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July 14, 2020

Professionals who are just filing tax returns should not be arrested

by Rubina Dsouza in GST, Legal Court Judgement

Professionals who are just filing tax returns should not be arrested


Punjab & Haryana High Court has passed the order of ‘No Benefit No Arrest’ in case of Akhil Krishan Maggu & Anr. VS Deputy Director, Directorate General of GST Intelligence & Ors. on 15th November 2019. Let us refer to this case to understand this order in detail.

Facts of the Case

  1. Akhil Krishan Maggu (Petitioner No. 1) son of Sanjeev Maggu (Petitioner No. 2) is a practising lawyer in the field of taxation.
  2. Petitioner No. 1 as an Advocate, on behalf of four exporters who had retracted their statements made at the first instance, filed Writ Petitions before Delhi High Court against DGGI.
  3. As per Respondent these four exporters had availed huge amount of refund of IGST and they were dummy owners.
  4. The DGGI Respondent searched the residence of the alleged owner of dummy export firms who happened to be the neighbor of Petitioners.
  5. On the behalf of the DGGI, Police registered a FIR against both the Petitioners and arrested them on the same day. Both were released on bail after a week incarceration.
  6. The Respondent-DGGI searched the residence of Petitioners who at that point of time were not at home. The Respondents after completing search took away younger brother of Petitioner No. 1 to their office and arrested him.
  7. The DGGI lodged another FIR against Petitioner No. 2 alleging that he called police at the time of search of his residence which amounted to obstruction in performance of official duty.
  8. The court while issuing notice of motion directed Petitioners to appear before Senior Intelligence Officer (SIO), DGGI.
  9. Both the Petitioners appeared before Respondent. The DGGI-Respondent handed over Petitioner No. 2 to Directorate of Revenue Intelligence, New Delhi who arrested him.
  10. Petitioner No. 2 was sent to judicial custody and till the date of the hearing he was stated to be in judicial custody.
  11. The Petitioner No. 1 again appeared before DGGI-Respondent on numerous occasions, but his statement was not recorded.

Opinion of the Petitioners

  1. Counsel for the Petitioners contended that it was case of vendetta and there was no evidence against Petitioners to connect them with fraud if any committed by alleged four dummy exporters or alleged owner.
  2. The Respondents did not record statement of Petitioners which showed that the intention of Respondent was to just arrest the Petitioners and tarnish their reputation.
  3. The Respondents during the course of investigation could not gather even a single piece of evidence against Petitioners.
  4. The Respondents wanted Petitioner No. 1 to accept that he is involved in refund scam though even his father was not found involved and Respondents/DGGI got arrested him from DRI.

Intention of Respondent was just to arrest Petitioner which was evident from the fact that Respondent/DGGI remained silent when Petitioner No. 2 was in custody in FIR case and thereafter in DRI matter.

Observations of the HC pertaining to applicability of Code of Criminal Procedure

  1. The provisions of CGST Act are not subject to exclusion of Criminal Procedure Code rather Section 67(10) as well Section 69(3) borrow provisions of Code of Criminal Procedure, 1973.
  2. As per Section 41(1)(b) as amended by Code of Criminal Procedure (Amendment) Act, 2008 applicable w.e.f. 01.11.2010, a person may be arrested if he has committed a cognizable offence punishable with imprisonment which may be less than 7 year or may extent to 7 year if conditions specified therein are satisfied.
  3. As per Section 41A of Cr.P.C., a notice shall be issued to the person against whom complaint has been made or creditable information has been received or reasonable suspicion exists and he shall not be arrested if he complies with the notice.

What are the provisions of Section 41?

According to Section 41, any police officer may without an order from a Magistrate and without a warrant, arrest any person:-

  1. who commits, in the presence of a police officer, a cognizable offence
  2. against whom a reasonable complaint has been made, or credible information has been received, or a reasonable suspicion exists that he has committed a cognizable offence punishable with imprisonment for a term which may be less than 7 years or which may extend to 7 years with or without fine

The following conditions are to be satisfied

1.the police officer has reason to believe on the basis of such complaint, information, or suspicion that such person has committed the said offence

2. the police office is satisfied that such arrest is necessary:-

a. to prevent such person from committing any further offence; or

b. for proper investigation of the offence or;

c. to prevent such person from causing the evidence of the offence to disappear or tampering with such evidence in any manner; or

d. to prevent such person from making any inducement, threat or promise to any person acquainted with the facts of the case so as to dissuade him from disclosing such facts to the Court or to the police officer; or

e. as unless such person is arrested, his presence in the Court whenever required cannot be ensured;

The police officer shall record while making such arrest, his reasons in writing. Provided that a police officer shall, in all cases where the arrest of a person is not required under the provisions of this sub-section, record the reasons in writing for not making the arrest.

What are the provisions of Section 41A?

  1. The police officer shall, in all cases where the arrest of a person is not required under the provisions of section 41(1), issue a notice directing the person against whom a reasonable complaint has been made, or credible information has been received, or a reasonable suspicion exists that he has committed a cognizable offence, to appear before him or at such other place as may be specified in the notice.
  2. Where such a notice is issued to any person, it shall be the duty of that person to comply with the terms of the notice.
  3. Where such person complies and continues to comply with the notice, he shall not be arrested in respect of the offence referred to in the notice unless, for reasons to be recorded, the police officers are of the opinion that he ought to be arrested.
  4. Where such person, at any time, fails to comply with the terms of the notice or is unwilling to identify himself, the police officer may, subject to such orders as may have been passed by a competent Court in this behalf, arrest him for the offence mentioned in the notice.

Opinion of the High Court pertaining to ‘Power of Arrest’

1.Taking cue Section 69 and 132 of CGST Act which empower Proper Officer to arrest a person who has committed any offence involving evasion of tax more than Rs.5 Crore and prescribed maximum sentence of 5 years which falls within purview of Section 41A of Cr. P.C., High Court was of the opinion that power of arrest should not be exercised at the whims and caprices of any officer or for the sake of recovery or terrorising any businessman or create an atmosphere of fear.

2. It should be exercised in exceptional circumstances during investigation, which illustratively may be

a. a person is involved in evasion of huge amount of tax and is having no permanent place of business

b. a person is not appearing inspite of repeated summons and is involved in huge amount of evasion of tax

c. a person is a habitual offender and he has been prosecuted or convicted on earlier occasion

d.  a person is likely to flee from country

e. a person is originator of fake invoices i.e. invoices without payment of tax

f. when direct documentary or otherwise concrete evidence is available on file/record of active involvement of a person in tax evasion

3. The persons who are having established manufacturing units and paying good amount of direct or indirect taxes; persons against whom there is no documentary or otherwise concrete evidences to establish direct involvement in the evasion of huge amounts of tax, should not be arrested prior to determination of liability and imposition of penalty.

4. Similarly, arrest of Chartered Accountant or Advocates who had filed returns or otherwise assisted in business but are not beneficiary or part of fraud merely on the basis of statement without any corroborative evidence linking the professional with alleged offence should be avoided.

5. It is well known that if top brass of a running concern is arrested, there are all possibilities of closure of unit which results into unemployment and wastage of precious natural resources.

Observations of the High Court pertaining to the current case

  1. Petitioner No. 2 was interrogated by DGGI and thereafter handed over to DRI, who arrested him.
  2. There was nothing on record showing admission by Petitioner No. 2 and no further statement was recorded in jail.
  3. Petitioner No. 1 had already put appearance on various occasions and there was nothing in the file to indicate that Petitioner No. 1 was connected with alleged illegal refund sought by Exporters.
  4. Petitioner No. 1 was neither proprietor nor partner nor shareholder of any Exporter Concern/Firm/Company, who availed refund of IGST.
  5. There was no evidence of transfer of funds in the accounts of Petitioners or withdrawal of cash by any one of them.
  6. The Petitioner No. 1 was in legal profession since 2017 and after introduction of GST he had not dealt directly or indirectly with export consignments.
  7. The Respondent had produced a copy of an order passed by Tribunal wherein Petitioner No. 1 had represented Appellants as an Advocate which supported the argument of Petitioner that he had appeared as an Advocate on behalf of four exporters who availed alleged illegal refund of IGST.
  8. HC found this as a case of some mis-understanding between Petitioners and officers of Respondent/DGGI who wanted to implicate Petitioner and his family members.
  9. The Respondents were unable to produce any evidence showing direct involvement of Petitioners.
  10. The Respondent did not record statement while both the Petitioners were in judicial custody for a week lodged at the instance of DGGI, and till date no statement of Petitioner No. 2 was recorded although he was in judicial custody.
  11. The Respondent-DGGI handed over Petitioner No. 2 to DRI after recording his statement and there was nothing on record to show that he made any confession.
  12. Intention of Respondents seemed only to arrest Petitioner No. 1, one way or the other, which was evident from the fact that Petitioner No. 2 was handed over to DRI without concluding investigation.

The HC has ordered if the Chartered Accountants, Lawyers or GST Practitioners are just filing the return and do not have any benefits for frauds and misconduct then they should not be arrested. Petition was disposed of in above terms. HC made it clear that they have not expressed any opinion on merits of the controversy and Respondents were free to continue with their investigation and thereafter proceed as per law.

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