The assumption seems to be that, in a D&D society where Evil can be detected, that it will be considered a crime to be evil. I disagree with this.
Those who cast divinations are untimately aware of their potential for failure. A few Misdirections here, a Nondetection there, and all of a sudden Good people are detecting as evil. It's not hard at all to set up. You can never be 100% sure that somebody who is detecting as Evil actually IS Evil. A few high-profile instances of this happening would be enough to have those in authority shove the "Detect Evil" --> Punishment paradigm right down the toilet. After all, they could be the next target.
Also, somebody can be Evil and never overtly disobey the law. Prince John in the Robin Hood story was rising to power by exploiting the law, not by breaking it - i.e., NOT sending the ransom for the King was not in itself against the law, but it allowed John's rise to power. Leaving the King to rot in a foreign prison is unscrupulous and Evil, yes, but not illegal.
Exploiting your workers through nasty contracts that they can't understand is pretty Evil, but might not be illegal if the person in question signed the contract.
Modern-day lawyers (to use a cultural steriotype) are sometimes unscrupulous, greedy, ambulance-chasers. Their goal is to sue pretty much anybody for as much money as they can. This is despicable and Evil, but not illegal.
IMC, proof of a crime is required for legitimate authorities to enforce legal punishments. Divinations are not permitted in the courtroom, but are permitted in the "detective" process, assuming they lead to real evidence, as opposed to claiming to be real evidence in themselves.
A paladin who has detected evil has not ended the case. He has mearly gained a clue that there might be some wrongdoing going on. His hands are tied unless he uncovers evidence of wrongdoing. That's why paladins aren't that good for local law enforcement and spend their time on the Big Nastys of the campaign world.
edit:
Conversely, if you would argue to throw anybody who detects as Evil in jail, would you also argue to release anybody in jail who registers as Good? Clearly, if they truly deserved to be in jail, they would detect as Evil, right?