2019 (11) TMI 942 - HC - GST

Court rules in favor of petitioners in IGST refund case, deems arrest unjustified. Petitioner No. 1 protected from custody without court approval.

The court found that there was no concrete evidence directly linking the petitioners to fraudulent IGST refunds. It concluded that the petitioners had ... Power of arrest during fiscal investigation - protection against arrest under Article 226 - requirement of determination/assessment before prosecution - limitations of coercive measures under the CGST regime - application of Section 41 and 41A Cr.P.C. to fiscal arrests - exceptional circumstances permitting pre-assessment arrestProtection against arrest under Article 226 - power of arrest during fiscal investigation - application of Section 41 and 41A Cr.P.C. to fiscal arrests - limitations of coercive measures under the CGST regime - Whether Petitioner No.1 (Akhil Krishan Maggu) is entitled to protection from custodial arrest during the ongoing DGGI investigation. - HELD THAT: - Having considered the material on record and the authorities on exercise of coercive powers in fiscal investigations, the Court found no documentary or other concrete evidence on file directly connecting Petitioner No.1 with the alleged illegal IGST refunds. The Court reiterated that power of arrest in GST matters must be exercised with circumspection, ordinarily after determination of liability, and in exceptional circumstances only (examples given by the Court include habitual offenders, risk of flight, tampering with evidence, originators of fake invoices or clear direct documentary evidence of large evasion). Applying the principles in precedents emphasising the safeguards of Section 41/41A Cr.P.C. and the requirement that arrest be the last resort, the Court concluded that, in the facts of this case, detention of Petitioner No.1 would be oppressive and unnecessary. Accordingly the Court directed that Respondents shall not take Petitioner No.1 into custody without prior approval of this Court, while permitting the investigation to continue and summoning him as required between 10 AM and 5 PM. [Paras 11, 12, 13]Petitioner No.1 shall not be taken into custody by the Respondents without prior approval of this Court; he shall appear before the Respondent when summoned between 10 AM and 5 PM.Requirement of determination/assessment before prosecution - limitations of coercive measures under the CGST regime - Whether any relief should be granted in respect of Petitioner No.2 who is already in judicial custody. - HELD THAT: - The Court noted that Petitioner No.2 was interrogated, handed over to DRI and has been in judicial custody since 13.9.2019. The record did not show any admission or confession by him nor that his statement recorded in custody advanced a case against him conclusively. Nonetheless, because Petitioner No.2 is already in judicial custody, the Court refrained from issuing directions in his favour and observed that no specific relief was warranted qua him. The Court emphasised that Respondents remain free to continue investigation and proceed in accordance with law. [Paras 3, 11, 13]No direction was issued in favour of Petitioner No.2; he remains subject to the existing custody and the Respondents may continue investigation and proceed as per law.Final Conclusion: Writ petition disposed: no quashing on merits; Petitioner No.1 granted protection against custodial arrest without prior court approval and directed to attend when summoned; Respondents free to continue investigation and take action in accordance with law; no relief granted qua Petitioner No.2 who remains in custody. Issues Involved:1. Quashing of summons issued by the Senior Intelligence Officer (SIO), Directorate General of GST Intelligence (DGGI).2. Allegations against petitioners regarding involvement in fraudulent IGST refunds.3. Arrest and detention of petitioners and their family members by DGGI.4. Legal principles concerning the power of arrest under CGST Act, 2017 and related judicial pronouncements.Detailed Analysis:1. Quashing of Summons:The petitioners sought quashing of the summons dated 28.8.2019 issued by the SIO, DGGI. The summons directed the petitioners to appear before the SIO to tender their statements in connection with exports made by alleged dummy firms. The petitioners contended that the summons were a result of vendetta due to their involvement in filing writ petitions on behalf of four exporters against the DGGI.2. Allegations Against Petitioners:The DGGI alleged that the petitioners were involved in a fraudulent scheme to avail IGST refunds through dummy export firms. The petitioners were accused of creating bogus firms in connivance with Ramesh Wadhera and Mukesh Kumar. The DGGI claimed that the petitioners misused their professional positions to facilitate the fraud.3. Arrest and Detention:The petitioners were arrested on 15.8.2019 following a commotion at Ramesh Wadhera’s residence during a DGGI search. They were released on bail on 22.8.2019. Subsequently, the DGGI recorded statements of dummy exporters implicating the petitioners and conducted another search at the petitioners' residence on 28.8.2019. Petitioner No. 2 was handed over to the Directorate of Revenue Intelligence (DRI) and has been in judicial custody since 13.9.2019. The petitioners argued that the arrests were intended to tarnish their reputation and coerce them into self-incriminating confessions.4. Legal Principles on Power of Arrest:The court referred to various judicial pronouncements regarding the power of arrest under the CGST Act, 2017. Key judgments included:- Make My Trip Vs. Union of India (Delhi High Court): Emphasized that the power of arrest should be used with great circumspection and not casually. Arrest should follow the determination of tax liability.- Jayachandran Alloys (P) Ltd. Vs. Superintendent of GST & C. Ex. (Madras High Court): Reiterated that punishment under Section 132 of the CGST Act can only be imposed post-determination of demand due from an assessee.- Vimal Yashwantgiri Goswami Vs. State of Gujarat (Gujarat High Court): Stressed that prosecution should normally be launched only after adjudication is completed.- Siddharam Satlingappa Mhetre Vs. State of Maharashtra (Supreme Court): Highlighted that arrest should be the last option and exercised only in exceptional cases.The court concluded that the power of arrest should not be exercised whimsically and must be based on credible material. The arrest should be avoided for professionals like Chartered Accountants or Advocates unless there is concrete evidence linking them to the alleged offense.Conclusion:The court found that the investigation had not produced concrete evidence directly implicating the petitioners in the fraudulent IGST refunds. The petitioners had complied with summons and there was no justification for their arrest. The court directed that Petitioner No. 1 should not be taken into custody without prior approval of the court and should appear before the respondent as summoned. The petition was disposed of with these directions, allowing the investigation to continue as per law.