2021 (1) TMI 330 - HC - GST

Court upholds constitutionality of criminal provisions under CGST Act, dismisses jurisdictional challenge.

Dhruv Krishan Maggu and K.P. And Sons and Ors. Versus Union of India

The court upheld the constitutionality of Sections 69 and 132 of the CGST Act, 2017, ruling that they can include criminal provisions. It found that ... Seeking vacation of the interim protection - constitutional validity of Sections 69 and 132 of the Central Goods and Services Tax Act, 2017 - case of petitioner is that the power to arrest and prosecute are not ancillary and/or incidental to the power to levy and collect goods and services tax - HELD THAT:- This Court is of the opinion that the principles for adjudicating the constitutionality of an enactment or any part thereof are well settled - There is always a presumption in favour of constitutionality of an enactment or any part thereof and the burden to show that there has been a clear transgression of constitutional principles is upon the person who impugns such an enactment. Also, 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”. This Court is of the prima facie opinion that the Goods and Service Tax 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 is 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. This Court is of the prima facie opinion that the pith and substance of the CGST Act is on a topic, upon which the Parliament has a power to legislate as the power to arrest and prosecute are ancillary and/or incidental to the power to levy and collect GST - Even if Sections 69 and 132 of the Act 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, this Court is of the prima facie view that in either option both Sections 69 and 132 of the Act are constitutional and fall within the legislative competence of Parliament. This Court at the interim stage, cannot ignore that another High court has taken a view contrary to the contention raised by the Petitioner. At this interim stage, therefore, we cannot ignore the view of the Gujarat High Court. This Court is of the view that the allegation that a tax collection mechanism has been converted into a disbursement mechanism most certainly requires investigation. Accordingly, this Court is not inclined to interfere with the investigation at this stage and that too in writ proceedings. At the same time, innocent persons cannot be arrested or harassed. This Court has no doubt that the trial court, while considering the bail or remand or cancellation of bail application, ‘will separate the wheat from the chaff’ and will ensure that no innocent person against whom baseless allegations have been made is remanded to police/judicial custody. Petition dismissed. Issues Involved:1. Constitutionality of Sections 69 and 132 of the CGST Act, 2017.2. Competence of Parliament to enact criminal provisions under the CGST Act.3. Application of Chapter XII of the Cr.P.C. to the CGST Act.4. Jurisdiction of Central Tax Officers versus State Tax Officers.5. Interim protection from arrest for the petitioners.Detailed Analysis:1. Constitutionality of Sections 69 and 132 of the CGST Act, 2017:The petitioners argued that Sections 69 and 132 of the CGST Act are unconstitutional as they are criminal provisions that could not have been enacted under Article 246A of the Constitution. They emphasized that the power to arrest and prosecute is not ancillary to the power to levy and collect GST. The respondents countered that Article 246A allows for the enactment of laws with respect to GST, including criminal provisions. The court held that there is a presumption in favor of the constitutionality of an enactment and the burden to show a clear transgression of constitutional principles is on the petitioner. The court found that the Goods and Services Tax is unique, with both the power and field of legislation found in Article 246A, which includes the power to enact criminal laws related to GST.2. Competence of Parliament to Enact Criminal Provisions Under the CGST Act:The petitioners contended that Entry 93 of List I only allows Parliament to make criminal laws with respect to matters in List I, not CGST. The respondents argued that Article 246A grants the power to legislate on GST, including criminal provisions. The court held that the pith and substance of the CGST Act is on a topic upon which Parliament has the power to legislate, as the power to arrest and prosecute are ancillary to the power to levy and collect GST. Even if the power to make offenses related to GST is not found under Article 246A, it can be traced to Entry 1 of List III, which includes all criminal laws except those related to matters in List II.3. Application of Chapter XII of the Cr.P.C. to the CGST Act:The petitioners argued that CGST officers are not bound by Chapter XII of the Cr.P.C., causing prejudice as they are not able to avail protection under Article 20(3) of the Constitution. The respondents cited the Gujarat High Court's decision in Vimal Yashwantgiri Goswami vs. State Of Gujarat, which held that CGST officers are not police officers and the provisions of Sections 154 to 157 of the Cr.P.C. do not apply. The court found that the arguments regarding the non-application of Cr.P.C. provisions and Article 20(3) protection are untenable in law, citing the Supreme Court's judgment in Directorate of Enforcement vs. Deepak Mahajan.4. Jurisdiction of Central Tax Officers versus State Tax Officers:The petitioners in WP(C) No. 10130/2020 argued that Central Tax Officers have no jurisdiction over them as the jurisdiction had been assigned to State Tax Officers. The respondents countered that Central Tax Officers are empowered to conduct intelligence-based enforcement actions against taxpayers assigned to State Tax Administration under Section 6 of the CGST Act. The court found prima facie force in the respondents' submissions and did not find the search action to be without jurisdiction.5. Interim Protection from Arrest for the Petitioners:The petitioners sought interim protection from arrest, citing 'no coercive orders' from the Supreme Court in similar cases. The court noted that these were ad-interim orders and referred to the Supreme Court's clarification in Union of India vs. Sapna Jain & Ors., which indicated that High Courts should keep in mind that the Apex Court had dismissed an SLP against the Telangana High Court's judgment allowing for arrest under the CGST Act. The court concluded that the serious allegations against the petitioners required investigation and dismissed the applications for interim protection, allowing the petitioners to avail statutory remedies.Conclusion:The court dismissed the applications for interim protection and vacated the interim order dated 20th August 2020 in WP(C) 5454/2020. The observations made were prima facie and would not prejudice either party at the stage of final arguments. The matters were listed before the regular roster Bench on the already fixed date.