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Issues: (i) Whether a writ petition under Article 226 of the Constitution of India can be entertained to seek protection against arrest under Section 69 of the Central Goods and Services Tax Act, 2017; (ii) Whether the safeguards in Sections 41 and 41A of the Code of Criminal Procedure, 1973 apply to arrest under Section 69 of the Central Goods and Services Tax Act, 2017 and whether reasons to believe must be disclosed in the arrest order; (iii) Whether arrest can be justified before assessment or adjudication and notwithstanding the possibility of compounding, in cases alleging fraudulent input tax credit and circular trading.
Issue (i): Whether a writ petition under Article 226 of the Constitution of India can be entertained to seek protection against arrest under Section 69 of the Central Goods and Services Tax Act, 2017.
Analysis: A petition seeking restraint against arrest under Section 69 is, in substance, a prayer for pre-arrest protection. The absence of a direct remedy under Section 438 of the Code of Criminal Procedure, 1973 does not by itself bar recourse to Article 226. At the same time, such jurisdiction is exceptional and must be exercised sparingly, with due regard to the statutory powers of the authority.
Conclusion: The writ petitions were maintainable, but the relief was not granted.
Issue (ii): Whether the safeguards in Sections 41 and 41A of the Code of Criminal Procedure, 1973 apply to arrest under Section 69 of the Central Goods and Services Tax Act, 2017 and whether reasons to believe must be disclosed in the arrest order.
Analysis: The summons power under Section 70 treats the inquiry as a judicial proceeding, and the statute also refers to the Code of Criminal Procedure, 1973 in Sections 67, 69 and 132. The Court held that the limited protection against arrest reflected in Sections 41 and 41A may inform action under Section 69, though the phrase used in Section 69 is "reasons to believe" and the statute does not require those reasons to be set out in the arrest authorization if they are recorded in the file. The Court also noticed inconsistencies between Section 69 and Section 132, but did not treat them as disabling the arrest power altogether.
Conclusion: The petitioners could invoke the protective principles underlying Sections 41 and 41A, but the arrest authorisation was not invalid merely because reasons were not stated on its face.
Issue (iii): Whether arrest can be justified before assessment or adjudication and notwithstanding the possibility of compounding, in cases alleging fraudulent input tax credit and circular trading.
Analysis: Offences under Section 132, including issuance of invoices without supply of goods and wrongful availment or utilisation of input tax credit, are not contingent upon completion of assessment. The possibility of compounding does not, by itself, bar arrest, particularly where the alleged liability is substantial and the allegations disclose a large-scale fraudulent scheme affecting revenue. On the facts, the Court found prima facie allegations of circular trading and fake invoices involving enormous wrongful input tax credit.
Conclusion: Arrest could not be interdicted on the grounds urged by the petitioners.
Final Conclusion: The proceedings under Article 226 were maintainable, and the Court recognised that statutory safeguards and judicial caution apply, but on the facts the alleged large-scale fraudulent input tax credit justified refusal of pre-arrest protection.
Ratio Decidendi: In a tax prosecution context, writ jurisdiction may be invoked for pre-arrest protection, but it will be exercised sparingly and will not be used to thwart arrest under Section 69 of the Central Goods and Services Tax Act, 2017 where the authority has recorded reasons to believe and the allegations disclose serious fraudulent input tax credit and circular trading independent of completed assessment.
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