2018 (7) TMI 589 - HC - GST

Legal arrest upheld under CGST Act for fraudulent activity; stringent bail conditions imposed

Sanjay Kumar Bhuwalka, Neeraj Jain Versus Union of India

The court upheld the legality of the arrest under Section 69 of the CGST Act, 2017, finding that the petitioners were involved in fraudulent activities ... Fraudulent issuance of tax invoices under GST - allegation of business of generating and selling of fake tax invoices to various entities without supplying the underlying goods or services - Arrest of persons - Grant of Bail - 'reasons to believe' - Based on such reasonable belief, the Additional Director General directed the officers concerned to arrest the petitioners in terms of the provisions stipulated under Section 69 of the said Act and they were arrested on 12.05.2018 - Held that:- ‘Reasonable belief’ or reason to believe as a standard to arrest requires that arresting officer subjectively believe that the suspect has committed the offence and that objectively reasonable person would reach the same conclusion. Reasonable grounds do not require as much evidence as a prima facie case but do require that thing believed to be more likely than not. It is settled position of law that grant of bail is a rule and rejection of bail is an exception. Maximum punishment provided in the Act is for a term of five years. The accused persons were arrested on 12.5.2018 and investigation has to be concluded within 60 days from the date of arrest as per provision of Section 167(2) of Cr.P.C. While granting bail, the Court has to keep in mind the nature of the accusations, the nature of evidence in support thereof the severity of the punishment which conviction will entail, the character of the accused, reasonable apprehension of the witnesses being tampered with, the larger interest of the public/ State and others similar consideration are requied to be taken into consideration. Bail granted subject to deposit of ₹ 39 crore to the Government Exchequer. Issues Involved:1. Legality of arrest under Section 69 of the CGST Act, 2017.2. Reasonable belief for arrest.3. Authority of the Additional Director General, Goods and Services Tax Intelligence.4. Grant of bail in economic offences.Issue-wise Detailed Analysis:1. Legality of Arrest under Section 69 of the CGST Act, 2017:The petitioners challenged their arrest under Section 69 of the CGST Act, 2017, arguing that the arrest was not in compliance with the statutory requirements. The court examined the provision of Section 69, which allows the Commissioner to authorize the arrest of a person if there is a reason to believe that the person has committed an offense punishable under Section 132 of the Act. The court noted that the petitioners were arrested for their involvement in generating and selling fake tax invoices, facilitating irregular availment and utilization of input tax credit, leading to significant revenue loss.2. Reasonable Belief for Arrest:The petitioners contended that the 'reasonable belief' required for arrest under Section 69(1) was not properly established. The court referred to the legal standard of 'reason to believe' as explained in the case of Joti Parshad vs. State of Haryana, emphasizing that it is a higher level of state of mind than mere suspicion. The court found that the Additional Director General had formed a reasonable belief based on the investigation, which revealed the petitioners' control over fake companies involved in fraudulent activities. The court concluded that the arrest was justified as the reasons to believe were clearly documented in the office note.3. Authority of the Additional Director General, Goods and Services Tax Intelligence:The petitioners argued that the arrest was not conducted by the proper authority under the Act. The court referred to Notification No. 14/2017, which empowered officers in the Directorate General of Goods and Services Tax Intelligence as Central Tax officers with all the powers under the CGST Act. The court held that the Additional Director General, being equivalent to the Commissioner, was authorized to direct the arrest of the petitioners. The court dismissed the contention that the arrest was unauthorized.4. Grant of Bail in Economic Offences:The court considered the gravity of the offense and the potential impact on national interest while deciding on the bail application. The court noted that economic offenses involving deep-rooted conspiracies and significant revenue loss require a different approach. However, the court also acknowledged the statutory right to bail under Section 167(2) of Cr.P.C. if the investigation is not concluded within 60 days. Given the ongoing investigation and the compounding nature of the offense under Section 138 of the CGST Act, the court granted bail to the petitioners on the condition of furnishing a bond of Rs. 50,00,000 each and depositing Rs. 39 crore to the Government Exchequer. The petitioners were also directed to assist the investigating authorities as required.Conclusion:The court allowed the bail applications (CRM 3327 of 2018 and CRM 3328 of 2018) and disposed of the cases, emphasizing the need for the petitioners to comply with the conditions set forth for their release. The judgment underscores the balance between the severity of economic offenses and the statutory rights of the accused.