By TIOL News Service
HYDERABAD, APR 22, 2019: BY challenging the summons issued by Superintendent (Anti Evasion) under Section 70 of CGST Act, 2017 and the invocation of penal provisions under Section 69 of the Act, the Directors (Past and/or present) of a few Private Limited Companies, a Chief Financial Officer of a company and the Partner of a Partnership Firm have come up with the writ petitions. Since the petitioners in these writ petitions were apprehending arrest, at the time when they came up before this Court, interim protective orders were granted, not to arrest the petitioners, but on condition that they appeared before the concerned authorities, whenever summoned and also cooperated in the investigation. Thereafter, the Superintendent (Anti Evasion), in most of the writ petitions, has come up with a counter affidavit.
Since an investigation is now pending, which if results in the prosecution of the petitioners, may lead to the petitioners being tried for certain offences punishable under the Act, court will only record the gist of averments contained in the counter affidavit for the purpose of completion of narration. The petitioners relied upon a few decisions where the Supreme Court condemned pre trial arrest in cases where it was not necessary. They also relied upon a judgment of Delhi High Court which opined that the Commissioner can have reason to believe in terms of Section 69(1), only after an adjudication is made. The fact that until a prosecution is launched, by way of a private complaint with the previous sanction of the Commissioner, no criminal proceedings can be taken to commence; that persons who are summoned under Section 70(1) of the Act and persons whose arrest is authorised under Section 69(1) of the Act are not to be treated as persons accused of any offence until a prosecution is launched and that an officer of the Central Tax authorised under Section 69(1) of the Act to arrest a person is not a police officer, are all not disputed by the petitioners. Therefore, it is not necessary to consider in great detail, the decisions of the Supreme Court in Badaku Joti Savant 2002-TIOL-326-SC-CUS-CB, Ramesh Chandra Metha, Illias, Percy Rustomji Basta, Veera Ibrahim and Poolpandi 2002-TIOL-625-SC-CX-LB.
Whether Article 226 can be used as a substitute to section 438, Cr.P.C
What the petitioners seek in these cases is a direction to the respondents not to arrest them in exercise of the power conferred by Section 69(1) of the CGST Act, 2017. This in essence, is akin to a prayer for anticipatory bail. Since no first information report gets registered before the power of arrest under Section 69(1) of the CGST Act, 2017 is invoked, the petitioners cannot invoke Section 438 of Cr.P.C for anticipatory bail. Therefore, the only way they can seek protection against pre-trial arrest is to invoke the jurisdiction of this Court under Article 226 of the Constitution of India.
The argument of petitioners is that since the maximum punishment prescribed under Section 132 of the CGST Act, 2017 is imprisonment for five years and also since the petitioners have complied with the notices for appearance, there is no necessity for the Commissioner to order their arrest under Section 69 (1) of CGST Act, 2017. This is in view of section 41-A (3) of the Code.
Some incongruities in section 69 and 132, CGST Act
Under sub-Section (1) of Section 69, the power to order arrest is available only in cases where the Commissioner has reasons to believe that a person has committed any offence specified in clauses (a) to (d) of sub-Section (1) of Section 132 CGST Act, 2017. The offences specified in clauses (a) to (d) of sub-Section (1) of Section 132 CGST Act, 2017 are made cognizable and nonbailable under Section 132(5) of the CGST Act, 2017. Therefore, it is clear from sub-Section (1) of Section 69 of the CGST Act that the power of the Commissioner to order the arrest of a person, can be exercised only in cases where such a person is believed to have committed a cognizable and nonbailable offence.
But the incongruity between Section 69(1) and sub-Sections (4) and (5) of Section 132 of CGST Act, 2017 is that when the very power to order arrest under Section 69(1) is confined only to congnizable and non-bailable offences, we do not know how an order for arrest can be passed under Section 69(1) in respect of offences which are declared non-cognizable and bailable under sub-Section (4) of Section 132 of CGST Act.
Even though Section 69(1) of the CGST Act, 2017 does not confer any power upon the Commissioner to order the arrest of a person, who has committed an offence which is non-cognizable and bailable, sub-Section (3) of Section 69 of the CGST Act, 2017 deals with the grant of bail, remand to custody and the procedure for grant of bail to a person accused of the commission of non-cognizable and bailable offences. Thus, there is some incongruity between sub-Sections (1) and (3) of Section 69 read with section 132 of the CGST Act, 2017.
In any case, the moment the Commissioner has reasons to believe that a person has committed a cognizable and non-bailable offence warranting his arrest, then the safeguards before arresting a person, as provided in Sections 41 and 41A of Cr.P.C., may have to be kept in mind.
Despite the compliance with notices of appearance, a Police Officer himself is entitled under Section 41A(3) Cr.P.C., for reasons to be recorded, arrest a person. At this stage, court may notice the difference in language between Section 41A(3) of Cr.P.C. and 69(1) of CGST Act, 2017. Under Section 41A(3) of Cr.P.C., "reasons are to be recorded", once the Police Officer is of the opinion that the persons concerned ought to be arrested. In contrast, Section 69(1) uses the phrase "reasons to believe". There is a vast difference between "reasons to be recorded" and "reasons to believe."
If reasons to believe are recorded in the files, it is not necessary to record those reasons in the authorization for arrest under Section 69(1) of the CGST Act.
In essence, the main allegation of the Department against the petitioners is that they are guilty of circular trading by claiming input tax credit on materials never purchased and passing on such input tax credit to companies to whom they never sold any goods. The Department has estimated that fake GST invoices were issued to the total value of about Rs.1,289 crores and the benefit of wrongful ITC passed on by the petitioners is to the tune of about Rs.225 crores.
The contention of petitioners is that the CGST Act, 2017 prescribes a procedure for assessment even in cases where the information furnished in the returns is found to have discrepancies and that unless a summary assessment or special audit is conducted determining the liability, no offence can be made out under the Act. Therefore, it is their contention that even a prosecution cannot be launched without an assessment and that therefore, there is no question of any arrest.
It is true that CGST Act, 2017 provides for (i) self assessment, under Section 59, (ii) provisional assessment, under Section 60, (iii) scrutiny of returns, under Section 61, (iv) assessment of persons who do not file returns, under Section 62, (v) assessment of unregistered persons, under Section 63, (vi) summary assessment in special cases, under Section 64 and (vii) audit under Sections 65 and 66. But, to say that a prosecution can be launched only after the completion of the assessment, goes contrary to Section 132 of the CGST Act, 2017. The list of offences included in sub-Section (1) of Section 132 of CGST Act, 2017 have no co-relation to assessment. Issue of invoices or bills without supply of goods and the availing of ITC by using such invoices or bills, are made offences under clauses (b) and (c) of sub-Section (1) of Section 132 of the CGST Act. The prosecutions for these offences do not depend upon the completion of assessment. Therefore, the argument that there cannot be an arrest even before adjudication or assessment, does not appeal to the court.
Another argument advanced by petitioners is that since the Proper Officer under the CGST Act, 2017, even according to the respondents is not a Police Officer, he cannot and he does not seek custody of the arrested person, for completing the investigation/enquiry. Section 69(2) obliges the Officer authorized to arrest the person, to produce the arrested person before a Magistrate within 24 hours. Immediately, upon production, the Magistrate may either remand him to judicial custody or admit the arrested person to bail, in accordance with the procedure prescribed under the Code of Criminal Procedure. There is no question of police custody or custody to the Proper Officer in cases of this nature. Therefore, it is contended by petitioners that the arrest under Section 69, does not advance the cause of investigation/enquiry, but only provides a satisfaction to the respondents that they have punished the arrested person even before trial.
It is true that in some cases arising out of similar provisions for arrest under the Customs Act and other fiscal laws, the Supreme Court indicated that the object of arrest is to further the process of enquiry. But, it does not mean that the furthering of enquiry/ investigation is the only object of arrest. Therefore, all the technical objections raised by the petitioners, to the entitlement as well as the necessity for the respondents to arrest them are liable to rejected. Once this is done, court will have to examine whether, the petitioners are entitled to protection against arrest. It must be remembered that the petitioners cannot be placed in a higher pedestal than those seeking anticipatory bail. On the other hand, the jurisdiction under Article 226 has to be sparingly used, as cautioned by the Supreme Court in Km.Hema Misra.
The High Court observed that:
++ The petitioners have allegedly involved in circular trading with a turnover on paper to the tune of about Rs.1,289.00 crores and a benefit of ITC to the tune of Rs.225.00 crores.
++ If, even before the GST regime is put on tracks, some one can exploit the law, without the actual purchase or sale of goods or hiring or rendering of services, projecting a huge turnover that remained only on paper, giving rise to a claim for input tax credit to the tune of about Rs.225.00 crores, there is nothing wrong in the respondents thinking that persons involved should be arrested. Generally, in all other fiscal laws, the offences that we have traditionally known revolve around evasion of liability. In such cases, the Government is only deprived of what is due to them. But in fraudulent ITC claims, of the nature allegedly made by the petitioners, a huge liability is created for the Government. Therefore, the acts complained of against the petitioners constitute a threat to the very implementation of a law within a short duration of its inception.
++ Despite our finding that the writ petitions are maintainable and despite our finding that the protection under Sections 41 and 41-A of Cr.P.C., may be available to persons said to have committed cognizable and non-bailable offences under this Act and despite our finding that there are incongruities within Section 69 and between Sections 69 and 132 of the CGST Act, 2017, we do not wish to grant relief to the petitioners against arrest, in view of the special circumstances.
Therefore, the Writ Petitions are dismissed. Consequently, miscellaneous petitions, if any pending, shall stand dismissed.
(See 2019-TIOL-873-HC-TELANGANA-GST)
