Affidavit - Hawala Dealer - Assessment
Affidavit incase of Hawala Dealer's Assessment.
Recently, in the State of Maharashtra the department of sales tax as well as the department of Income Tax are trying to trap the dealers/assesses by asking them to pay the vat with interest and penalty and subsequently upon to pay the income tax with interest and penalty on the purchases made from so called “Hawala Dealers”.
The department of sales tax had first trapped certain dealers who had made Hawala transactions and did not pay the vat into the treasury of State Government of Maharashtra. An affidavit stating about the Hawala transactions were compulsorily taken out in the form of declaration by those Hawala dealers. Thereupon, their vat registration certificate had been cancelled with retrospective effect from 1st April 2005. The list of such Hawala dealers had been displayed on the site of department of sales tax www.mahavat.gov.in. The list had been continuously updated.
Thereupon, the department of sales tax had called upon the beneficiary dealers who had made such alliged purchases from the Hawala dealers and such beneficiary dealers were asked to pay the vat with interest and penalty for the purchases made from such alliged dealers.
Similarly, the said list along with the list of beneficiary dealers had been provided by the State Government of Maharashtra to Hon. Central Board of Direct Taxes (CBDT) for further action. On receiving such lists of Hawala dealers and the beneficiary dealers the CBDT had forwarded the list to the respective assessing authorities throughout the state of Maharashtra.
On receipt of such list of assesses supported with affidavits, the jurisdiction Income Tax Authority issued notices u/s. 133(6) to all the beneficiary dealers calling about the detail information of the purchases made from the so called Hawala dealers. On receipt of those information from the assesses the authority had asked the assesses to pay the tax with interest and revise the returns with disallowing all such purchases. Thereupon, notices u/s. 147/148 had been issued to regularize such returns or to assess the purchases made from Hawala dealers. Subsequently, upon the penalty proceeding u/s. 271(1)(c) of the I.T. Act could be proceeded to levy penalty up to the 300% of the tax amount.
In short, the department of sales tax in Maharashtra as well as the Income tax department of India had joint hand together to finish the beneficiary dealers by tax them along with interest and penalty only on the basis of an affidavit taken out from the so called Hawala dealers. The entire other legal facts and aspects along with judiciary had been totally ignored and kept aside by this two Hon. Departments.
We would like to focus on such legal aspect and judiciary in detail on following lines-
Affidavit: The entire issued mentioned above is based on the affidavit taken out compulsorily by such alliged dealers. Now, let us focused on the concept parallence an affidavit means-
“A written sworn statement of fact voluntarily made by an affiant or deponent under an oath or affirmation, administered by a person authorised to do so by the law in force. Such statement is witnessed as to the authenticity of the affiants or deponents signature by a taker of oaths, such as notary public or committee of oath”.
Therefore, an affidavit can be termed as a type of verified statement or showing, or in other words it contents a verification meaning it is under oath or penalty of perjury and this serves as evidence to its veracity and is required for court proceedings. The statement included in affidavit can be a written record of the facts of the case as you see them.
In the case of present article we could term the word affidavit means a statement on oath recorded from the alliged Hawala dealer about stating his facts of Hawala transactions.
Such type of affidavit must be voluntarily made by the declarant and must contained true facts. In the cases of alliged Hawala dealers, whether both the essential characteristics i.e., voluntarily and true facts have been observed or not, it is a million dollar questions.
However, both of the respected departments i.e. department of sales tax and department of income tax had used the affidavit is the sole evidence against such so called alliged Hawala dealers.
Now let us discussed whether such an affidavit could stand as on valid evidence against the alliged Hawala dealers as well as the beneficiary dealers/assesses. According to section 3 of the Indian Evidence Act 1872 an evidence means-
- Ant thing by which an alliged matter of fact is established or disproved.
- Any thing that makes a thing in question evidence to the court.
- Can be oral (statements made by witness) or documentary (papers, electronic records, etc.)
Affidavits are not even included in the definition of evidence as provided in section 3 of the Indian Evidence Act 1872. Consequently, affidavits cannot be used as evidence under any of the provisions of evidence Act.
Therefore, it has been established in the court of law that – “An affidavit is not evidence”.
- Ayaaub Khan Noor Khan Pathan v/s. State of Maharashtra and others: Decided on 08/11/2012 in Supreme Court of India.
- Smt. Sudhadevi v/s. M.P. Narayanan & others: Decided on 26/04/1988 Supreme Court of India.
- Chuharmal v/s. CIT: (1988) 172 ITR 250 (SC)
- Range forest officers v/s. S.T. Hadimani : AIR (2002) SC along 47
- Needle Industries (India) Ltd & others v/s. NIH Ltd. & others : AIR (1981) SC 1298.
- Ramesh Kumar v/s. Keshavram : AIR (1992) SC 700
- Standard Chartered Bank v/s. Andhra Bank Financial Services Ltd & others: (2006) 6 SCC 94.
- Kishor Samrit v/s. State of U.P. & Others: Appeal No. 1406/2012 decided on 18/10/2012.
- State of Rajasthan v/s. Sindhiya Film Exchange (AIR (1974) Raj 31 Rajasthan High Court.
- Bhupendarsingh v/s. State of Haryana (AIR (1968) P & H 406
There are so many other legal prepositions and views expressed in the court of law that the affidavit could not be hold as a sole evidence for conclusive decision. In other words it can be a path to reach to a decision but it cannot be a decision within itself. Whereas, in the case of present article the affidavit is a sole evidence (?) used by both the Hon. Departments i.e. Department of Sales Tax and Department of Income Tax for the taxation and other consequences against the beneficiary dealers.
Principle of Natural Justice-
Now the principle of Natural justice also plays a very vital role in the entire episode of so called Hawala dealers.
According to the article 14 of the Constitution of India 1949 which is as follows-
Equality before Law: - The states shall not deny to any person equality before law or the equal protection of the laws within the territory of India. Prohibition of discremation on grounds of religion, race, cast, sex or place of birth. The above article of the Constitution of India 1949 clearly gives a right to the opponent against which such affidavit could be used as a weapon, for to be heard or to cross examine in the principle of natural justice and equality before law
Similarly, Article 21 in the Constitution of India 1949- Protection of life and personal liberty except according to procedure established by law-
The principles of natural justice, natural justice means, “Duty to Act fairly”. It is generally based on two fundamental principles-
- The person who is going to effect by the Act may please be given fare opportunity to Act upon and
- No decision in valid if it was influence by what so ever or based on prejudice.
In short, in the line of principle of natural justice. Justice must be seen to be done.
The Supreme Court had also viewed succinctly summarised the concept of natural justice as follows-
“Natural Justice is no unruly horse, no lurking land mine, nor a judicial cure-all. If fairness is shown by the decision maker to the man proceed against, the form, features and the fundamentals of such essential processual propriety being conditioned by the facts and circumstances of each situation, no breach of natural justice can be complained of. Unnatural expansion of natural justice, without preference to the administrative realities and other factors of a given case, can be exasperating. We can neither be financial nor financial but should be flexible yet firm in this jurisdiction. No man shall be hit below the belt-that is the conscience of the matter”.
Under article 226 of the Constitution of India, the High Court has vast powers as this court has under article 32 of the Constitution of India, and can exercise such powers in those cases where the statutory authority has not acted in accordance with the provisions of the enactment in question, or in defiance of the fundamental principles of judicial procedure, or has restored to invoke the provisions which are repealed, or when an order has been passed in total violation of the principles of natural justice. It is a well settled position that where an order has been passed in breach of the principles of natural justice, it would be open for the writ court to interfere. The principles of natural justice have come to be known as being part of the guarantee contained in article 14 of our Constitution of India i.e. “the concept of equality”.
“There is only one more principle that has slowly taken root as a part of natural justice. This is the principle that every decision must contain reasons for decisions. Reasons may be elaborate or may be brief. But these are beginning to be considered necessary to ensure fair decision making”.
Unless the laws are fair and are fairly implemented, there cannot be justice in the true sense. Secondly, procedural safeguards do not necessarily ensure a fair outcome. Procedural lapses may result in upsetting even good decisions against individuals who may be guilty of a breach of law.
Indeed, natural justice is a pervasive facet of secular law where a spiritual touch enlivens legislation, administration and adjudication, to make fairness a creed of life. It has many colours and shades, many forms and shapes and, save where valid law excludes, it applies when people are affected by acts of authority. It is the bone of healthy government, recognized from earliest times and not a mystic testament of judge-made law. Indeed from the legendary days of Adam-and of Kautllyas Arthashastra-the rule of law has had this stamp of natural justice, which makes it social justice. We need not go into these deeps for the present except to indicate that the roots of natural justice and its foliage are noble and not new-fangled. Today its application must be sustained by current legislation, case law or other extant principle, not the hoary chords of legend and history. Our jurisprudence has sanctioned its prevalence even like the Angla-American System.
The right of cross examination is an essential ingredient of natural justice and integral part of reasonable opportunity of being heard.
Cross Examination means-
The questioning of a witness or party during a trial, hearing, or deposition by the party opposing the one who asked the person to testify in order to evaluate the truth of that person’s testimony, to develop the testimony further, or to accomplish any other objective. The interrogation of a witness or party by the party opposed to the one who called the witness or party, upon a subject raised during direct examination – the initial questioning of a witness or party-on the merits of that testimony.
The scope of cross examination is generally restricted to matters covered during direct examination.
The first purpose of cross examination is always the observation of principle of natural justice, i.e. giving an opportunity to the opposite party. And otherwise, its purpose is to weaken, to destroy or to qualify the case of the party who has called the witness.
The object is to impeach the accuracy, credibility or value of the evidence, or to detect or expose some discrepancies in the statement or to draw some suppressed facts in order to support the case of cross examiner.
It is provided in section 146 of the Evidence Act. It provides that the cross examining party can ask, apart from the questions relating to the material facts, other questions which tend:
- To test the veracity of the witness
- To discover who he is and what is his position in life, and
- To shake his credit by injuring his character, with all decencies to the extent not objected by the court.
Cross examination is not limited to the matters to which the witness has been testified in examination in chief. But it must relate to the relevant facts or something necessary to discover the material facts. It is a strong weapon to destroy the credibility of the witness.
Cross examination can be done in six steps for true natural justice-
- Prepare the cross examination questions.
- Ask specific questions
- Introduce relevant evidence
- Lead the witness
- Remain flexible in the presentation
- Finish on strong note.
Following citations could focus more impact on the principle of natural justice and cross examination-
- Mehta Parikh & co. v/s. CIT: (1956) 30 ITR 18 (SC).
- Mohindersingh Gill v/s. Chief election Commissioner: AIR 1978 SC 851
- Snyder v/s. Massachusetts: (1934) 291 VS 97 (105) (SC)
- Hagar v/s. Reclamation District: (1884) 111 VS 701
- Smt. Maneka Gandhi v/s. Union of India: AIR 1978 SC 597.
- Maneklal v/s. Premchand: AIR 1957 SC 425
- CB Gautam v/s. Union of India: (1993) 1 SCC 78 (SC).
- Srikrishana v/s. State of MP: AIR 1977 SC 1691
- MSFC v/s. Suvarna Board Mills & others: (1994) 5SCC 566.
- A.K. Kraipak v/s. Union of India: AIR 1970 SC 150.
- B.P. Benarjee, writ Remedies IV ED (1998) 7 SCC 84.
- Hindustan Tabaco Co. v/s. CIT West Bengal: (1977) (2) SCC 256.
- Roger Enterprises Pvt. Ltd. v/s. DIT: ITA No. 567 to 569/Del/2006, ITAT New Delhi dated 07/09/2012.
- CIT v/s. Lovely Export: (2008) 216 CTR (SC) 195.
Now let us consider the concept of Hawala transactions-
Definition of Hawala: An alternative remittance channel that exists outside of traditional banking systems. Hawala is a method of transferring money without any actual movement. One definition from Interpol is that Hawala is ‘money transfer without money movement’. Transactions between Hawala brokers are done without promissory notes because the system is heavily based on trust.
What is Hawala: The word “Hawala” means trust. It is an alternative or parallel remittance system, which works outside the circle of banks and formal financial systems. Hawala is an ancient system of money transfer which originated in South Asia and is now being used across the globe. This system mainly developed in India, before the introduction of western banking practices. It is also sometimes referred to as “underground banking”. Though it is being used across the world to remit funds, but it is not a legal system. It works on the basis of many middle men called the hawaldars or the Hawala dealers. The reason, why Hawala is extensively used in spite of the fact that it is illegal, is the inseparable element of trust and extensive use of family or regional affiliations.
However, in the case of Hawala dealers termed in the State of Maharashtra means on includes-
- The dealers who had issued fake invoices. No actual delivery of goods is moved out. Vat amount is collected and not deposited into the treasury of the State Government of Maharashtra.
- The dealers who had issued fake invoice in one name but delivered the goods in another name. Vat collected and not paid.
- Made actual transaction of delivery of goods and issued tax invoices with fake TIN or TIN which is not in existence or being cancelled.
- Made entire transactions only on papers and there is no transaction of any type in actuals.
- By any other means proved as Hawala dealers.
Considering the above type of transactions the beneficiary dealers could be classified as follows-
- The dealer who actually received goods but made the payments in another name.
- The dealers who did not receiving the goods but made the payment.
- The dealers made the payment received the goods but the supplier dealer is declared as a Hawala dealer by the department.
- The dealers who received the goods but had no evidence to prove the delivery of goods such as, weighing scale bill, transport receipt, Octroi receipt etc.
- Dealers who received the goods but under fake transport receipts or transporter is not in existence.
- The dealer relied upon middle man made payment, received goods and bills but the middle man is declared as Hawala dealers.
- The dealer who could not establish the purchase transaction as per the Sale of Goods Act such as, -
- Valid purchase order
- Valid tax invoice
- Valid moment of goods from one place to other and
- Valid payment of consideration and Vat.
From the above the term Hawala Dealer is much wider. Every time the beneficiary dealer could not be held responsible for the wrong Act of declared Hawala dealers. In our opinion, the beneficiary dealer who complies with all the four conditions as enumerated in the Sale of Goods Act for the purchase made by him should not be penalized for the wrong act of Hawala dealers either by the department of sales tax, Maharashtra or the department of Income Tax in India.
In the case of present article the concept of principle of natural justice had not even being spelled by both of the Hon. Departments i.e. Department of Sales Tax and Department of Income Tax, it is because-
- The affidavit had been used as the sole evidence (?) to determine whether the accused dealer is a Hawala dealer.
- On the basis of the said affidavit the beneficiary dealers are called upon to meet the entire liability of tax, interest and penalty.
- The officer in charge had never investigated the matters independently.
- Up on which the officer in charged had not recorded his independent satisfaction before proceeding further.
- The accused beneficiary dealers/assesses is not called upon to prove his side.
- No chance of cross examination is availed.
- The department officers had decided only one target with prejudice that the beneficiary dealer is equally involved and must be punished to the worst.
- The department officers never thing about the burning of innocent dealers/assesses.
The tax administration public account committee of 2013-2014 it its 87th report presented in Lok Sabha in the month of August 2013 had criticized the assessing officer for the unwarranted additions and harassment to the assessee.
The assessing officers responsible should be held accountable for wastage of time and resources of the department by making frivolous assessments which ultimately resulted into piling of appeals at various levels.
The assessing officer’s function as quasi-judicial authority and whose independence and autonomy must not be interfered with. Nonetheless it is obligation of supervisory officers to ensure that there is no miscarriage of justice. Assessing officers often in order to meet revenue targets make unrealistic assessments knowing that these orders will be set aside in the appellate process. Even if appeals have been upheld this does not adversely impact the service or career prospects of assessing officers. Over a period of time dissatisfaction level of assesses have gone up substantially since a high percentage of appeals are being preferred against the initial assessment order and substantial percentage of appeals preferred by assesses also succeeded. The department needs to seriously examine and inculcate attitude which will ensure that while no legitimate revenue is failed to be realized, the orders of assessing officers are fair and judicious and do not result in a very high percentage of dissatisfaction on the part of the assesses. The department need to seriously examine these suggestions and come up with appropriate suggestions and strict instructions to ameliorate the present situation and growing dissatisfaction.
In any case while taking up the case of the assessee for scrutiny assessment the assessing officer should look into the back history and record of the assessee to ascertain whether the case is really require scrutiny assessment.
The role of the assessing officer should be of a mentor to the assessee for realistic and correct assessment of the income of the assessee and to tax him not a single penny less nor a single penny more.
CONCLUSION: - From the all above, it may be concluded that the department of sales tax as well as department had taken up the issue of Hawala dealers by half-heartedly applying the legal provisions because-
- The alliged dealer had been declared as Hawala dealers in the place of non-genuine dealers only on the basis of affidavit taken out from them.
- The affidavit could not be termed as a conclusive because it is just a confession of the said dealers and it is too not taken voluntarily by the department of sales tax.
- The beneficiary dealers are forced to pay the dues along with interest and penalty. Irrespective of the fact that such beneficiary dealers is innocent or not.
- Neither the department of sales tax nor the department of income tax had made independent enquiries to establish that the transaction of the beneficiary dealers is fake and illegal.
- The beneficiaries dealers are not allowed to submit there say. Neither those have been heard about their innocence.
- No cross examination of any kind had been allowed to the beneficial dealers either against the affidavit or against the accused Hawala dealers.
- Neither the department has used its machinery to recover the dues from the alliged Hawala dealers.
- Instead the innocent beneficial dealers are forced to pay the dues along with interest and penalty. Irrespective of the fact the said dealers had parted with the said dues earlier.
- The levy of interest and penalty on those differential dues and recovered from the innocent beneficiary dealers is unjustified and unwarranted.
- Even the action of prosecution has also been initiated and executed against the beneficiary dealers along with the Hawala dealers.
- In all the basic principle of natural justice had been absolutely violated by both the department of sales tax as well as department of income tax at every stage.
PRECAUTIONS: - The beneficiary dealers in particular should take following precaution to fight for justice-
- To pay the disputed dues under protest.
- To keep the matter alive till further decision.
- To produce entire available evidences about the genuineness about the transactions made with the so called Hawala dealers.
- To insists the authority for getting the entire evidences used against the innocent dealers in assessments.
- To insists the authority for cross verification and inspection of documents wherever, possible.
- To insists the department to produce the alliged Hawala dealers for recording statement and cross examinations.
- To insists the authority to avail the maximum opportunity to defend himself in the principle of natural justice.
- To insists the authority for any possible remedial actions to save the innocent dealer from prosecution
- To insists the authority to wave the interest and penalty wherever possible.
- To take shelter of article 226 to file a writ against the department for the suspicious orders made against the innocent dealers.
- To represent the matter of the suspicious orders made against the innocent beneficiary dealer to the higher authority in group and through association.
Following are the citations to defend the innocent beneficiary dealers/assesses against the department of sales tax as well as income tax-
- George Oaks Pvt. Ltd. v/s. State of Madras: AIR 1962 SC 1037.
- CCE v/s. Harichand Shri. Gopal: (2011) 1 SCC 236.
- State of Jharkhand v/s. Govind Singh: (2005) 10 SCC 437.
- Suresh Trading Co. v/s. State of Maharashtra: (1996) SC 109 STC 439 (SC).
- Shantikiran India Pvt. Ltd. v/s. Commissioner of Trade & Tax: (2013) 57 VST 405 (ND)
- Khazanchand v/s. State of Jammu & Kashmir: AIR 1984 SC 762.
- Central Wires v/s. Special Commercial Tax Officer: (1987) 2SCC 371.
- Godrej & Boyce Mfg. Co. P Ltd. v/s. CST: (1992) 3SCC 624.
- Mahalaxmi Cotton & Ginning Pressing & Oil Industries v/s. State of Maharashtra: W.P. No. 33 of 2012 decided on May 11, 2012 pending at Supreme Court.
- CIT v/s. Omkar Saran & Sons: (1992) 62 Taxman 440 (SC)
- Sunny Gold & Wineries P L: Bombay HC decided on 13/04/2012.
- ADIT v/s. Joginder Singh: (1983) 15 Taxman 569 Delhi.
- Hoosein Kasam Dada (India) Ltd. v/s. State of M.P.: (1953) STC Volume IV page 114 (SC).
- Sahyadri Sakhar Karkhana v/s. State of Maharashtra W/P. No. 5859/2012 decided on 18/01/2013 Bombay High Court.
- Meenaxi Mills Ltd. v/s. CIT: (1957) 31 ITR 28 (SC).
- CIT v/s. Yahoo India P L: (2012) 33 Taxmann.com 332 (Bombay High Court).
- CIT v/s. JMD Computers & Communication’s Pvt. Ltd.: (2009) 20 DTR Del. 317.
- ADIT v/s. C V Bagal Koti & Sons: 115 ITR 131 (SC).
- CCE Jalandhar v/s. M/s. KK Industries Civil Appeal No. 7031, 32 etc. SC decided on 26/08/2013.
- Gerulal Balchand v/s. State of Haryana & Others: 26 Writ petitions decided on 23/09/2011.
- Sachin Impex v/s. State of Maharashtra: W.P. No. 10816/2012 decided on 23-03-2013 (2011) 45 VST 195.
- Hindustan Steel Ltd. v/s. State of Orissa: (1970) 25 STC 211 (SC).
- CIT v/s. Kelvinator India Ltd. : (2010) 187 Taxman 312 (SC)
- State of Tamilnadu v/s. Hotel Ashok Bhavan: (2013) 60 VST 79 C Madras.
- ACIT v/s. Tajesh Jhaveri Stock Brokers Pvt. Ltd.: 291 ITR 500 (SC).
- Sheo Nath Singh v/s. AAC: 82 ITR 147 (SC).
- CIT Agri. v/s. Lucky Kachuvareed: 103 ITR 799.
- ACIT v/s. Dharia Constructions: 328 ITR 515 (SC).
- CIT v/s. Godavari Saraf: Bombay High Court, 1978(2) Elt 624 Bom, 1978 113 ITR 589 Bom.
- Corporation Bank v/s. Saraswati Abharansala & another in SC of India (2009) 19 VST 84 (SC).
- N.B. Sanjana , Asst. Collector of Central Excise, Bombay, v/s. Elphinstone Spinning & Weaving Mills Co. Ltd. : (1971) AIR 2039 1971 SCR (3)506 (SC).
- Calcutta Gujrati Education v/s. Calcutta Municipal Corporation: (2003) 10 SCC 533 (SC).
- Sunil Batra v/s. Delhi Administration: AIR 1978 SC 1675 (SC).
- M. Nagaraj & Ors. V/s. Union of India & Ors. : (2006) 8 SCC 212 (SC).
- State of Punjab & Ors. V/s. M/s. Atul Fasteners Ltd.: (2007) (5) SCR 1010.
- M/s. Saujesh Chemicals: SA No. 11098 of 2002 dated 15/12/2007.
- Girdharilal Nanelal v/s. The Sales Tax Commissioner (M.P.): 39STC 30 (SC).
- Spanco Limited v/s. DCIT 10(2) (Mumbai ITAT) ITA Nos. 4036 to 4038/MUM/2011 vides order dated 11-07-2012.
- The Commissioner of Income Tax 1, Mumbai v/s. M/s. Nikunj Eximp Enterprises Pvt. Ltd. (ITXA 5604 of 2010) Mum vide order dated 17-12-2012.
- M/s. Balaji Textiles Industries (P) Ltd. v/s. Third ITO: 49 ITD 177 (Mumbai)
- Income Tax Officer v/s. Parmanand ITAT Jodhpur Bench: (2007) 107 TTJ (JD) 395.
- Commissioner of Income Tax v/s. Leaders Valves (P) Ltd. High Court of Punjab & Haryana: (2006) 285 ITR 435 (P&H).
- Jagdamba Trading Company v/s. ITO ITAT, Jodhpur ‘SMC’ Bench: (2007) 107 TTJ (JD) 398.
- J.R. Solvent Industries (P) Ltd. v/s. ACIT-ITAT, Chandigarh Third Member Bench: (1999) 63 TTJ (Chd.) (TM) 165.
- DCIT v/s. Bicycle Mfg. Corporation ITA No. 690/Chd./1999 A.Y. 1987-88.
- Saraswati Oil Traders v/s. CIT: (2002) 122 Taxman 0712.
- Connection v/s ITO: (2011) 335 ITR 0465.
- Free India Assurance Services Ltd. v/s. DCIT: (2011) 062 DTR 0349.
- CIT v/s. Hindustan Metal Works: (1993) 069 Taxman 0269.
DISCLAIMER: - The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. While due care has been taken in preparing this document, the existence of mistakes and omissions herein is not ruled out. Neither the author or his affiliate accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon. It is strictly advised to take help of counsel to apply any of the contentions of the above article.