2025 (10) TMI 378 - HC - GST

Challenge to constitutionality of Sections 69 and 132 of HGST Act dismissed; provisions held valid and competent

Jiahua Declration and Design Engineering India Pvt. Ltd. and others Versus The Union of India and others.

The HC dismissed the writ petition and rejected the challenge to the constitutionality of Sections 69 and 132 of the HGST Act, holding that the ... Constitutionality of Sections 69 and 132 of Haryana Goods and Services Tax Act, 2017 - lack of legislative competence - violation of Article 13 of Constitution of India - HELD THAT:- It is a matter of record that challenge in present writ-petition is to vires of Sections 69 & 132 of HGST Act. Learned counsel for petitioners is unable to deny that in the present factual matrix, challenge to vires of Sections 69 & 132 of HGST Act which is analogous to Sections 69 & 132 of CGST Act no longer survives. Keeping in view the facts and circumstances, challenge to constitutional validity of Sections 69 and 132 of HSGT Act is negated and writ-petition is, accordingly, dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether Sections 69 and 132 of the Haryana Goods and Services Tax Act, 2017 are intra vires the State Legislature and/or violative of Article 13 of the Constitution. 2. Whether powers of summons, arrest and prosecution under Sections 69 and 132 (analogous to the corresponding Central GST provisions) fall within the legislative competence conferred by Article 246-A read with the doctrine of pith and substance. 3. What are the pre-conditions, standards and procedural safeguards required for exercise of arrest powers under the GST statutory scheme, including (a) the content and sufficiency of the 'reasons to believe' recorded by the Commissioner; (b) the necessity (or otherwise) of completion of assessment proceedings under Section 73 before arrest; and (c) applicability of safeguards developed under Customs jurisprudence. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Constitutional vires of Sections 69 and 132 of the State GST Act Legal framework: The challenge raises competence under the Constitution and conformity with Article 13; legislative power for GST matters is governed by Article 246-A (special entry allocating GST legislative field). Precedent Treatment: The Court relied upon a binding higher bench decision upholding constitutional validity of the corresponding Central GST provisions as determinative for analogous State provisions. Interpretation and reasoning: The Court applied the doctrine of pith and substance to hold that provisions conferring powers to summon, arrest and prosecute are ancillary and incidental to the power to levy and collect GST under Article 246-A. Entries conferring legislative power are to be construed liberally and in their widest amplitude; ancillary machinery and penal mechanisms necessary to prevent evasion fall within the legislative field. Ratio vs. Obiter: Ratio - penal and coercive provisions (including arrest and prosecution) that are necessary for the levy and collection of GST are within legislative competence under Article 246-A when they are ancillary to the GST scheme. Distinctive authority and doctrine from the higher bench decision are treated as binding precedent. Conclusions: Sections 69 and 132 of the State GST Act are constitutionally valid as measures ancillary to the legislative power under Article 246-A; the vires challenge is rejected. Issue 2 - Scope of legislative power to provide arrest and prosecution mechanisms as ancillary to GST levy and collection Legal framework: Construction of legislative entries and Article 246-A; application of the pith and substance doctrine and long-standing principles that entries be read broadly to include ancillary and subsidiary matters necessary for the tax machinery. Precedent Treatment: The Court applied established authorities requiring liberal construction of legislative entries and prior decisions holding that powers necessary for levy and collection, including penalties and prosecution for evasion, are encompassed within legislative competence. Interpretation and reasoning: The impugned provisions lay down powers necessary for effective levy and collection of GST; they are part of the machinery of government intrinsic to implementing the tax. The Court endorsed the principle that legislative powers should not be read narrowly and that measures to prevent evasion are permissible incidents of the taxing power. Ratio vs. Obiter: Ratio - legislative competence extends to adoption of enforcement measures, including arrest and prosecution, when these are ancillary to the power to levy and collect GST under Article 246-A. Conclusions: The power to create a penalty or prosecution mechanism, and to confer powers of arrest, is a permissible exercise of legislative power ancillary to GST; such provisions are within constitutional competence. Issue 3 - Pre-conditions and standards for exercise of arrest power under Section 132 (procedure and safeguards) Legal framework: Statutory text of Section 132 and related provisions, statutory scheme for assessment (e.g., Section 73), and procedural safeguards applicable to arrests; comparative application of safeguards developed under the Customs Act. Precedent Treatment: The Court relied on higher bench guidance which elucidated pre-conditions for arrest: recording of 'reasons to believe' by the Commissioner, reference to material forming the basis of satisfaction, and application of principles from Customs jurisprudence concerning records and obligations of arresting officers. Interpretation and reasoning: (a) The Commissioner must record reasons to believe that the person committed a non-bailable offence and must refer to the material supporting the finding; ipse dixit is insufficient. (b) The computation of tax for triggering monetary thresholds must be supported by relevant and sufficient material. (c) Arrest cannot be made merely to investigate whether conditions are met; there must be a formulated opinion grounded in evidence and recorded reasons. (d) While completion of assessment proceedings under Section 73 normally quantifies tax evaded and thus assists determination under Section 132, it is not an absolute pre-condition. Where the Revenue can, without a formal assessment order, ascertain with sufficient certainty that an offence under Section 132 (clauses (a)-(d)) and the monetary threshold in clause (i) exist, the Commissioner may authorise arrest after recording explicit reasons referring to the underlying material. (e) The principle of benefit of doubt remains applicable and must be considered by both Commissioner and Magistrate on production. Ratio vs. Obiter: Ratio - (i) Arrest under Section 132 requires recorded reasons to believe supported by material establishing non-bailable offence and satisfaction of subsection (5); (ii) completion of assessment is not an absolute prerequisite where sufficient material exists to satisfy the statutory thresholds; (iii) safeguards applicable under Customs jurisprudence (maintenance of records, obligations of arresting officer, rights of arrested person) apply equally. Conclusions: Arrests under the GST statutory scheme are constitutionally permissible only when statutory pre-conditions are met and when reasons to believe are recorded with reference to supporting material; assessment need not always precede arrest provided the Commissioner can, on evidence, form and record an opinion with requisite certainty. Compliance with procedural safeguards and record-keeping obligations is mandatory. Issue 4 - Applicability of Customs Act jurisprudence and standards to GST arrests Legal framework: Established Customs jurisprudence concerning maintenance of records, obligations of arresting officers, and rights of accused when arrested under revenue statutes. Precedent Treatment: The Court accepted the applicability of findings and ratio developed in Customs-law contexts to arrests under the GST Acts with respect to documentation, procedural obligations and protections of the accused. Interpretation and reasoning: Principles governing lawful arrest, requirement of foundational material, and the necessity for objective exercise of power apply uniformly; failure to comply results in illegal arrest. The obligations of the arresting officer and rights of the arrested person must be observed in GST arrests as they are in Customs cases. Ratio vs. Obiter: Ratio - Customs jurisprudential safeguards govern arrests under the GST Acts insofar as maintenance of records and procedural obligations are concerned. Conclusions: Arresting authorities under the GST statutory scheme must adhere to the same standards of record-keeping and procedural safeguards as under the Customs regime; non-compliance renders arrest unlawful. Final conclusion adopted by The Court In the factual matrix before the Court, challenge to constitutional validity of Sections 69 and 132 of the State GST Act is negated and dismissed in view of the binding higher bench authority which upheld the corresponding Central GST provisions and clarified the pre-conditions, standards and safeguards applicable to exercise of arrest powers.