HC upholds arrest under GST for tax evasion
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 K P and Sons and Others vs Union of India where petition was filed by the petitioner claiming that Section 69 was of criminal nature, and it could not have been enacted under Article 246A of the Constitution.
Facts of the Case:
- It was alleged that the petitioners had availed fraudulent IGST refunds as well as Input Tax Credits.
- Petitioners submitted that Sections 69 and 132 of the CGST Act were unconstitutional as being provisions of criminal nature, they could not have been enacted under Article 246A of the Constitution of India, 1950.
- They emphasized that the power to arrest and prosecute were not ancillary and/or incidental to the power to levy and collect goods and services tax.
- They also submitted that the procedure prescribed under the CGST Act was not just, fair and reasonable.
- It was stated that the assessee had suffered irreparable loss on account of arrest.
- They emphasized that in the present cases no Show Cause Notice was issued to the Petitioners either under Section 73 or Section 74 of the CGST Act by the Respondents for any unpaid tax, short paid tax, or erroneous refunds or where input tax credit had been wrongly availed or utilized.
- They stated that the Respondents erroneously claimed that since they were not the police officers and CGST Act was a special act containing provisions for arrest, search and seizure etc, Respondents were not bound by Chapter XII or any provision of the Code of Criminal Procedure, 1973 (Cr.P.C) governing commencement of investigation, maintaining case diary, etc.
- They submitted that despite the CGST officers being vested with powers of police officers as well as those of a civil court while investigating an offence, still the proceedings were termed as an ‘inquiry’ and the person summoned was not an ‘accused’.
- They pointed out that as CGST officers were not police officers, no protection under Article 20(3) was available to the summoned persons – thereby causing them immense prejudice.
Observations of the HC on presumption in favour of constitutionality of an enactment
- Whenever constitutionality of a provision is challenged on the ground that it infringes a fundamental right, the direct and inevitable effect/ consequence of the legislation has to be taken into account.
- Further, laws are not to be declared unconstitutional on the fanciful theory that power would be exercised in an unrealistic fashion or in a vacuum or on the ground that there is a remote possibility of abuse of power.
- In fact, it must be presumed, unless the contrary is proved, that administration and application of a particular law would be done “not with an evil eye and unequal hand”.
Observations of HC on scope of Article 246A
- GST is a unique tax, inasmuch as the power as well as field of legislation are to be found in a single Article, i.e., Article 246A.
- Further, the scope of Article 246A is significantly wide as it not only empowers both Parliament and State Legislatures to levy and/or enact GST Act, but it also grants the power to make all laws ‘with respect to‟ Goods and Service Tax.
- It was settled law that unless the Constitution itself expressly prohibits legislation on the subject either absolutely or conditionally, the power of a Legislature to enact legislation within its legislative competence is plenary.
- Also, the words/expression in a constitutional enactment conferring legislative power have to be construed as words of widest amplitude, content and therefore the most liberal construction has to be placed upon them.
- Power of arrest conferred by Section 69 was not a general power of arrest, but was restricted to certain offences which were specified under Section 69 namely some of the offences covered under Section 132 and the offences so specified are all offences relating to GST.
- HCwas of the prima facie view that the expression “with respect to”GST used in Article 246A, being a constitutional provision, must be given its widest amplitude and would include the power to enact criminal law with regard to GST.
- Accordingly, this power has to be liberally construed empowering the Parliament to make laws with respect to goods and services tax and it remains unaffected by the distribution of legislative power as provided in Articles 246 & 254.
Observations of HC on Power to Prosecute and Arrest under GST
- HC was of the prima facie opinion that even if it is assumed that power to make offence in relation to evasion of goods and service tax is not to be found under Article 246A, then, the same could be traced to Entry 1 of List III.
- The term “Criminal Law” used in the aforesaid entry is significantly wide and includes all criminal laws except the exclusions i.e. laws made with respect to matters in List II.
- HC was of the prima facie opinion that even if Sections 69 and 132 could not have been enacted in pursuance to power under Article 246A, they could have been enacted under Entry 1 of List III, as laying down of a crime and providing for its punishment is criminal law.
- Consequently, HCwas of the prima facie view that in either option both Sections 69 and 132 of the Act were constitutional and fell within the legislative competence of Parliament.
- It was relevant to note that when any person is arrested under Section 132(5) of the CGST Act, the said person has to be informed of the grounds of arrest and must necessarily be produced before a Magistrate under Section 69(2) within 24 hours.
- This ensured judicial scrutiny over the acts of executive and it cannot be termed as unreasonable and/or excessive, as sought to be contended by the petitioners.
- Further, the argument that prejudice was caused to the Petitioners as they were not able to avail protection under Article 20(3) of the Constitution and/or the provisions of Cr.P.C. did not apply even when CGST Act was silent, was untenable in law
- Also, just because CGST Act provides for both adjudication of civil liability and criminal prosecution did not mean that the said Act was unfair or unreasonable.
HC ordered that: A general mandamus was issued to the Competent Authorities under U.P. Apartment Act, 2010 & U.P. Industrial Area Development Act, 1976 or any other cognate enactment to decide the grievance of the petitioners, within 3 months from the date the grievance is brought to their knowledge, by reasoned and speaking order under intimation to the aggrieved persons. The Competent Authority would ensure that before any decision is taken, a right of audience is given to the parties concerned. The Competent Authority shall ensure that an officer not below the rank of a Gazetted Officer shall periodically visit the apartment / building at least once in 6 months at a prior notice to the registered association which shall be obliged to circulate it amongst its member so as to give them an opportunity to ventilate their grievance, if any. Any reported violation shall be immediately take remedial steps.Any inaction on the part of Competent Authority shall be construed as serious dereliction of duty, warranting interference from the State Government.