Petition for Regular Bail in Suspicious Cash Withdrawal Case Pending Data Verification and Further Proceedings

The HC considered the petition for regular bail involving suspicious cash withdrawals from multiple bank accounts. The court acknowledged the petitioner's arguments but emphasized the need to verify the claims through empirical analysis of relevant data. The matter was adjourned for further proceedings, with instructions to supply the order to State counsel for compliance. The case remains on remand.

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1. ISSUES:

1. Whether prosecution under Section 132 of the Central Goods and Services Tax Act, 2017 (the Act) can be initiated without completing the procedure under Sections 73 and 74 of the Act.

2. Whether arrest under Section 132(1) of the Act can be authorised without the Commissioner recording "reasons to believe" supported by material and evidence as mandated by sub-section (5) of Section 132.

3. Whether the procedural safeguards prescribed by the Central Board of Indirect Taxes and Customs (CBIC) circulars, including explanation of grounds of arrest and acknowledgment by the arrested person, are mandatory for valid arrest under the Act.

4. Whether issuance of notices under Sections 73/74 of the Act is a prerequisite for initiating prosecution under Section 132.

5. Whether the practice of arrest and prosecution without proper adjudication and compliance with procedural safeguards undermines the rule of law and amounts to mala fide conduct by tax authorities.

6. The extent to which bail should be granted in offences under Section 132 of the Act, particularly in cases triable by a Judicial Magistrate with limited sentence and documentary evidence.

2. RULINGS / HOLDINGS:

1. The Court held that prosecution under Section 132 of the Act cannot be initiated if the drill under Sections 73 and 74 of the Act is not followed, as the notice under these sections must precede prosecution.

2. The Court emphasized that arrest under Section 132 requires the Commissioner to record "reasons to believe" supported by relevant and sufficient material and evidence, and not mere suspicion, as per sub-section (5) of Section 132; failure to do so results in illegal arrest.

3. The Court held that compliance with CBIC Circular No. 171/03/2022-GST dated 06.07.2022 and Instruction No. 01/2025-GST dated 13.01.2025, including explaining grounds of arrest to the accused and obtaining acknowledgment, is mandatory and non-compliance invalidates the arrest.

4. The Court rejected the contention that prosecution under Section 132 can be initiated without prior adjudication under Sections 73 and 74 as a general rule, but clarified that normally assessment proceedings quantify tax evasion and support prosecution; however, arrest may be authorised without formal assessment only if the Commissioner is satisfied with sufficient material and records explicit reasons.

5. The Court condemned the practice of coercive arrests and extortion of tax without adjudication as "unacceptable and violative of the rule of law," reflecting "conspicuous mala fide" and undermining public confidence in justice.

6. The Court noted that in offences under Section 132 triable by a Judicial Magistrate with limited sentence and documentary evidence, bail should ordinarily be granted unless extraordinary circumstances exist.

3. RATIONALE:

The Court applied the statutory framework of the Central Goods and Services Tax Act, 2017, particularly Sections 73, 74, and 132, and the procedural safeguards mandated by sub-section (5) of Section 132 regarding arrest. It relied heavily on the authoritative Supreme Court judgment interpreting these provisions, which requires the Commissioner to record "reasons to believe" based on material and evidence before authorizing arrest, and to comply with procedural instructions issued by the CBIC, including explaining grounds of arrest and obtaining acknowledgment from the accused.

The Court recognized the principle that prosecution under Section 132 is generally contingent upon completion of assessment proceedings under Sections 73 and 74, but acknowledged exceptions where sufficient material exists to justify arrest prior to formal assessment, provided strict compliance with recording reasons and procedural safeguards.

The Court also acknowledged recent Supreme Court observations emphasizing the importance of granting bail in GST offences with limited sentence and documentary evidence, reflecting a doctrinal shift towards protecting liberty in economic offences.

Further, the Court identified mala fide conduct and abuse of power by tax authorities in arresting accused without adherence to statutory and procedural safeguards, highlighting the need to uphold the rule of law and prevent arbitrary deprivation of liberty.

In order to empirically assess the extent and nature of prosecutions and arrests under Section 132, the Court directed collection of detailed data from relevant tax authorities, indicating a methodical and evidence-based approach to addressing systemic issues in GST enforcement.

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