It is a fact of common knowledge that in pendency of the investigation proceeding, the departmental officers coerce the assessee to deposit some part of the potential demand. The coercion to deposit the amount is more, when a more premier agency is investigating the case. Such deposit of amount is boasted by the officers in their report to their superiors. Sometimes such boasting statements also appear in public media. The purpose of this paper is to examine the legality of this practice and also examine whether the inaction/encouragement of this practice by superior authorities, including political and judicial authorities, is bringing disrepute to the “Rule of Law”.

The modus operandi of this practice is simple. An assessee is summoned in the name of investigation. He is coerced to pay the amount. Sometimes he is physically assaulted also. He is threatened by the officers that if he does not admit his duty liability and pay the amount immediately, he will be arrested. Under such threat and coercion, the assessee gives a cheque to the department. The inquiry officers records a voluntary statements under which the assessee gives the cheque “voluntarily” to pay up his demand.

Although the inquiry always claims that the statement recorded is voluntary, it is surprising that more often than not the statements are retracted by the statement giver very soon. The law has made a provision for recording of statements but there is no provision for retraction of statements. Board has also not devised any procedure for retraction of statements. Judiciary, in a number of cases has said that statement should be retracted immediately, however the judgments are silent as to how the statements should be retracted. Such uncertainty in law, the author feels is specially designed to allow illegality at the time of recording of statements.

Here come the first question- can an officer conducting inquiry under Section 14 of the Central Excise Act or under Section 108 of the Customs Act receives a cheque on behalf of the department and record the statement that such payment is voluntary. Section 14/Section 108 authorizes inquiry and documents necessary for inquiry. Sanctity of Section 14 or Section 108 cannot be extended to any illegal act done by the department. Else, what prohibits the inquiry officer to receive gift or bribe voluntarily under Section 14 of the Central Excise Act or under Section 108 of the Customs Act? It is ridiculous to argue that ambit of Section 14 can be extended beyond the purview of inquiry. Thus recording of such so called voluntary statement and receipt of cheque is illegal and should not be allowed in an inquiry conducted under Section 14 of the Act.

Article 265 of the Constitution provides that no tax shall be levied or collected except by authority of law. Recovery of tax is a part of collection of tax and must be done as per authorized by law. The law authorizes recovery of tax by way of Section 11 of the Central Excise Act or by way of Section 142 and Attachment of Property Rules of the Customs Act. Such recovery can be made only after the contention of the department is accepted in the quasi-judicial proceeding. The board has prescribed detailed procedure for recovery of such duty not paid. Thus any recovery of tax before the contention of the department is established is not authorized by law and hence is in violation of the Article 265 of the Constitution of India.

In Taha Wire Pvt. Ltd. v. Union of India, the petitioner contented that,

“Learned counsel for the petitioner submits that on the pretext of evasion of duty to the tune of Rs. 1,66,77,194/-, the respondent No. 2-Department procured 7 cheques under coercion, which were given by the petitioner under protest. Learned counsel for the petitioner submits that the petitioner is not liable for any duty, therefore, the respondents be directed to refund the amount which was encashed and return the remaining cheques to him. Learned counsel for the petitioner further submits that a similar case, being Special Civil Application No. 23338 of 2005 Abhishek Fashions Private Limited and Another v. Union of India – 2006 (202) E.L.T. 762 (Guj.), was considered by this Court and by an order dated 21-1-2006, directions were given for refund of the amount which was encashed by the Department.”

The Court held,

“The fact remains whether the cheques were obtained under coercion or threat. That is a question of fact. Therefore, once the Court believed that in the aforesaid case the cheques were received by the Department under coercion, the Court can give directions, but that is not binding in all cases. That depends upon of facts of each case. We do not believe the proposition put forward by the learned counsel for the petitioner, as no evidence is placed on record that the cheques were obtained/procured from petitioner under coercion, except the fact that he has retracted his statements given earlier. That is not enough for holding that the cheques were procured under coercion. Even assuming without admitting that the cheques were obtained under coercion, then the petitioner can file a police complaint, if he has any genuine grievance. In the aforesaid facts and circumstances of the case, no relief under Article 226 can be granted. Petition stands dismissed.”

The order of the Hon’ble Court raises three points- the first one being evidence of coercion. The statement of the assessee is the statement of victim of the coercion made on affidavit. This is the best and only evidence in the circumstances. Where statement is recorded, i.e. at the scene of crime, under departmental inquiry, apart from the perpetrator of coercion, only victim of coercion is present. His statement cannot be brushed aside lightly. Further he cannot be asked to produce more evidence as there are no more evidences. No body can be asked to an impossible act.

The second leg of the order says that a person has to file a police complaint if he has any genuine grievance. Ironically the petitioner has come before the court for a Civil Remedy, i.e. refund of money illegally extorted by the department. No police officer or criminal court can give such civil remedy. A police complaint is made for fixing criminal liability and not for recovery of money. Further, a complaint can be filed only against the erring officer, whereas the money is required to be recovered from the state. Further, a civil remedy cannot be denied to the petitioner merely because he didn’t took recourse to criminal proceeding. In thousands of judgment the courts have said that these two remedies are independent of each other. Can we say that the department has no right to recover tax as it didn’t file a criminal prosecution against the tax evador. Thus such observation of the Hon’ble Court is not in accordance with law.

Unfortunately the court could not appreciate the law laid down in Abhshek Fashions v. UOI, which held in para 9,

“In absence of any statutory provision on the basis of which any such recovery can be made, the action of the respondent authorities in collecting the cheques from the petitioner cannot be sustained in law. The position in law is well settled that liability to excise duty can arise on the production/manufacture of the excisable goods or at best on removal of such excisable goods. In the present case, the respondent authorities have failed to show any such taxing event having taken place on the basis of which they would be entitled to effect such recovery. Any tax or duty can only be levied and collected in accordance with law, namely, backed by and supported by appropriate provision empowering the authority to undertake such an exercise of levy and collection. The respondent authorities must bear in mind that they are creatures of statute and are bound by statutory law; the powers that they exercise are granted to them by the statute and there are no powers de hors the statute. Therefore, the authorities are bound to act as provided by the provisions under which they can exercise such powers. The revenue is not an organization which is entitled to retain money without sanction of law. Therefore, without entering into the controversy as to whether payment was voluntary or otherwise, in absence of any statutory backing, the funds recovered by the respondent authorities by way of various cheques collected by them, cannot be permitted to be retained and are required to be refunded forthwith. The learned counsel for Revenue has failed to point out a provision which empowers the authorities to collect and retain cheques in this manner.”

The revenue authorities are required to act in accordance with law. If any recovery has been made by them, they must show the law under provision of which such recovery has been made. If they fail to do that, they are not entitled to retain the money. In view of this the author submits that the law laid down in Tara Wire Pvt. Ltd. is not correct law and needs to be reviewed.

The author does understand that most of the time the amount is recovered from persons who have evaded taxes. It is also understood that the effort is being made to protect the interest of revenue. Whatever be the intentions, illegality will breed lawlessness and bring into disrepute the very existence of investigative machinery. Interest of law is supreme. Protection of “Rule of Law” is far more important than protection of revenue. Where the law ends, tyranny begins. It is the Rule of Law, on which the very existence of state and civil society depends. Revenue is useless when the very existence of state and civil society is endangered.

Written by:- Advocate Rajesh Kumar. The author can be contacted on The author can be contacted on custom.excise@gmail.com , Web: www.rajeshkumar.co.in

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