Tax Investigations and Right Against Self-Incrimination: Balancing Legal Safeguards

The right against self-incrimination is a fundamental safeguard enshrined in Article 20(3) of the Indian Constitution¹. It protects an individual from being compelled to provide self-incriminating information. This principle plays a crucial role in ensuring fair legal proceedings. However, its application in the context of tax investigations remains a topic of intense debate. This article explores the current legal landscape surrounding Article 20(3) in goods and services tax (GST) and Customs investigations and underscores the need for a definitive interpretation by the Supreme Court.

The right against self-incrimination: Legal framework

Article 20(3) of the Indian Constitution grants the fundamental right against self-incrimination, stipulating that “no person accused of any offence shall be compelled to be a witness against himself”. Rooted in the Latin maxim “nemo tenetur seipsum accusare” (no one can be compelled to incriminate oneself) its purpose is to safeguard individuals from being coerced into admitting guilt or providing evidence that could be used against them in subsequent legal proceedings.

Section 70 of the Central Goods and Services Tax Act, 2017² (CGST Act) and Section 108 of the Customs Act, 1962³ (Customs Act) empower tax authorities to summon individuals for inquiries. Such inquiries are deemed “judicial proceedings” under Sections 229 and 267 of the Nyaya Sanhita, 2023⁴ (BNS). Thus, summoned individuals are legally obliged to refrain from giving false or fabricated evidence during the investigation proceedings.

In terms of Section 2(m) of the Nagarik Suraksha Sanhita, 2023⁵ (BNSS) “judicial proceeding includes any proceeding in the course of which evidence is or may be legally taken on oath”. Further, the Sakshya Adhiniyam, 2023⁶ (BSA) applies to all judicial proceedings⁷ in or before any court⁸. Therefore, the inquiries initiated under Section 70 of the CGST Act and Section 108 of the Customs Act are also governed by the principles of criminal jurisprudence and natural justice.

However, the Supreme Court has consistently held that tax officers are not “police officers” under Section 25 of the Evidence Act, 1872⁹ (IEA). As a result, self-incriminating statements made during indirect tax investigations can be admitted as evidence. This distinction between tax officers and police officers serves as the foundation for allowing compelled testimony in tax investigations. Nevertheless, this raises a critical question: Does the right against self-incrimination, guaranteed under Article 20(3), extend to individuals facing tax investigations? If it does not, are there sufficient safeguards to prevent misuse of investigative powers?

Historical development of Article 20(3) in the context of tax investigations

The scope of Article 20(3) in tax investigations has undergone significant judicial scrutiny. Historically, courts have adopted a restrictive interpretation, emphasising that the protection under Article 20(3) applies only to individuals formally “accused” of an offence — necessitating a formal complaint or accusation. In Ramesh Chandra Mehta v. State of W.B.¹⁰, the Supreme Court held that an officer under the Customs Act is a Revenue Officer primarily concerned with detection of smuggling and levy of proper duties and does not qualify as a police officer. Therefore, a person investigated by a Customs Officer will not qualify as an accused and accordingly, right against self-incrimination under Article 20(3) will not be available to such person. Similar views were expressed by the Supreme Court in Illias v. Collector of Customs¹¹. This narrow view limits the applicability of the constitutional safeguard to situations where formal proceedings have been initiated, leaving individuals vulnerable during the preliminary stages of investigations.

In Nandini Satpathy v. P.L. Dani¹², the Supreme Court advocated a broader interpretation, asserting that the term “accused” could encompass individuals who perceive themselves as suspects during investigations. The Court emphasised that such individuals are entitled to protection against testimonial compulsion under Article 20(3). This decision recognised the inherent psychological pressure faced by individuals under investigation and aimed to shield them from exploitation.

Subsequent rulings, however, have deviated from this expansive view. In Poolpandi v. CCE¹³, the Supreme Court held that tax officers are not police officers and individuals under investigation are not considered “accused” within the meaning of Article 20(3). Consequently, the right against self-incrimination was deemed inapplicable to tax investigations. This decision has been criticised for creating a dichotomy where protections afforded in criminal investigations are denied in regulatory inquiries, despite their punitive consequences.

The restrictive interpretation has often been justified on grounds of expediency, with proponents arguing that tax investigations require extensive fact-finding powers to curb evasion. However, critics argue that this undermines the spirit of Article 20(3), allowing investigative authorities to compel testimony without adequate safeguards. The absence of clear guidelines on balancing investigative needs with constitutional rights exacerbates the uncertainty faced by individuals.

CCTV surveillance in tax investigations: A missed safeguard?

In Paramvir Singh Saini v. Baljit Singh¹⁴, the Supreme Court directed that Closed-Circuit Television (CCTV) cameras be installed in the offices of all investigative agencies empowered to conduct interrogations and make arrests. This directive was aimed at upholding the constitutional mandate of transparency and accountability in custodial settings. Agencies such as the Directorate of Revenue Intelligence (DRI) and the Directorate General of GST Intelligence (DGGI) fall within the scope of this directive.

The Court’s emphasis was that the investigative environments must be subject to scrutiny to deter coercive practices and protect the rights of individuals being interrogated. While this measure is undoubtedly a step toward safeguarding civil liberties, it raises a critical and unresolved question i.e. whether individuals can rely on CCTV footage to demonstrate coercion or testimonial compulsion during the recording of their statements under tax laws?

This becomes particularly relevant given the prevailing judicial view that tax officers are not “police officers” and that statements made to them, even if self-incriminating, are admissible in evidence. In the absence of recognition that such officers exercise powers analogous to police officers, there is an ambiguity around whether CCTV footage can serve as a substantive check on improper conduct or support an assessee’s claim of involuntary confession.

Further, there is no statutory framework explicitly requiring that such footage be made accessible to the person under investigation, nor clarity on whether its contents could render a statement inadmissible if coercion is evident. This legal vacuum undermines the potential of CCTV surveillance as an effective procedural safeguard under Article 20(3), leaving individuals at the mercy of the very agencies meant to be restrained by transparency.

Shifting the paradigm: Redefining the scope of Article 20(3) in tax investigations

Recent judicial interpretations have rekindled the debate over Article 20(3) in tax matters. The Telangana High Court in Senior Intelligence Officer v. Sanjay Agarwal¹⁵, expanded the scope of right against self-incrimination guaranteed under Article 20(3) in the context of tax investigations. The Court held that while tax authorities are empowered to summon individuals and require them to produce relevant documents, they cannot compel individuals to provide any information that could potentially incriminate them in any offence. This progressive interpretation challenges the historically restrictive stance and underscores the evolving judicial perspective. This case is currently pending before the Supreme Court and offers a pivotal opportunity to establish a consistent interpretation of Article 20(3) in tax matters.

The Telangana High Court’s judgment¹⁶ aligns with the principles laid out in Nandini Satpathy case¹⁷, emphasising the need to protect individuals from undue pressure during investigations. By recognising the coercive nature of investigative proceedings, the judgment advocates for a more balanced approach, ensuring that constitutional safeguards are not rendered illusory. If upheld by the Supreme Court, this interpretation could transform the legal landscape, compelling tax authorities to adopt more rights-conscious procedures.

At the same time, opposing views argue that expanding Article 20(3) to tax investigations could hinder the effectiveness of inquiries. Tax authorities often rely on compelled testimony to unravel complex evasion schemes. Balancing these competing considerations requires a nuanced approach, one that safeguards individual rights without compromising the state’s ability to enforce tax laws.

Final thoughts

A restrictive interpretation of Article 20(3) enables tax authorities to gather incriminating evidence during investigations, especially in form of “confessional statements” by resorting to coercive methods, by undermining the principle of protection against self-incrimination. Such an approach not only dilutes the constitutional safeguard but also creates the perception that Article 20(3) is inapplicable in tax matters. This has broader implications, eroding public trust in the fairness of investigative processes and creating an environment where individuals may feel coerced into compliance.

Conversely, a broader interpretation of Article 20(3) aligns with the Constitution’s spirit of safeguarding individual rights. Courts have a duty to expand, rather than restrict, the scope of fundamental rights, as emphasised in Maneka Gandhi v. Union of India¹⁸. A definitive judicial resolution ensuring that individuals are not compelled to incriminate themselves during tax investigations is crucial for upholding constitutional values and promoting fairness in legal proceedings.

To strike the right balance, the judiciary may lay down clear and unambiguous guidelines on the application of Article 20(3) in regulatory contexts. This includes delineating the circumstances under which compelled testimony can be admitted and ensuring robust safeguards against misuse. By doing so, the judiciary can uphold the integrity of constitutional protections while enabling tax authorities to fulfil their mandate effectively. A rights-conscious approach to tax investigations will not only protect individuals and corporates, but also strengthen the legitimacy of enforcement mechanisms, fostering greater compliance and trust in the legal system.