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February 22, 2021

Bombay HC grants bail to petitioner arrested under Section 69 of CGST Act

by CA Shivam Jaiswal in GST, Legal Court Judgement

Bombay HC grants bail to petitioner arrested under Section 69 of CGST Act

Section 69 in the Central Goods and Service Tax (CGST) Act gives power to authorities to arrest any person if there is “reason to believe” that he has committed tax evasion. If the Commissioner of GST believes a person has committed an offence u/s 132, he can be arrested by any authorised GST officer. Offenses u/s 132 where arrest provisions become applicable are-

  • A taxable person supplies any goods/services without any invoice or issues a false invoice
  • He issues any invoice or bill without supply of goods/services in violation of the provisions of GST
  • He collects any GST but does not submit it to the government within 3 months
  • Even if he collects any GST in contravention of provisions, he still has to deposit it to the government within 3 months. Failure to do so will be an offense under GST
  • He has already been convicted of an earlier offence u/s 132

Let us refer to the case of Daulat Samirmal Mehta v. Union of India, where the petition challenges constitutional validity of section 132(1)(b) of the CGST Act and seeks a declaration that the power under section 69 of the CGST Act can only be exercised upon determination of the liability.

Facts of the Case:

  • Petitioner was a senior citizen aged about 65 years.
  • He was the Director of two companies by the name of Twinstar Industries Limited and Originet Technologies Limited.
  • In the year 2018, the respondent initiated an investigation on the basis of intelligence inputs regarding alleged fraudulent availment and utilization of input tax credit (ITC) by M/s. Al Fara’s Infraprojects Private Limited on the basis of bogus invoices without actual receipt of goods or services.
  • During the course of the investigation, statements of various persons including certain officials of M/s. Al Fara’s Infraprojects Private Limited were recorded.
  • In so far petitioner was concerned, on several occasions, summons was issued to him by the office of respondent under section 70 of the CGST Act.
  • In response to the summons, petitioner had appeared before the investigating officer in the office of respondent whereafter his statements were recorded.
  • After recording his last statement, petitioner was arrested by officials working in the office of respondent whereafter he was produced before the Additional Chief Metropolitan Magistrate along with remand application.
  • Remand application disclosed that petitioner was accused of committing offence under section 132(1)(c) of the CGST Act as his companies had fraudulently availed and utilized ineligible input tax credit (ITC) amounting to Rs.122.59 crores approximately on the strength of bogus invoices without actual receipt of goods or services as mentioned in the respective invoices; besides committing an offence under section 132(1) (b) as it was alleged that companies of the petitioner had fraudulently issued bogus invoices and passed on ineligible ITC to various companies without actual supply of goods or services mentioned in the respective invoices thereby leading to wrongful passing on of ITC amounting to approximately Rs.191.66 crores to the recipient companies.
  • By the said remand application, the arresting authority sought for judicial custody of the petitioner for a period of 14 days seeking liberty to interrogate the petitioner in jail custody.
  • It was stated that following his arrest, petitioner was lodged in judicial custody.
  • In the meanwhile, on behalf of the petitioner and the two companies of which he was the director, three separate compounding applications were filed under section 138 of the CGST Act before the respondents for compounding of the offences and to prevent further infringement of the personal liberty of the petitioner.
  • Petitioner stated that though he did not admit any of the allegations levelled against him, he had nonetheless filed applications for compounding to avoid multiplicity of proceedings as well as to avoid the rigours of prosecution besides any further prejudice to his personal liberty.

Observations of HC on Power to Summon

  • Petitioner was charged with committing offences under section 132(1)(c) and 132(1)(b) of the CGST Act
  • Chapter XIV of the CGST Act deals with inspection, search, seizure and arrest. It comprises of sections 67 to 72.
  • Section 70 deals with power to summon persons to give evidence and produce documents.
  • As per sub-section (1), the proper officer under the CGST Act shall have the power to summon any person whose attendance he considers necessary either to give evidence or to produce a document or any other thing in any enquiry in the same manner as provided in the case of a civil court under the provisions of the Civil Procedure Code, 1908.
  • Thus, what section 70(1) provided was the conferment of power on the proper officer to summon any person whose attendance he considered necessary to either tender evidence or to produce documents etc. in any enquiry.
  • Exercise of such a power was akin to power exercised by a civil court under the Civil Procedure Code, 1908.
  • Sub-section (2) clarified that every enquiry in which summons was issued for tendering evidence or for production of documents was to be deemed to be a judicial proceeding within the meaning of sections 193 and 228 of the Indian Penal Code, 1860.

Observations of HC on Power to Arrest

  • Power to arrest is provided in section 69. As per sub-section (1), where the Commissioner has reasons to believe that the person has committed any offence specified in clause (a) or clause (b) or clause (c) or clause (d) of section 132(1), which is punishable under clause (i) or (ii) of sub-section (1) or sub-section (2) of the said section, he may by order authorize any officer of central tax to arrest such person.
  • Therefore, what sub-section (1) provides is that Commissioner may by order authorize any officer of central tax to arrest a person if he has reasons to believe that the said person has committed any offence under clauses (a) or (b) or (c) or (d) of sub-section (1) of section 132. The expression ‘reasons to believe’ as appearing in subsection (1) of section 69 is of crucial importance because the same is the sine qua non for exercise of power to arrest by the Commissioner.
  • Under sub-section (3) of section 69, arrest under sub-section (1) has been made subject to the provisions of Cr.P.C., which would include section 41 and 41-A thereof.

Observations of HC on offences and penalties

  • Chapter XIX deals with offences and penalties. Section 132 is part of Chapter XIX.
  • It provides for punishment for committing certain offences.
  • As per sub-section (1), whoever commits any of the twelve offences mentioned therein shall be punished in the manner provided in clauses (i) to (iv) of sub-section (1).
  • In this case, HC was concerned with offences under clauses (b) and (c) of sub-section (1).
  • As per clause (c), the offence was availing ITC using invoice or bill without the supply of goods or services or both in violation of the CGST Act; and as per clause (b), a person who issues any invoice or bill without supply of goods or services or both in violation of the provisions of the CGST Act or the rules made thereunder leading to wrongful availment or utilization of input tax credit or refund of tax.
  • If a person commits the above two offences as per clauses (c) and (b), he shall be punishable under clause (i) if the amount of tax evaded or the amount of input tax credit wrongly availed of or utilized or the amount of refund wrongly taken exceeds Rs 500 lakh with imprisonment which may extend to 5 years and with fine. All other penalties are below five years.
  • As per sub-section (5), the offences specified in clause (a) or (b) or (c) or (d) of sub-section (1) and punishable under clause (i) of that section are cognizable and non-bailable.

Observations of the HC on the facts of the present case

  • The records before the HC did not disclose that during this period or even prior to that after the first statement of the petitioner was recorded, there was any incident of the petitioner tampering with the evidence or threatening or inducing any witness.
  • There was nothing on record to show that the petitioner had avoided the investigation or there was a possibility of the petitioner fleeing from investigation
  • HC noticed that respondents relied upon the statements of the petitioner to contend that there was clear admission on the part of the petitioner to the wrong doing and thus committing offences under section 132(1)(c) and (b) of the CGST Act and, therefore, his arrest was justified.
  • Though section 25 of the Indian Evidence Act, 1872 was not attracted to recording of statements by revenue officers under the CGST Act, nonetheless we find that section 136 of the CGST Act may have a bearing on this aspect.
  • Section 136 of the CGST Act dealt with relevancy of statements under certain circumstances.
  • It stated that a statement made and signed by a person on appearance in response to any summons issued under section 70 during the course of any inquiry or proceedings under the CGST Act shall be relevant for the purpose of proving in any prosecution for an offence under the CGST Act.
  • The truth of the facts which it contained when a person who made the statement was examined as a witness in the case before the court and the court was of the opinion that having regard to the circumstances of the case, the statement should be admitted in evidence in the interest of justice.
  • Though HC was aware that section 136 would only come into play at the time where the trial commenced, nonetheless the said provision was important to highlight the fact that an admission made by a person before the revenue officials under the CGST Act would not be per se admissible in evidence unless it received the imprimatur of the Court.
  • HC had noticed that the Commissioner could authorize arrest of a person only if he had reasons to believe that such a person had committed any offence under the clauses mentioned therein.
  • The expression ‘reasons to believe’ was an expression of considerable import and in the context of the CGST Act, confers jurisdiction upon the Commissioner to authorize any officer to arrest a person.
  • The expression ‘reasons to belief’ postulated belief and the existence of reasons for that belief.
  • The belief must be held in good faith, it could not be merely a pretence.
  • Reasons to believe does not mean a purely subjective satisfaction.
  • It contemplates existence of reasons on which the belief is founded and not merely a belief in the existence of reasons inducing the belief. The belief must not be based on mere suspicion; it must be founded upon information.
  • Such reasons to believe could be formed on the basis of direct or circumstantial evidence but not on mere suspicion, gossip or rumour.
  • It was open for a court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief.
  • A rational connection postulated that there must be a direct nexus or live link between the material coming to the notice of the officer and the formation of his belief.
  • Courts had also held that recording of reasons distinguishes an objective from a subjective exercise of power and is a check against arbitrary exercise of power.
  • From the note sheet, HC found that Principal Additional Director General had recorded her reasons after going through the facts and the arrest proposal put up before her.
  • She recorded that she had reasons to believe that the petitioner had committed the two offences as mentioned above, which are cognizable and non-bailable.
  • Thereafter she noted that during the course of the investigation, petitioner had not co-operated with the department and had tried to mislead the investigation.
  • Offences were committed with full disregard to the statutory provisions with intent to defraud Union of India of its legitimate revenue.
  • Therefore, she agreed with the proposal to arrest the petitioner in order to ensure that he did not tamper with crucial evidence and did not influence the witnesses as well as did not hamper in the investigation process
  • Bail jurisprudence which had evolved over the years stood on a different footing altogether.
  • This was more so in the present case when admittedly respondents had not lodged any first information before the police under section 154 Cr.P.C.
  • Respondents had also not filed any complaint before the competent magistrate under section 200 Cr.P.C. There was no formal accusation against the petitioner prior to arrest.
  • The first time such accusation was placed on record was after arrest that too in the form of remand application.
  • A remand application by its very nature could not be construed to be a first information or a complaint as was understood in law.
  • In case of the present case, notwithstanding the allegation of serious financial impropriety against the petitioner, the case against him was not even at the under-trial stage; it was at the pre-trial stage i.e., at a stage where even formal accusation in the form of a first information or a complaint was not made.

Accordingly, HC directed that the petitioner to be enlarged on bail.

Read the High Court Order from below


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