the department has the authority to take decisions concerning proceeding with the same or otherwise. The matter regarding withdrawal of prosecution cases had on earlier occasion been taken up with the Department of Legal Affairs, Ministry of Law and Justice and the advice received was along the same lines. However, as recently as in 2012, the Hon’ble Supreme Court had held that when an adjudication falls, criminal proceeding also would not lie. CBEC is examining whether to take up the issue once again with the Ministry of Law and Justice, citing this decision.

However, Audit reiterates the need to strengthen monitoring of pendency of prosecution cases as long and unjustifiable delays would involve substantial expenditure for the Government. One of the intentions behind the purpose of introduction of provisions relating to prosecution, viz. to deter other potential offenders would also be defeated, if unwarranted delays are allowed to occur unchecked.

Audit also noted that though the discretion to allow withdrawal of prosecution ultimately rests with the Court, it is the department’s responsibility to ensure periodic monitoring of the status of long‐pending cases so as to ensure that cases which in the opinion of the department merit withdrawal are being brought to the notice of the Court alongwith all supporting facts at the proper time in terms of Sections 257 and 321 of Cr PC 1973. Audit also considers that the departmental machinery should be clear as to the role of respective authorities as regards such monitoring. Audit agrees with the view expressed by DG (Inspection) during the exit meeting that though DG (Inspection) in course of fulfilment of its inspection duties, may come to possess data on prosecution cases, the office, not being entrusted with line functions, would not be the appropriate functionary to monitor the pursuance of effective and efficient follow‐up of prosecution cases.

Recommendation No.1

1. Ministry may ensure that all long‐pending prosecution cases are reviewed at periodic intervals by Chief Commissioners at field level to ensure adequacy of action taken to satisfy the court about existence of sufficient grounds for permitting withdrawal of complaint where warranted.
2. Responsibility for monitoring of aspects including periodicity, at all India level is to be prescribed with clear demarcation of roles and
3. Any mechanism for monitoring should also involve tracking the expenditure details in respect of prosecution cases.

2.5  Prosecution in cases involving meagre revenue

As per Board’s letter dated 26 July 1980, a monetary limit of Rs.  10,000 was prescribed for launching of prosecution in order to avoid prosecution in minor cases. This limit was revised to rupee one lakh vide Circular dated 9 August 1990. Further, with effect from 4 April 1996, the limit was revised to Rs. 5 lakh. The monetary limit for prosecution is Rs. 25 lakh with effect from 12 December 1997. However, in the case of habitual offenders the above limit is not applicable.

2.6  Delay in submission of Investigation report

As per para 3(i) of the Board’s Circular dated 9 August 1990, in all cases where the Commissioner of Central Excise in charge of judicial work is satisfied that prosecution should be launched, a proposal/investigation report for the purpose of launching prosecution should be forwarded to the Chief Commissioner for decision within one month of the adjudication.

Recommendation No.2

Board may strengthen its monitoring mechanism at the Chief Commissionerate level through the MIS/Monthly Technical Reports it receives from its various field formations.

The Board has accepted the recommendation.

2.7  Approval by sanctioning authority

As per para 2(i) of Board’s Circular dated 9 August 1990, prosecution should be launched with the final approval of the Chief Commissioner after the case has been carefully examined by the Commissioner in the light of the guidelines. The sanction accorded to launch a prosecution may appear to be an administrative act. However, as decided by CEGAT in UOI vs. Greaves Ltd.², without prior approval of the Chief Commissioner, prosecution cannot continue and the accused has to be acquitted.

As per Board’s direction, the prosecution should not be delayed or kept in abeyance for confirmation of demands in appeal. Hence, the decision of non‐ initiation of prosecution until the decision on appeal is not in consonance with the Board’s order.

The Ministry’s reply is awaited (August 2014).

2.8   Delay in filing complaint

As per para 3 (i) of Board’s Circular dated 9 August 1990, a criminal complaint in a Court of Law should be filed only after the sanction of the Chief Commissioner has been obtained for prosecution. Further, para No. 2.8 of the Chapter 17 of the Central Board of Excise and Customs Manual of Supplementary Instructions, 2005 stipulates that once prosecution is sanctioned, the complaint should be filed in Court without any considerable delay.

Audit recommended that the Board should conduct detailed analysis of these cases and put in place a mechanism at the highest level to monitor that complaints are filed within the shortest time possible after obtaining the sanction from the competent authority.

Accepting the recommendation, the Ministry informed that Chief Commissioners would be directed to ensure filing of sanctioned prosecutions in the shortest possible time.

Member (Central Excise) acknowledged during the Exit Conference that as regards long delays in matters where filing in Court is yet to take place though sanction has been obtained a long time ago, there is need for a mechanism to monitor the reasons why the case is yet to be filed. Noting that the standard of proof required for offences is much higher compared to that required for civil suits, Member stated that fixing of a time frame may not be possible.

Audit observes that there is need for introduction of a provision to the effect that if a case is not filed within a period to be fixed by the department, sanction would be treated as withdrawn. Such items would also need to be reported in the proposed Management Information System under consideration of the Board. Provision may also be incorporated to the effect that in case the need for filing of complaint is subsequently felt necessary, fresh sanction from CBEC should be obtained. The need for such prescription of timeframe is essential also so as to protect the rights of taxpayers, notwithstanding the fact that they may be offenders. Hence, we reiterate that a suitable time limit may be specified and complied with.

2.9      Review of prosecution cases

As per para 3 (ii) of Board Circular dated 9 August 1990, prosecution once launched should be vigorously followed. The Commissioner of Central Excise in‐charge of judicial work should monitor the cases of prosecution at monthly intervals and take corrective action wherever necessary to ensure that the progress of prosecution is satisfactory.

Recommendation No. 3

The Ministry may consider discussing the pendency of prosecutions during monthly Monitoring Committee meetings to be convened by Commissioners. As on date, such meetings are being convened regularly at all Commissionerates to discuss internal audit findings.

2.10 Lack of proper attention by the department in respect of prosecution cases

As per para 3(iv) of Board’s Circular dated 9 August 1990, as a matter of practice, whenever a case is taken up seeking the approval of the Chief Commissioner for launching prosecution, the concerned officers should immediately take charge of all the documents, statements and other exhibits that would be required to be produced before a Court. The list of exhibits etc. should be finalised in consultation with the Public Prosecutor at the time of drafting the complaint. No time should be lost in ensuring that all exhibits are kept in safe custody.

Recommendation No.4

The Board should fix the responsibility on those who are responsible for not following the prescribed instructions issued by the Board in respect of prosecution cases.

The Ministry replied (August 2014) that Chief Commissioners will be directed to ensure that Board’s Circulars are followed.

Recommendation No.5

The Board may consider having a specially trained group of personnel to handle issues relating to prosecution cases and courts to have an efficient monitoring over its cases and its revenue.

The Ministry replied (August 2014) that NACEN would be requested to organise training courses on Prosecution.

Audit notes that conduct of training courses by NACEN has to be followed by ensuring that the officers trained are posted in the Prosecution Cell or in the alterative, the officers when posted may be given training within a specified period of, say three months.

2.11 Commissionerates with low number of prosecution cases

We observed that in many cases fitting the norms, the adjudicating authorities did not recommend prosecution. There was nothing on record to indicate why prosecution had not been recommended.

We observed that in hardly any instance, the adjudication authority specifically noted whether the case is fit for prosecution or not at the conclusion of the adjudication. It is also pertinent to mention here that the Board’s Circular dated 9 August 1990 clearly states that prosecution may be launched even during pendency of the adjudication proceedings if it is apprehended that undue delay would weaken the department’s case. However, Audit observed that the department did not initiate the prosecution before finalisation of the adjudication process in any of the cases.

The Ministry’s response in respect of the individual cases pointed out is awaited (August 2014).

Recommendation No.6

The Board needs to examine critically the reasons as to why the adjudicating authorities are not explicitly concluding whether a case is fit for prosecution or not and take corrective steps accordingly.

Accepting the recommendation, the Ministry replied (August 2014) that a Circular would be issued to reiterate that every adjudicating authority needs to record the findings on prosecution within 30 days of passing the adjudication order. It shall be the responsibility of the Chief Commissioners, reviewing the Orders‐in‐Original, to ensure that the adjudicating authority has recorded its recommendations on the possibility of prosecution.

2.12 Compounding of prosecution cases

As per para 4 of CBEC Circular dated 27 December 2007, the assessee was to be persuaded to opt for compounding route in greater number of cases. Adequate publicity was also to be given about reduction of compounding amount, in order to make the scheme more popular as to reduce the cases pending in the Court. Further, in order to make best use of compounding of offence scheme, all persons against whom prosecution is initiated or contemplated, should be informed separately in writing, the offer of compounding.

Audit observed that in 19 cases in Bolpur (6), Chandigarh I (4) Delhi I (2), Kolkata I (1), III (1), V (2), and Ludhiana (3) Commissionerates, against whom prosecution was initiated, none was informed separately in writing about the offer of compounding.

The Ministry’s response is awaited (August 2014).

2.13 Delay in disposing the applications of compounding

As per Circular dated 30 December 2005, ‘all the applications for compounding of offences must be disposed of within 6 months’. Out of six compounding cases seen in Chief Commissionerate’s office (Delhi), Audit observed that there was a delay ranging from three to twenty five months in the disposal of application of compounding in four cases.

When we pointed this out, the department stated (February 2014) that rules regarding compounding of offences in central excise matters are enshrined under Central Excise (Compounding of Offences) Rules, 2005 read with Circular No.54/2005‐Cus dated 30 December 2005. On the bare perusal of the said Rules, it could be discerned that there is no mandatory stipulation that compounding of offences is to be disposed of within six months from the date of receipt of such applications. However, in the interest of Revenue and the Trade, the referred Circular was issued for necessary guidance and advice to the field formation for the effective implementation of the said Rules. Hence, the said time limit is invariably advisory in nature. Nevertheless, in all the cases, it is evident that the affected parties sought compounding of offences under the said Rules and the same was provided as per the Rules. The Commissionerate added that the issue raised pertained to the then Competent Authorities, hence the specific reasons cannot be given on their behalf. Since the issues in all the cases relating to compounding of offences attained finality, hence, the issue of time limit is no longer a matter of concern.

However, Audit reiterates its opinion that strict compliance with the departmental circular on compounding of offences is to be ensured. Condoning delay of twenty‐five months in disposing an application for compounding by citing the circular’s ‘advisory’ nature defeats the purpose behind issue of such instructions.

The Ministry’s response is awaited (August 2014).

2.14 Monitoring by Director General (Inspection)

As per Board’s Circular dated 9 August 1990, Director General (Inspection) and Principal Collector, who would be inspecting the offices of Collectors should specially check the points contained in the Circular at the time of conducting inspection.

2.14.1 On scrutiny of available DG (Inspection) Reports, Audit observed that in 24 Commissionerates³ no remarks were found pertaining to prosecution cases which would confirm compliance with the above circular.

2.14.2 In Chandigarh I Commissionerate, it was noticed that four consecutive inspections by DG (Inspection) did not contain any observation in respect of prosecution cases. In Ludhiana and Delhi III Gurgaon Commissionerates, only statistical data was shown in DG (Inspection) report without commenting in detail as per above circular.

Thus, it appears that DG (Inspection) while doing the inspection of Commissionerates needs to give more stress on prosecution related matters during its field Inspections.

The Ministry responded vide reply dated 4 August 2014 that DG (Inspection) is doing the needful.

However, based on Audit findings, the recommendation is reiterated.

Recommendation No. 7

DGCEI may ensure that reasons for pendency and non‐compliance of pending prosecution cases are looked into during field Inspections apart from recording of statistical details.

2.15 Prayer to the Court to invoke Section 9B

Section 9B of the Central Excise Act, 1944 grants power to publish name, place of business etc. of person convicted under the Act by a Court of Law. As per para 3 (vii) of Circular dated 9 August 1990 in all cases, the department, should make a prayer to the Court to invoke this Section in respect of all persons who are convicted under the Act.

In Chennai IV Commissionerate, conviction was ordered in a prosecution case. Details regarding invocation of 9B provision is not available in the relevant prosecution file. When we pointed this out, the department replied (April 2014) that the omission is noted for future guidance.

In Tirunelveli Commissionerate, conviction was ordered in four cases. Details regarding invocation of Section 9B provision is not available in the file.

The Ministry’s response in respect of the individual cases pointed out is awaited (August 2014).

2.16 Identification of habitual offenders

As per para 2 (iii) of Circular dated 9 August 1990 in the case of habitual offenders, the total amount of duty involved in various offences may be taken into account while deciding whether prosecution is called for. Moreover, if there is evidence to show that the person or the company has been systematically engaged in evasion over a period of time and evidence to prove malafide is available, prosecution should be considered irrespective of the monetary limit.

We enquired from the department concerning the methodology adopted to identify habitual offenders. Hyderabad I, II and Surat I Commissionerates intimated (January‐March 2014) that no separate exercise/mechanism exists in the department. Bengaluru II and Kolhapur Commissionerates stated (January and February 2014) that there were no habitual offenders under their jurisdiction. The reply is silent regarding the method adopted for determining whether an offender fell under the category of habitual offender or not. Ahmedabad I, Rajkot and Surat II Commissionerates replied (between December 2013 and February 2014) that the offence cases were being booked by the Preventive Wing of the department on the basis of intelligence gathered by them. Other than this, the department had carried out no other exercise. Jaipur I Commissionerate has replied that while investigating cases,the fact regarding habitual offender is also looked into and incorporated in the investigation report. Mangalore Commissionerate replied that the habitual offenders were identified based on the details available in the Offence Register (335J) maintained in the Preventive Section/SIV cell. Chennai II Commissionerate stated (January 2014) that prosecution is not initiated on habitual offenders, but only on those who indulge in duty evasion of Rs.  25 lakh and more. Chennai IV Commissionerate stated (February 2014) that identification of the habitual offenders is done while passing the orders in Adjudication based of the findings and previous offences, if any. Mumbai I ST Commissionerate stated (March 2014) that each case of evasion is separately considered at the time of enquiry. Eighteen Commissionerates⁴ have not responded to audit query.

From the above it is clear that Commissionerates are not following any uniform method to identify the habitual offenders due to absence of specific directions from the Board resulting in a probability of escaping prosecution by the habitual offender.

The Ministry’s response in respect of the individual cases pointed out is awaited (August 2014).

Recommendation No.8

Board may ensure habitual offenders do not escape prosecution owing to inadequacies in monitoring by departmental authorities.

The Ministry informed (August 2014) that DG (Inspection) would incorporate the requirement in the MIS Report.

2.17 Maintenance and updating of Prosecution register

As per para 3(viii) of Circular dated 9 August 1990, a Prosecution Register is required to be maintained in the prescribed format in the Prosecution Cell of the Commissionerate Headquarters.

Audit recommended that Board may instruct its field formations to maintain the Prosecution Register in the prescribed format as mentioned in the Circular dated 9 August 1990.

Accepting the recommendation, the Ministry informed (August 2014) that directions would be given that Commissioners should periodically inspect the Prosecution Register.

2.18 Withdrawal of prosecution

As per Board’s Circular dated 4 April 1994, provided that where a decision has been taken by the concerned Principal Collector to prosecute an entity or a corporate body but the complaint has not been filed in Court and in the interim period facts come to notice of the Principal Collector which are against initiating prosecution, in such cases Principal Collector may recommend to the Board for considering the withdrawal of prosecution. In cases where a complaint has already been filed in the Court, it will be upto the Court to decide whether or not to pursue prosecution in terms of Sections 257 and 321 of Code of Criminal Procedure, 1973. If the order for withdrawal has been given by a Court, the prosecution can be withdrawn by the Assistant Collector after getting a formal order from the Principal Collector. Section 321 in the Code of Criminal Procedure, 1973 provides for withdrawal from prosecution. The Prosecutor in charge of a case may, with the consent of the Court, at any time before the judgment is pronounced, withdraw from the prosecution of any person either generally or in respect of any one or more of the offences for which he was being tried.

When Audit pointed out the need for review of prosecution cases periodically to consider possibility of withdrawal in long pending cases, the Ministry replied (August 2014) that Chief Commissioners would be asked to take necessary action in terms of Board’s Circular dated 4 April 1994.

2.19 Miscellaneous issues

2.19.1 Training

As per para 5 of Board’s Circular dated 9 August 1990, Director General of Training was asked to organise training courses on prosecution and to incorporate services of lectures in the courses organised for preventive and anti-evasion office. It was also requested that Commissioners should judiciously sponsor officers for these courses.

2.19.2 Prosecution Cell

Audit observed that there was no Prosecution Cell in the seven⁸ Commissionerates audited or in DGCEI, Kolkata Zonal Unit. In all these Commissionerates, prosecution cases (15 cases) were dealt by the Headquarters Law Branch of the Commissionerate. Audit also observed that no specific Prosecution Registers were maintained for the prosecution cases. Cases were recorded in general registers wherein all the required particulars were not being captured.

Recommendation No.9

The Board should ensure formation of Prosecution Cell in every Commissionerate to deal with matters relating to arrests and prosecution. This would ensure proper attention to every prosecution case, which could enable speeding up of prosecution cases.

The Ministry replied (August 2014) that instructions on formation of Prosecution Cell within the Commissionerate would be reiterated.

2.19.3 Lack of guidelines for monitoring of prosecution cases by DGCEI

As per para 2(viii) & (ix) of Board’s Circular dated 9 August 1990, prosecution should normally be launched immediately after adjudication has been completed. In respect of Directorate of Central Excise Intelligence, the appropriate authority for approval of prosecution is Director General of Central Excise Intelligence (DGCEI).

It was noticed that no specific directions were available for monitoring of prosecution cases and co‐ordinating by the DGCEI with the respective jurisdictional Commissionerates. Under the existing procedure with regard to prosecution followed by the DGCEI, we observed that an investigation report is prepared at regional/zonal office on fit cases and submitted to the DGCEI for approval. On approval by DGCEI, the zonal offices inform the respective Commissioners to initiate the prosecution proceedings. A test check of scrutiny of the files in the Mumbai Zonal Unit of the DGCEI revealed that DGCEI did not have any further information as to the up‐to‐date status of the cases. We observed as follows:

• DGCEI was not monitoring the prosecution cases approved by it. The respective Commissionerates too did not inform DGCEI on the status of such prosecution cases.
• DGCEI was not aware of the launching of prosecution or otherwise in all those cases approved by it. Details such as the opening and closing balances of the prosecution cases, the cases disposed, outstanding cases for the period under Audit were not available with DGCEI.
• DGCEI did not even have the confirmation from individual Commissionerates as to the receipt of the approvals it gave to commence prosecution.

When we pointed this out, Mumbai Zonal Unit of DGCEI stated (May 2014) that they are periodically monitoring the cases till filing of the complaint by the Jurisdictional Commissionerates. Further, it was stated that after filing of the prosecution case, it is the duty of the jurisdictional Commissionerates to monitor the cases.

The reply of the department is not tenable as no record of such periodical monitoring was available either on the files or on the register maintained at Mumbai Zonal Unit. Information only upto sending of the approval for prosecution to jurisdictional Commissionerates was available. In a few instances, the department had called for status of the prosecution cases from jurisdictional Commissionerates on the basis of audit query and obtained the same.

Recommendation No.10

The Board may consider issuing comprehensive instructions on the approvals issued for prosecution and its follow up by the subordinate field formations in the case of both DGCEI and the Chief Commissioners of Central Excise.

The Ministry replied (August 2014) that the need for detailed guidelines on sanction and monitoring of the prosecution would be considered after the receipt offinalAudit Report.

2.19.4 Improper/poor maintenance of records

Audit observes that poor record management of this cases under prosecution may hamper department’s efforts for ensuring a conviction.

The Ministry’s reply is awaited (August 2014).

2.19.5 Offence registers not updated

As per Board’s letter dated 27 February 2009, proper maintenance of 335-J offence register is important for monitoring the progress of a case right from the time it is booked. The register should be properly maintained and updated regularly from range offices to Commissionerate. Every case must contain complete details such as SCN No., OIO No., the appeal, recovery amount, prosecution details etc. Further, the Assistant/Deputy Commissioners of the Division and Headquarters Preventive/Anti Evasion wing should verify the proper maintenance of the register on a monthly basis. During the inspection of a formation, the inspecting office should verify the maintenance of the register and the   findings should  be given in the inspection report.

3.  Conclusion

The findings of the performance audit revealed that prosecution as a mechanism envisaged, inter alia, to deter potential offenders has failed to achieve the purpose intended. Long delays of various stages lead to lowered chances of securing conviction. Availability of MIS on prosecution cases notwithstanding, necessary attention and pursuance thereof was lacking. Board’s instructions also were breached in many cases. Board not only needs to establish corrective procedures but also to ensure vigorous implementation. In response to the recommendations made, the Board has acknowledged the need to reiterate its instructions for better compliance. Further, Board had agreed to direct the Commissioners/Chief Commissioners to periodically monitor and improve effectiveness to make prosecution cases more effective.

Source- Report No. 29 of 2014 (Performance Audit)  by Comptroller and Auditor General of India on Administration of Prosecution and Penalties in Central Excise and Service Tax.