2025 (10) TMI 55 - HC - GST

Sections 69 and 132 of the GST Act upheld as constitutionally valid under Article 246A; anti-evasion measures sustained

HC dismissed the challenge to the vires of Sections 69 and 132 of the Haryana GST Act, holding the provisions are constitutionally valid. The court ... Vires of Sections 69 and 132 of Haryana Goods and Services Tax Act, 2017 - arbitrary, unreasonable and beyond the legislative competence and being ultravires the Constitution of India or not - power to arrest - HELD THAT:- The parties are ad idem that controversy as raised in the writ petition is now squarely covered in favour of revenue in terms of judgment of Hon’ble the Supreme Court in Radhika Agarwal Vs. Union of India and others [2025 (2) TMI 1162 - SUPREME COURT (LB)]. Hon’ble the Supreme Court in the said case upheld constitutional validity of Sections 69 and 132 of CGST Act, which is stated to be pari materia to Sections 69 and 132 of HGST Act. While rejecting the argument in aforementioned case that legislature lacked competence to enact the said provisions, Hon'ble the Supreme Court held that Article 246A of the Constitution is a special provision, defining the source of power and field of legislation for the Parliament and State Legislature with respect to CGST and that Parliament under Article 246A of the Constitution has the power to make laws regarding GST and as a necessary corollary, enact provisions against tax evasion. The challenge to vires of Sections 69 & 132 HGST Act is negated and prayer in this respect is rejected. Present writ petition is accordingly disposed of in terms of judgment of Hon’ble the Supreme Court in Radhika Agarwal Vs. Union of India and others. Petition disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether provisions conferring powers to summon, arrest and prosecute under Sections 69 and 132 of the State GST Act are ultra vires the Constitution by exceeding legislative competence. 2. Whether the power to arrest under the impugned provisions can be validly exercised in the absence of a completed assessment under the statutory assessment procedure. 3. What are the pre-conditions, standards of reasoning and evidentiary material required to be recorded by an authorised officer before ordering arrest under the impugned provisions, and what safeguards apply once arrest is effected? ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legislative competence to enact powers of summons, arrest and prosecution (Article 246-A / pith and substance) Legal framework: Article 246-A (special provision governing GST) and the doctrine of pith and substance permit ancillary and incidental powers necessary for levy and collection of tax. Precedent Treatment: The Court applied and followed binding higher-court authority establishing that entries conferring legislative power are to be read liberally, extending to ancillary matters necessary for effectual taxation, and that penalties and prosecution mechanisms incidental to tax collection are permissible. Interpretation and reasoning: The impugned provisions were held to be within the legislative field of Article 246-A because powers to summon, arrest and prosecute are incidental and necessary for effective levy and collection of GST and to prevent evasion. A broad construction of the taxing entry is appropriate so as to include measures ancillary to the core power to tax. Ratio vs. Obiter: Ratio - the challenged provisions are constitutionally valid as they fall within the ancillary powers of Article 246-A; Obiter - general observations on interpretation doctrines and illustrative citations supporting liberal construction. Conclusions: Sections conferring powers to summon, arrest and prosecute are not ultra vires; the vires challenge to those provisions fails. Issue 2 - Necessity of completed assessment before exercise of arrest power Legal framework: Sectional scheme distinguishing assessment procedures (quantification of tax liability) from provisions authorising arrest for certain offences; statutory thresholds make certain offences cognizable and non-bailable. Precedent Treatment: The Court rejected a categorical rule that arrest under the relevant arrest provision cannot be ordered unless a formal assessment order under the assessment provisions is already passed. It treated earlier decisions (including those relied upon by petitioners) as not establishing an absolute bar in all circumstances. Interpretation and reasoning: While ordinarily assessment proceedings will quantify tax evaded and thus inform whether statutory thresholds for non-bailable cognizable offences are met, there can be fact patterns where the revenue, on available material, can form a sufficient belief as to existence of an offence and the quantum involved without a formal assessment order. In such exceptional cases arrest may be authorised provided the reasons to believe are explicit and supported by material showing a sufficient degree of certainty. Ratio vs. Obiter: Ratio - absence of a completed assessment is not an absolute impediment to ordering arrest if the authorised officer records reasons based on material establishing the requisite degree of certainty; Obiter - observations on the normalcy of assessment quantification and the principle of benefit of doubt applying at magistrate stage. Conclusions: Arrest may be ordered prior to a formal assessment in limited cases where explicit reasons to believe, supported by relevant material, satisfy statutory pre-conditions; however, as a general proposition assessments normally underpin such exercise of power. Issue 3 - Standards for reasons to believe, required material and safeguards on arrest Legal framework: Statutory prescribing of 'reasons to believe' by the Commissioner/authorised officer; sub-sectional pre-conditions for non-bailable cognizable arrest; established standards of objective recording and evidentiary support for coercive action. Precedent Treatment: The Court followed higher-court guidance requiring that reasons to believe be recorded, be founded on material and not be mere ipse dixit, and that the material be sufficient to demonstrate that statutory conditions for non-bailable arrest are satisfied. Interpretation and reasoning: The Commissioner must explicitly state satisfaction that a non-bailable offence is committed and must refer to the material forming the basis for that finding. Computation of tax involved (for monetary thresholds) must be supported by relevant and sufficient material. Arrests made on suspicion or merely to investigate whether conditions are met are impermissible. The reasons must demonstrate a degree of certainty and are to be objectively and earnestly formed. The Magistrate and the arrested person retain procedural safeguards, including application of benefit of doubt. Ratio vs. Obiter: Ratio - mandatory requirement that the reasons to believe be explicit, material-based and demonstrate satisfaction of statutory pre-conditions; Obiter - comparative references to similar obligations under customs law and general observations on compliance and maintenance of records. Conclusions: Arrests under the impugned provisions are lawful only where reasons to believe are duly recorded and supported by material sufficient to show that the sub-sectional pre-conditions are met; failure to meet these standards results in illegal arrest. Procedural safeguards and standards of proof apply at both the executive and magistrate stages. Interrelationships and Practical Outcome Cross-references: Issues 1-3 are interlinked - legislative competence validates the existence of arrest powers (Issue 1) but the constitutional and statutory legitimacy of exercising those powers in any particular case depends on compliance with statutory pre-conditions, recording requirements and evidentiary standards (Issues 2 and 3). Final conclusion: The constitutional challenge to the provisions empowering summons, arrest and prosecution is rejected; however, exercise of arrest powers must conform to the recorded-reasons and material-support standards, and ordinarily relies on assessment quantification except in cases where sufficient material independently establishes the requisite offence and quantum.