The Compounding of Offence under Customs Law vis-a-vis CrPC

Essentially, the compounding of offence provides for authority to decide if the criminal proceedings can be commuted to another tool of punishing the offender. Every reported offence does not necessarily lead to the initiating of criminal proceedings. Even where the criminal proceedings are initiated, they may not culminate into full –fledged trial resulting into judicial determination of the guilt or innocence of the accused. For diverse consideration, it may not be expedient to allow the criminal proceedings to run its full course.

Compounding of Offence under Criminal Procedure Code, 1972

Under certain circumstances, it may be advisable to allow the compounding of offence and to drop the criminal proceedings, if there is a settlement between accused person and victim of the crime. In criminal cases, Public Prosecutor considers its expedients to withdraw the cases.

The crime is essentially a wrong against the society and the State. Therefore, any compromise between accused person and victim does not absolve the accused from criminal responsibility, however, where the offence are essentially of a private nature and relatively not quite serious, the Criminal Procedure Code considers it expedient to recognize some of the offences compoundable .

Section 320 of CrPC

In CrPC , the compoundable offences are mostly non- cognizable but all non-cognizable offences are not so compoundable. The general scheme of the compounding of offence has been given under Section 320. The sub-section 320(8) says that composition of offence shall have the effect of acquittal of the accused with whom the offence has been compounded. Similarly 320(9) says that offences not enlisted under this section are simply non-compoundable. Accordingly as per the scheme of this section all the offences under the special laws or local laws are non-compoundable ; and it is left to the legislature to decide as matter of policy which offences and upto what extent should be compoundable.

In CrPC, the case can be compounded at any time before the sentence is pronounced. If after conviction there is an appeal , the case can be compounded with the permission of the Appellate Court.

Customs Act is a Special Law

As regard to the CrPC , Customs Act is a special law as it only deals with taxation matters and main function is not the investigation of crime but collection of taxes , enforcement of prohibitions/restriction, prevent smuggling activities etc. The Customs Act, 1962 proceeds on preponderance of probability whereas in criminal laws evidence must be credible and of standard degree and beyond reasonable doubt. In tune with the objective of the Customs Act, majority of the disputes resolved through quasi -judicial mechanism. Criminal Proceedings are not initiated in routine matter but only in case of serious offences and upon existence of mens rea and determination of guilt or innocence of the accused is done through the aid of criminal court.

As there is a scheme under the Customs Act to launch criminal prosecution against the accused under Section 137(1) of the Customs Act 1962 for the breach of offence mentioned in Chapter XVI from Section 132- 136. For the purpose of reduction of litigation , it has in inbuilt arrangement for compounding of offence under sub-section 137(3) with exclusion clause which give rise to early settlement of dispute . Lets understand Section 137 in its entirety.

Section 137 in the Customs Act, 1962

137- Cognizance of offences.

(1) No court shall take cognizance of any offence under section 132, section 133, section 134 or[section 135 or section 135A], except with the previous sanction of the [Commissioner of Customs].

(2) No court shall take cognizance of any offence under section 136,—

(a) where the offence is alleged to have been committed by an officer of customs not lower in rank than [Assistant Commissioner of Customs or Deputy Commissioner of Customs], except with the previous sanction of the Central Government;

(b) where the offence is alleged to have been committed by an officer of customs lower in rank than [Assistant Commissioner of Customs or Deputy Commissioner of Customs], except with the previous sanction of the³⁶⁹ [Commissioner of Customs].

[(3) Any offence under this Chapter may, either before or after the institution of prosecution, be compounded by the Chief Commissioner of Customs on payment, by the person accused of the offence to the Central Government, of [such compounding amount and in such manner of compounding] as may be specified by rules.]

Provided that nothing contained in this sub-section shall apply to—

(a) a person who has been allowed to compound once in respect of any offence under sections 135 and 135A;

(b) a person who has been accused of committing an offence under this Act which is also an offence under any of the following Acts, namely:—

(i) the Narcotic Drugs and Psychotropic Substances Act, 1985 (61 of 1985);

(ii) the Chemical Weapons Convention Act, 2000 (34 of 2000);

(iii) the Arms Act, 1959 (54 of 1959);

(iv) the Wild Life (Protection) Act, 1972 (53 of 1972);

(i) goods specified in the list of Special Chemicals, Organisms, Materials, Equipment and Technology in Appendix 3 to Schedule 2 (Export Policy) of ITC (HS) Classification of Export and Import Items of the Foreign Trade Policy, as amended from time to time, issued under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992);

(ii) goods which are specified as prohibited items for import and export in the ITC (HS) Classification of Export and Import Items of the Foreign Trade Policy, as amended from time to time, issued under section 5 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992);

(iii) any other goods or documents, which are likely to affect friendly relations with a foreign State or are derogatory to national honour;

(d) a person who has been allowed to compound once in respect of any offence under this Chapter for goods of value exceeding rupees one crore;

(e) a person who has been convicted under this Act on or after the 30th day of December, 2005.

Reading of the Section says that cognizance of any offence would only be taken after sanction of the Commissioner of Customs for the violation of Section 132, 133, 134 , 135 or 135A. The grant of sanction of prosecution by Commissioner is condition precedent for taking the dispute to the criminal court of law. In other words, the criminal court of law cannot conduct trial of customs cases of duty evasion or of prohibited/restricted goods without the previous permission of the Commissioner of Customs.

Offence by Officer of Customs

In case of offence by Officers of Customs, below the rank of Assistant/Deputy Commissioner of Customs, previous sanction of Commissioner of Customs would suffice. However, in case of offence alleged to have been committed by officers not below the rank of Assistant/Deputy Commissioner of Customs, previous sanction of the Central Government is required.

Compounding of Offence under Section 137(3)

Now adverting to the issue of “Compounding of Offence” which is the topic for discussion, sub-section 137(3) deals with it. It says that any offence before launching of prosecution or after the institution of case , can be compounded by the Chief Commissioner of Customs on payment of compounding amount and in prescribed manner . In other words, power of compounding of offence lies with the Chief Commissioner of Customs as specified by rules.

Further, reading of proviso to section 137(3) indicates that it has got exclusion clause and except offences listed in proviso from (a) to (e) , rest of the offences can be compounded. The Offence covered from (a) to (e) are serious in nature either falling under this Act or of allied acts. This shows that in serious offences the accused person is not entitle for benefit of compounding of offence. Non-availability of offer of composition is analogous to provisions of Section 320 of CrPC wherein other than offences listed in sub-section (1) and (2), rest of the offences cannot be compounded.

Distinction Between CrPC and Customs Act in Compounding of Offence

In criminal law offence is compounded only after institution of case, whereas in Customs Act, this scheme is operational either before filing of case in court of law or after institution of case. Further, under Customs Act, compounding amount is paid then compounding is offered by the compounding authority, whereas in CrPC , there is no requirement of such payment.

Customs (Compounding of Offences ) Rules ,2005

Under Section 137(3) of the Customs Act , Customs (Compounding of Offences ) Rules, 2005 was framed and issued vide Notification No. 114/2005-Cus. (N.T.) dated 30-12-2005. This prescribes the procedure and manner of compounding .

Rule 2 lays down definitions of various terms used in compounding of offence. The definition of applicant is given under Rule 2(b), interestingly excludes officers of customs which means the advantage of this benefit is not available to customs officer and so his offence cannot be compounded.

“Reporting authority” is another important definition given under Rule 2(e) means the Commissioner of Customs, having jurisdiction over the place where the offence under the Act has been or alleged to have been committed or any other officer as may be authorized in this regard by the Chief Commissioner of Customs having jurisdiction over the place where such offence has been or alleged to have been committed.

Factual Report is given by Reporting Authority

On receipt of application, the Compounding Authority calls for factual report from reporting authority who is Commissioner or Principal Commissioner of Customs. The factual report must be submitted within one month or permitted extended period allowed by the compounding authority, from the date of receipt of communication from the compounding authority.

The compounding authority after taking into account the contents of the said application may, by order, either allow the application indicating the compounding amount in terms of rule 5 and grant him immunity from prosecution in terms of rule 6 or reject such application.

Rejection of Application in matter of Compounding of Offence

In case of rejection of application, compounding authority must give an opportunity of personal hearing to the applicant and the grounds of such rejection should be mentioned in such order. Mention of grounds is necessary, as applicant may like to challenge the order of compounding authority in appeal.

Further application shall not be allowed unless the duty, penalty and interest liable to be paid has been paid. It means it calls for pre-payment of duty, penalty and interest.

The compounding amount once paid shall not be refunded except in cases where the Court rejects grant of immunity from prosecution.

Under Rule 5, compounding amount is determined as prescribed by the Rules . If a person has committed offence under more than one section/category specified in table given under Rule 5 , the compounding amount would be determined in such cases, shall be the amount determined for the offence for which a higher compounding amount has been prescribed.

Rule 6 deals with power of Power of Compounding authority to grant immunity from prosecution. – The immunity from prosecution is granted by the compounding authority when applicant is found to have been co-operated in the proceedings before him and has made full and true disclosure of facts relating to the case and complied with the conditions imposed by the compounding authority if any.

Rule 7 deals with withdrawal of immunity from Prosecution in certain conditions. – An immunity granted to a person under rule 6 shall is subject to payment of compounding amount and compliance with the conditions prescribed by the compounding authority while granting immunity and on making of true and full disclosure in respect of case. If the person who is availing the benefit of scheme fails to meet any of the above criterion, immunity from prosecution can be drawn. It means , the immunity from prosecution is not absolute but conditional and can be withdrawn on non-disclosure of facts in relation to the case or non-compliance of any of the conditions imposed by the compounding authority or non-payment of compounding amount.

The Board (CBIC) has issued guidelines vide four circulars which are as under with their main points;

Circular No. 54/2005-Cus., dated 30-12-2005

Vide this Circular the Board has classified the offences as (i) technical offences; and (ii) substantive or non-technical offences for the purpose of compounding. ‘Technical offences’ are those offences that can be compounded more than once and would be accorded a more liberal treatment. However, ‘Substantive or non-technical offence’ are offences, where it has been decided not to allow compounding for the second time. For the purpose of compounding, ‘Substantive or non-technical offence’ would mean offences covered under Section 135 and 135A of the Customs Act.

It also lays down that the offence committed by officers of Customs/Central Excise do not merit compounding as it is a matter between the State and its employee. Accordingly the definition of the applicant excludes the departmental officers from its purview.

Compounding of Offence in Existing Court Cases

It provides for procedures for compounding of offences wherein the complaint has already been filed and cases are pending in the Court. In such cases within 30 days of filing application for compounding, the applicant must files an affidavit before the Court before whom such prosecution is pending undertaking to comply with the provisions of these rules and submit a copy of such affidavit to the compounding authority. On receipt of such affidavit, the compounding authority shall examine the application in accordance with the above guidelines and pass an appropriate order under sub-rule (3) to Rule 4. A copy of such order shall also be forwarded to the Court. After payment of compounding amount as per the above order, the reporting authority ( Jurisdictional Commissioner of Customs) shall move an application before the said Court informing about the compounding of offence and requesting the Court to dispose of the case accordingly. If the Court accepts the order of compounding of offence and disposes of the case, then the order of compounding authority becomes final. However, in cases where the Court rejects the request of the department for grant of immunity from prosecution by compounding of offences, then the compounding amount paid by the applicant as per order of the compounding authority shall be refunded to the applicant.

Circular No. 29/2007-Cus., dated 21-8-2007

It dwells upon the matter whether compounding of offence would be offered to all persons involved in the case/offence . It provides that the filing of application under compounding rules is the individual option of the person to avoid prosecution, other persons involved in the case/offence and who have not filed the application would not be given immunity from prosecution. In such situation, remaining persons would face regular proceedings of the department for adjudication/prosecution/appeal.

Circular No. 20/2008-Cus., dated 2-12-2008

The compounding amount prescribed under Rule 5 of the said Rules has been revised downward.

This also prescribes that an applicant should pay duty, penalty, and interest before submission of application for compounding in rule 4. It means in simple words, it call for pre-payment of duty penalty, and interest before applying for compounding of offence. Correspondingly, the Application Form has also been amended by inserting Sl. No. 12A, so as to ensure that the compounding of offences shall not be allowed unless the aforesaid duty, penalty and interest thereon are paid by the applicant.

It sets the time limit for disposal of application and provides for disposal of application within an overall time limit of 6 months.

It also provides that compounding of offences should not be allowed where there are demonstrable contradictions, inconsistencies or incompleteness in the case.

Circular No. 29/2009-Cus., dated 15-10-2009

The guidelines issued by the Board, vide Circular No. 54/2005-Cus., dated 30-12-2005, wherein offences were classified as ‘technical’ and ‘substantive’, allowing substantive offences to be compounded only once and excluding certain cases from the purview of the compounding were held by the High Court of Bombay in their Order dated 25-10-2007 passed in W.P. No. 1884 of 2007 [2008 (223) E.L.T. 19 (Bom.)] to be ultra vires to Customs Act, 1962 and Rules made thereunder. It was observed by the Court that there is no power conferred to interfere with the statutory power of the Chief Commissioner of Customs for compounding of offences under Section 137(3) of the Customs Act, 1962. This circular reiterated the same legal position laid down by the Court.

Principle of Disclosure

This circular also cited the decision of the Supreme Court in the case of U.O.I. v. Anil Chanana – 2008 (222) E.L.T. 481 (S.C.) that compounding of offences is undertaken based on the Principle of Disclosure. The basic rule of disclosure, underlying Section 137(3) read with Rule 6 of the Customs (Compounding of Offences) Rules, 2005, is that if there are demonstrable contradictions or inconsistencies or incompleteness in the case of the applicant, then the application for compounding cannot be entertained.

Disclosure in true sense means that even if the importer/exporter, Passenger has retracted his statement during recording of statement or at the time of bail or even before the adjudicating authority, he must mention all these contradictions/ rebuttal before compounding authority, otherwise any concealment of facts related to the case , may lead to rejection by the compounding authority.

Compounding of Offence Must be Given Wide Publicity

Para-6 of all three Board Circulars 54/2005-Cus dated 30.12.2005, No.20/2008-Cus dated 02.12.2008 and 29/2009-Cus dated 15.10.2009, provides that at the time of intimation/initiating action for launching of prosecution should be given an offer of compounding. It may however be clarified that the application for compounding shall be decided on merits and in the absolute discretion of the Chief Commissioner. Adequate publicity may be given about reduction of compounding amount as amount has been revised in downwards direction 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.

Bare Reading of the relevant paras of the aforesaid three circulars indicate that the assesses should be given an offer of compounding , in order to make the scheme more popular as to reduce the cases pending in the Court. This will have dual advantage as there would be reduction in lis between Government and persons and further Government would be able to garner additional revenue in term of compounding amount and by way of pre-payment of duty, penalty and interest.

Compounding will be also in tune with Government intention, as Government is coming with many schemes to reduce the pendency of court cases/litigation, latest being the Legal Dispute Resolution Scheme , 2019 for Central Excise and Service Tax. Court cases filed in routine matter is neither beneficial for revenue nor for ease of doing business. Government is making constant endeavour to reduce the burden of Courts , hence also time to time raising the monetary threshold limit prescribed for filing cases in Tribunal and Courts.

In Depeesh Mamodiya V/s Chief Commissioner of Customs (DZ) in W.P.(C) No. 3507 of 2014, decided on 28-5-2014,

The Chief Commissioner relied upon the decision reported as Union of India v. Anil Chanana reported in 2008 (222) E.L.T. 481 (S.C.). He observed that the disclosure was not clear and, on the contrary, was contradicted. The operative portion of the Chief Commissioner’s impugned order herein reads as follows :-

“21. From the above I find that applicant had initially in his statement admitted recovery of 10000 Pcs of Memory Cards from his baggage but denied the ownership and stated that the goods were given to him by one Shri Rakesh Jain to be delivered to another person Shri Ritesh at Jaipur. But later on he admitted that the goods belonged to him and that he had used the name of a fictitious person Sh. Rakesh Jain to divert the attention. In between his two statements the applicant took a different stand in his bail application and stated that he had reported to the Customs Officer at the Red Channel Counter to declare 10000 Pcs of Memory Cards and pay duty but the Customs Officer instead of preparing necessary papers for payment of duty took him to the office room and made him sit there and dictated the statement dated 31-5-2011. Thus, it is evident that the applicant has not made a true and complete declaration of facts inasmuch as he did not reveal in his application for compounding anything about the contradictory stand taken by him in his bail application and statements recorded under Section 108 of the Customs Act, 1962. A comparison of the statements made under Section 108 and in bail application disclose major demonstrable contradictions or inconsistencies or incompleteness in the case of the applicant inasmuch as in his initial statement he admitted recovery of 10,000 Pcs of Memory cards and non-declaration of the same to the Customs Officer but in his bail application denied having committed any offence and put the blame on the Customs Officer in framing him in the whole matter. This was followed by him by admission of offence in his later statements 20-7-2011 & 9-8-2011. This admission was again followed by a denial in written submissions before the adjudicating authority wherein he stated that he had reported at Red Channel Counter to declare 10000 Pcs of Memory Cards to pay duty and had orally declared the same to the Customs Officer but the Customs Officer failed to perform his duty to assist him in filling up disembarkation card in terms of Board’s Instruction/Circular resulting in initiation of proceedings him. The Reporting Authority has also in his later report dated 3-3-2014 reported that there are demonstrable contradictions, inconsistencies or incompleteness in the case of the applicant.

22. In view of the foregoing the application of the applicant for compounding of offences punishable under Sections 132 & 135(1)(a) of the Customs Act, 1962 is not allowable for compounding under the provisions of Customs (Compounding of Offences) Rules, 2005.”

However the Delhi High Court quashed the order of the Chief Commissioner and made the following observation;

10. In the given facts of this case, it is apparent that the petitioner after initially refuting ownership, later on admitted ownership in his subsequent statements and paid up the duty amount, penalty and redemption fine. In these circumstances, considering that no minimum sentence or penalty was attracted for the offence that the petitioner was charged with, the denial of compounding meant that he would have to face a long trial which ultimately would, in all probability, culminate in a small fine. The impugned order of the Chief Commissioner in our opinion is erroneous, because apart from the initial contradiction and the first denial, there were in fact no subsequent conflicting statements recorded under Section 108 (on 20-7-2011 and 9-8-2011) clearly admit that he purchased the articles for sale in India.

11. Having regard to these conspectus of circumstances, the impugned order is hereby quashed. The respondents are hereby directed to accept the compounding application and pass consequential orders within four weeks from today.

In Rajesh Kumar Sharma Versus Union of India in Special Leave Petition (C) No. 21435 of 2006, decided on 2-2-2007, reported in 2007 (209) E.L.T. 3 (S.C.)

The mater was regarding fixation of compounding amount. Dispute arose out of Chief Commissioner’s order wherein controversy was raised by the petitioner that compounding amount was beyond permissible limit , which was rejected by HC. However, HC held that word upto applies to both 20% of market value of goods or Rs. 10 lakhs. The view of the HC was held not acceptable by SC, as it would render expression “whichever is higher” redundant. The dismissal by H.C, led to filing of Special Leave Petition (C) No. 21435 of 2006, decided on 2-2-2007 , wherein the SC held that if the interpretation given by the High Court that the quantum has to be up to 20% of the market value of the goods or up to Rs. 10,00,000/- whichever is higher is accepted same would be counterproductive and simultaneously ,the Hon’ble S.C also rejected the petition citing it lacks merit.

Final Take on Compounding of Offence Under Two Scenario

Compounding of offence under sub-section 137(3) and rules made thereunder is a mechanism for composition of offence with a view to early settlement of dispute and as result it led to reduction of pendency of court cases which is advantageous for Department as well as importer/exporter or any other person related to the case as compounding will bring additional revenue to the Department and provide relief to the importer/exporter or any other person from protracted litigation. The benefit of this scheme is available for all the offence of Chapter XVI of the Customs Act, means for the violation of Section 132, 133, 134, 135 and 135A of the Act and it gives immunity to applicant from prosecution. Certain serious offence under this Act or Allied acts are excluded from the purview of compounding. Rule have been framed to provide procedure and manner for compounding of offence. The rule and guidelines lays down by the Board mandate that this scheme is based on principal of disclosure and in case of any contradiction or inconsistencies Chief Commissioner of Customs can reject the application. Pre-payment of penalty, duty and interest is mandatory condition. Compounding amount determined by compounding authority is also required to be paid during proceedings. In case of non-disclosure of facts and non-adherence of conditions imposed by compounding authority and in case of non-payment of compounding amount, immunity granted from prosecution can be taken away. Compounding of offence is not available to departmental officers. It is required to be given wide publicity and at the time of launching of prosecution, this offer of compounding can be made to persons who are contemplated to be prosecuted to get the best result of this scheme.

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Compounding of Offence under Customs Law vis-a-vis CrPC (Code of Criminal Procedure)