Supreme Court quashes criminal proceedings against Baccarose Perfumes: A case of immunity and procedural lapse (2024)

Date of the Judgment: 06 September 2024

Citation: 2024 INSC 662

Judges: Abhay S. Oka, J. and Augustine George Masih, J.

Can a company be prosecuted for alleged offenses after being granted immunity by the Settlement Commission? The Supreme Court of India recently addressed this critical question in a case involving Baccarose Perfumes and Beauty Products Pvt. Ltd. The court examined whether the continuation of criminal proceedings was justified after the company had received immunity under the Central Excise Act, 1944, Customs Act, 1962, and the Indian Penal Code, 1860. The bench, comprising Justices Abhay S. Oka and Augustine George Masih, delivered a judgment that quashed the criminal proceedings against the company, emphasizing the importance of adhering to the immunity granted by the Settlement Commission.

Case Background

Baccarose Perfumes and Beauty Products Pvt. Ltd. (referred to as “Appellant-Company”) is a private limited company involved in manufacturing and exporting cosmetics. The Central Bureau of Investigation (CBI), the Respondent-Agency, alleged that between March 2001 and August 2004, the Appellant-Company conspired with officials from the Kandla Special Economic Zone (KASEZ) to evade Countervailing Duty (CVD). The CBI claimed that instead of paying CVD based on the Maximum Retail Price (MRP) of their goods, the Appellant-Company paid it on the lower invoice value, causing a loss of INR 8,00,00,000 to the government.

The Revenue Authorities alleged that the Appellant-Company had not declared the MRP on their goods as required by the Standards of Weights and Measures Act, 1976, and had only declared the invoice value. This led to the interception of the Appellant-Company’s goods and the issuance of Show Cause Notices in 2004 and 2005. Subsequently, the CBI registered an FIR in 2005, alleging offences under Section 120B read with Section 420 of the Indian Penal Code, 1860, and Section 13(1)(d) of the Prevention of Corruption Act, 1988.

The Appellant-Company, however, contended that they had cleared their goods in compliance with the necessary permissions. They also pointed out that the Commissioner of Customs (Appeals) had ruled that MRP declaration was not necessary for wholesale packages and that the goods should be assessed under Section 3(2) of the Customs Tariff Act, 1975, not its proviso. Furthermore, the Appellant-Company obtained a clarification from the Office of the Collector of Legal Metrology, which affirmed their position that MRP declaration was not mandatory for their goods. The Appellant-Company also received immunity from prosecution from the Settlement Commission in 2007.

Timeline

Course of Proceedings

The Special Judge (CBI) at Ahmedabad initially rejected the closure report filed by the CBI and directed the registration of a special case against the Appellant-Company. The Appellant-Company’s challenge to this order was dismissed by the High Court of Gujarat. The Supreme Court also initially dismissed the Appellant-Company’s Special Leave Petition but granted them the liberty to seek discharge at the time of hearing of charges. The Special Judge subsequently dismissed the discharge application filed by the Appellant-Company. The High Court of Gujarat also dismissed the Criminal Revision Application filed against the order of the Special Judge. The Supreme Court, however, stayed the proceedings before the Trial Court on 16.10.2023.

Legal Framework

The case involves several key legal provisions:

• Section 3(2) of the Customs Tariff Act, 1975: This section deals with the valuation of goods for the purpose of customs duty. The proviso to this section was invoked by the Revenue Authorities, which states that in case of goods where retail price is required to be declared, the CVD shall be calculated on the MRP.
• Section 4A(2) of the Central Excise Act, 1944: This section deals with the valuation of goods for the purpose of excise duty. It states that in case of goods where retail price is required to be declared, the excise duty shall be calculated on the MRP.
• Section 28 of the Customs Act, 1962: This section deals with the recovery of customs duties not levied or short-levied.
• Section 11A of the Central Excise Act, 1944: This section deals with the recovery of excise duties not levied or short-levied.
• Section 124 of the Customs Act, 1962: This section deals with the issue of show cause notices before confiscation of goods.
• Section 120B of the Indian Penal Code, 1860: This section deals with the punishment for criminal conspiracy.
• Section 420 of the Indian Penal Code, 1860: This section deals with the punishment for cheating and dishonestly inducing delivery of property.
• Section 13(1)(d) of the Prevention of Corruption Act, 1988: This section deals with criminal misconduct by a public servant.
• Section 32K of the Central Excise Act, 1944: This section deals with the grant of immunity by the Settlement Commission. It states that “where any proceeding for any offence under this Act or under the Indian Penal Code, is instituted against any person, the Settlement Commission may, if it is satisfied that such person has co-operated with the Settlement Commission in the proceedings before it and has made a full and true disclosure of his duty liability, grant to such person, subject to such conditions as it may think fit to impose, immunity from prosecution for any offence under this Act or under the Indian Penal Code.“
• Section 127H of the Customs Act, 1962: This section is pari materia to Section 32K of the Central Excise Act, 1944 and provides for immunity from prosecution by the Settlement Commission.
• Section 197 of the Code of Criminal Procedure, 1973: This section deals with the prosecution of Judges and public servants.
• Section 173(2) of the Code of Criminal Procedure, 1973: This section deals with the report of police officer on completion of investigation.

These provisions are essential to understanding the legal context of the case, particularly the interplay between tax laws, criminal law, and the powers of the Settlement Commission.

Arguments

Appellant-Company’s Submissions:

• Immunity from Prosecution: The Appellant-Company argued that they had been granted immunity from prosecution under the Central Excise Act, 1944, Customs Act, 1962, and Indian Penal Code, 1860, by the Settlement Commission vide order dated 21.08.2007. They contended that this immunity should bar any further criminal proceedings against them.

• No Institution of Prosecution: The Appellant-Company relied on the judgments in General Officer Commanding, Rashtriya Rifles v. CBI, Jamuna Singh v. Bhadai Shah, and Devarapalli Lakshminarayana Reddy v. V. Narayana Reddy, to argue that the mere filing of an FIR does not amount to the institution of prosecution. They asserted that prosecution begins only after the court takes cognizance of the charges.

• Not a Public Servant: The Appellant-Company contended that they are not a “public servant” under Section 13(1)(b) read with Section 13(2) of the Prevention of Corruption Act, 1988, and therefore, cannot be prosecuted under this provision.

• No Offence under Section 120B and 420 of IPC: The Appellant-Company argued that the charges under Section 120B read with Section 420 of the Indian Penal Code, 1860, are not made out against them, especially since the alleged co-conspirators (KASEZ officials) were not sanctioned for prosecution.

• Assessment of CVD: The Appellant-Company submitted that the Commissioner of Customs (Appeals) had already held that CVD should be assessed on the invoice value and not on the MRP for wholesale packages, which was in line with their submissions.

Respondent-Agency’s Submissions:

• Criminal Conspiracy: The Respondent-Agency argued that the Appellant-Company had entered into a criminal conspiracy with KASEZ officials to evade CVD by not declaring the MRP on their goods.

• Violation of Tax Laws: The Respondent-Agency contended that the Appellant-Company had violated the provisions of the Customs Tariff Act, 1975, Central Excise Act, 1944, and Standards of Weights and Measures Act, 1976, by not declaring the MRP on their goods.

• Non-disclosure of MRP: The Respondent-Agency submitted that the Appellant-Company was required to declare the MRP of the goods as per the circular dated 01.03.2001 and the concerned provisions of law.

• No Bar on Prosecution: The Respondent-Agency argued that the immunity granted by the Settlement Commission did not bar the criminal prosecution against the Appellant-Company.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the primary issue before the Court was:

1. Whether the criminal proceedings against the Appellant-Company could continue despite the immunity granted by the Settlement Commission under the Central Excise Act, 1944, Customs Act, 1962, and Indian Penal Code, 1860.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

Judgment

How each authority was viewed by the Court?

• The Court followed the principles laid down in General Officer Commanding, Rashtriya Rifles v. CBI [ (2012) 6 SCC 228 ], Jamuna Singh v. Bhadai Shah [ 1963 SCC OnLine SC 263 ], and Devarapalli Lakshminarayana Reddy v. V. Narayana Reddy [ (1976) 3 SCC 252 ], reiterating that mere filing of an FIR does not amount to the institution of prosecution.
• The Court also followed the principles in H.N. Rishbud v. State (Delhi Admn.) [ (1954) 2 SCC 934 ], Abhinandan Jha v. Dinesh Mishra [ 1967 SCC OnLine SC 107 ], and State of Orissa v. Habibullah Khan [ 2003 SCC OnLine SC 1411 ], which state that investigation and taking of cognizance operate in parallel channels.
• The Court applied the ratio of Hira Lal Hari Lal Bhagwati v. CBI, New Delhi [ (2003) 5 SCC 257 ], stating that continuation of prosecution would be inconsistent with the intent and provisions of law, where the matter has been settled by a competent authority.
• The Court considered Section 32K of the Central Excise Act, 1944 and Section 127H of the Customs Act, 1962, which provide for immunity from prosecution by the Settlement Commission.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the fact that the Appellant-Company had been granted immunity from prosecution by the Settlement Commission. This immunity, as per Section 32K of the Central Excise Act, 1944 and Section 127H of the Customs Act, 1962, explicitly bars prosecution for any offense under these Acts or the Indian Penal Code, 1860, if the proceedings are instituted after the date of application for immunity. The Court also considered that the Commissioner of Customs (Appeals) had already ruled in favor of the Appellant-Company, stating that CVD should be assessed on the invoice value, not the MRP. This ruling was never challenged by the Revenue Authorities and had attained finality. Additionally, the Court noted that the prosecution sanction against the KASEZ officials, who were alleged to be co-conspirators, had been declined.

The Court’s reasoning was primarily based on the legal principle of immunity and the procedural lapses in the prosecution. The factual aspects of the case were considered to a lesser extent, as the legal position was clear.

The Court’s decision was based on the following reasoning:

• The Court emphasized that the immunity granted by the Settlement Commission under Section 32K of the Central Excise Act, 1944 and Section 127H of the Customs Act, 1962, explicitly bars prosecution for any offense under these Acts or the Indian Penal Code, 1860, if the proceedings are instituted after the date of application for immunity.

• The Court noted that the Commissioner of Customs (Appeals) had already ruled in favor of the Appellant-Company, stating that CVD should be assessed on the invoice value, not the MRP. This ruling was never challenged by the Revenue Authorities and had attained finality.

• The Court also considered the fact that the prosecution sanction against the KASEZ officials, who were alleged to be co-conspirators, had been declined. This further weakened the case against the Appellant-Company.

• The Court held that the continuation of prosecution in such circumstances would be an abuse of the process of law.

The Court quoted the following from the judgment:

• “Both the provisions are pari materia to each other and bear the same text. These sections provide for an explicit bar from prosecution on grant of immunity in cases where the proceedings for any offence have been instituted subsequent to the date of receipt of the application seeking such immunity under the relevant law.”
• “A perusal of the scheme of the CrPC 1973 allows us to infer that mere registration of FIR cannot be interpreted to mean that it constitutes the initiation of such proceedings.”
• “In such a circumstance, there was no fiscal liability on the Appellant -Company, and accordingly, the Order dated 01.08.2010 passed by learned Special Judge, taking cognizance against the Appellant -Company, ought not to have sustained. As the very basis of the allegation of offence against the Appellant -Company was found to be non -existent, it would have amounted to misuse rather abuse of the process of law.”

There were no dissenting opinions in this case. The bench comprised of Justices Abhay S. Oka and Augustine George Masih, who both concurred with the judgment.

Key Takeaways

• Immunity granted by the Settlement Commission under Section 32K of the Central Excise Act, 1944 and Section 127H of the Customs Act, 1962, provides a bar against prosecution for offenses under these Acts and the Indian Penal Code, 1860, if the proceedings are instituted after the date of application for immunity.

• Mere registration of an FIR does not constitute the initiation of prosecution. Prosecution begins when the court takes cognizance of the charges.

• If a competent authority, such as the Commissioner of Customs (Appeals), has ruled in favor of an assessee, and that ruling has attained finality, any subsequent prosecution based on the same issue may be deemed an abuse of the process of law.

• The decision highlights the importance of adhering to the legal framework and the powers of the Settlement Commission in granting immunity from prosecution.

Directions

The Supreme Court directed the quashing of the proceedings against the Appellant-Company. The Impugned Order dated 15.09.2023 passed by the High Court of Gujarat in CRA No. 783 of 2017 and the Order dated 01.06.2010 passed by the Special Judge in RC6(A)/2005 were set aside.

Development of Law

The ratio decidendi of this case is that once the Settlement Commission grants immunity from prosecution under Section 32K of the Central Excise Act, 1944 and Section 127H of the Customs Act, 1962, any criminal proceedings instituted after the date of application for such immunity are barred. This decision reinforces the principle that the immunity granted by the Settlement Commission is a substantive bar to prosecution and not merely a procedural safeguard. The Court also reiterated that mere registration of FIR does not amount to institution of prosecution and that prosecution begins only after the court takes cognizance of the charges. This decision clarifies the interplay between tax laws, criminal law, and the powers of the Settlement Commission.

Conclusion

The Supreme Court’s judgment in the case of Baccarose Perfumes and Beauty Products Pvt. Ltd vs. Central Bureau of Investigation & Anr. is a significant ruling that reinforces the importance of adhering to the immunity granted by the Settlement Commission. The Court quashed the criminal proceedings against the Appellant-Company, emphasizing that the immunity granted by the Settlement Commission bars any further criminal proceedings for the same offenses. The decision also highlights the principle that mere registration of an FIR does not amount to the institution of prosecution. This judgment provides clarity on the interplay between tax laws, criminal law, and the powers of the Settlement Commission, and serves as a crucial precedent for similar cases in the future.