The tax, either it may be direct tax or indirect tax shall be paid by the person liable to pay within the time stipulated and in the manner as provided in the provisions of the respective Act. If the person fails to levy tax or pay tax or short levy of tax or short paid tax the Department is entitled to recover the amount from the assessee within the limitation period as prescribed in the respective Act. If the failure to pay the tax with the intention to evade tax by means fraud, suppression etc., the limitation period will be extended to five years.
In ‘Commissioner of Customs, Kandla V. Essar Oil Limited’ – 2004 (10) TMI 90 – SUPREME COURT OF INDIA the Supreme Court held that by ‘fraud’ is meant an intention to deceive; whether it is from any expectation of advantage to the party himself or from the ill will towards the other is immaterial. The expression ‘fraud’ involves two elements, deceit and injury to the deceived. Undue advantage obtained by the deceiver, will almost always cause loss or detriment to the deceived. Similarly a fraud is an act of deliberate deception with the design of securing something by taking unfair advantage of another. It is a deception in order to gain by another’s loss. It is a cheating intended to get an advantage.
In a leading English case ‘Derry and others V. Peek’ – (1886-90) All ER-1 what constitutes ‘fraud’ was described thus. ‘Fraud’ is proved when it is shown that a false representation has been made-
- knowingly; or
- without belief in its truth; or
- recklessly, careless whether it be true or false.
It is established principle of law that fraud and justice do not dwell together. The former Chief Justice of England, Sir Edward Coke, (three centuries ago) observed that fraud avoids all judicial acts, ecclesiastical or temporal. The Supreme Court in ‘S.P. Chengalvaraya Naidu V. Jagannath’ [1993 (10) TMI 315 – SUPREME COURT] held that act of deliberate deception with the design of securing something by taking unfair advantage of another is ‘fraud’. ‘Fraud’ is a cheating intended to get an advantage. A person whose case is based on falsehood he has no right to seek relief in equity.
Enactments like Customs Act, Central Excise Act are not merely taxing statutes but are also potent instruments in the hands of the Government to safeguard interest of the economy. One of its measures is to prevent descriptive practices of undue claim of fiscal incentives. Preponderance of probability comes to rescue of Revenue and revenue is not required to prove its case by mathematical precision. The Evidence Act also does not insist on absolute proof for the simple reason that perfect proof in this imperfect world is seldom to be found. Therefore under Section 3 of the Evidence Act, a fact is said to be ‘proved’ when, after considering the matters before it, the Court either believes it to exist or considers its existence so probable that a prudent man ought, under the circumstances of the particular case, to act upon the supposition that it exists. The definition of ‘proof’ does not draw any distinction between circumstantial and other evidence. Thus, if circumstances establish that there is high degree of probability that a prudent man ought to act on the supposition that there was ill designed deal to defraud revenue which invites penal consequences under law.
In ‘Commissioner of Customs V. Essar Oils Limited’ – 2004 (10) TMI 90 – SUPREME COURT OF INDIA the Supreme Court observed that it is a fraud in law if a party makes representations, which he knows to be false, and injury ensues there from although the motive from which the representations proceeded may not have been bad.
In ‘K.I. Pavunny V. Assistant Commissioner, Cochin’ – 1997 (2) TMI 97 – SUPREME COURT OF INDIA it was held that when the material evidence establish fraud against Revenue, white collar crimes committed under absolute secrecy shall not be exonerated from penal consequences of law.
It is cardinal principle of law which is enshrined in Section 17 of the Limitation Act that fraud nullifies everything. Adjudications do not suffer from time bar as is held by Supreme Court in ‘Commissioner of Central Excise V. Candid Enterprises’ –2001 (3) TMI 101 – SUPREME COURT OF INDIA where fraud surfaces. Lapse of time does not convert an illegitimate transaction to be otherwise and plea of time bar is not tenable but deniable.
When fraud is established that unravels all as has been held by the Supreme Court in ‘Union of India V. Jain Shudh Vanaspati Limited’ – 1996 (8) TMI 108 – SUPREME COURT OF INDIA any undue gain made at the cost of Revenue defrauding it is to be paid back to Revenue followed by penal consequence of law. Fraud committed against Revenue void all judicial acts, ecclesiastical or temporal.
It is a fraud in law if a party makes representations, which he knows to be false, and injury ensures there from although the motive from which the representations proceeded may not have been bad. It is also well settled that misrepresentation itself amounts to fraud. A fraudulent misrepresentation is called deceit and consists in leading a man into damage by willfully or recklessly causing him to believe and act on falsehood. Of course, innocent misrepresentation may give reason to claim relief against fraud.
In ‘Ashok Leyland Limited V. State of Tamil Nadu and another’ – 2004 (1) TMI 365 – SUPREME COURT OF INDIA 1 it was held that suppression of a material document would also amount to a fraud on the court. No judgment of a Court can be allowed to stand if it has been obtained by fraud. Fraud unravels everything and fraud vitiates all transactions known to the law of however high a degree of solemnity.
An act of fraud on revenue is always viewed seriously by Courts. ‘Fraud’ and collusion vitiate even the most solemn proceedings in any civilized system of jurisprudence. It is a concept descriptive of human conduct either by letter or words, which includes the other person or authority to take a definite determinative stand as a response to the conduct of the former either by words or letter.