TaxTMI 
TaxTMI 
2019 (4) TMI 1320
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.... penal provisions under Section 69 of the Act, the Directors (Past and/or present) of a few Private Limited Companies, a Chief Financial Officer of a company and the Partner of a Partnership Firm have come up with the above writ petitions. 2. We have heard Mr. R. Raghunandan Rao and Mr. T. Niranjan Reddy, learned Senior Counsel appearing for the petitioners and Mr. K.M.Nataraj, learned Additional Solicitor General appearing on behalf of the Union of India. Facts in brief 3. Since the facts out of which these writ petitions arise, differ marginally from each other, we shall bring out the facts of each case separately: (i) Brief facts in WP No.4764 of 2019: The petitioner in this writ petition is the Managing Director of a Company, by name, Infinity Metals Products India Limited, engaged in the manufacture of iron and steel products. The Company is a listed company. A search was conducted in the premises of the Company by the officials of the GST Commissionerate on 27.02.2019 and a summon dated 27.02.2019 was issued to the petitioner under Section 70 of the CGST Act calling upon the petitioner to appear on 28.02.2019, to give evidence truthfully on the matters concerning the ....
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....laims to have found, after returning to Hyderabad on 07.03.2019, the summon dated 27.02.2019 pasted on the door of his residence. Therefore, the petitioner has come up with the above writ petition. (iv) Brief Facts in WP No.5074 of 2019: The petitioner is one of the Directors of a Public Limited Company, which is also a listed Company, by name, EBC Bearings India Limited, engaged in the manufacture of iron and steel products. A search was conducted in the premises of the said company by the officials of the GST Commissionerate on 27.02.2019 and a summon dated 27.02.2019 was issued to him under Section 70 of the Act. According to the petitioner, he appeared before the concerned authority in response to the summons on 27.02.2019, but was made to wait till 1.30 p.m. Thereafter, he was questioned from 6.00 p.m. onwards on 27.02.2019 till 3.00 a.m. on 28.02.2019. The petitioner claims that he was harassed without food or water and was coerced to sign a statement at 3.00 a.m. on 28.02.2019, though the date was recorded in the statement as 27.02.2019. This led to the petitioner suffering a setback in his health. According to the petitioner he was admitted in the hospital on 28.02.2019....
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....conducted on 27.02.2019 and the summon issued on 07.03.2019 to the 2nd petitioner, the Company as well as two other Directors, together with the second petitioner, have come up with the above writ petition (vi) Brief Facts in WP No.5329 of 2019: This writ petition is filed by a lady, who claims to be a sleeping partner (her husband is the only other partner) in a Partnership Firm, by name, M/s.Hyderabad Steels. According to the petitioner, her husband J. Satya Sridhar Reddy is the Managing Partner of the Firm. On 27.02.2019 a search of the residential premises of the petitioner was conducted by the officials of the GST Commissionerate, on the basis of a search warrant. After the search, an undated summon under Section 70 of the Act was served calling upon the petitioner to appear on 27.02.2019 at 17.00 hours. According to the petitioner, she appeared for the enquiry and was detained under the guise of investigation till 1.30 a.m. on 28.02.2019 without providing food or water. The petitioner claims that a statement was forcibly extracted from her at 1.00 a.m. on 28.02.2019, with the date 27.02.2019. Thereafter, she was allowed to go at 2.00 a.m. on 28.02.2019. According to the p....
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....ment was recorded and he was released at 6.00 p.m. on 03.04.2019, after 26 hours; that a statement was extracted under coercion to the effect as though the petitioner created fake invoices in the names of five proprietary concerns run by him and through such fake invoices, without actual movement of goods, ITC claims were passed on; that the petitioner was again summoned to appear on 05.04.2019; and that since he apprehended arrest, he was compelled to file the writ petition. 4. Since the petitioners in these writ petitions were apprehending arrest, at the time when they came up before this Court, we granted interim protective orders, not to arrest the petitioners, but on condition that they appeared before the concerned authorities, whenever summoned and also cooperated in the investigation. Thereafter, the Superintendent (Anti Evasion), who is the 3rd respondent in most of the writ petitions, has come up with a counter affidavit. Contents of the Counter - affidavit: 5. Since an investigation is now pending, which if results in the prosecution of the petitioners, may lead to the petitioners being tried for certain offences punishable under the Act, we will only record the gi....
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....company availed ITC to the tune of Rs. 24.85 crores without actual receipt of goods, but paid a GST amount of Rs. 27,853/- only; xv) that many GST invoices and E-way bills of these entities showed that these entitles have shown transportation of goods weighing more than double the capacity of the lorries/trucks in which they were allegedly sent showing thereby that all these documents are fabricated documents; xvi) that the creation of fake E-way bills is an offence punishable under the Act; xvii) that one of these entities generated 10 invoices on a single day as though there was sale of a huge quantity of TMT Bars to another company, which created documents to show that all of them were resold by that company to a third company on the very same day; xviii) that these documents clearly showed circular trading without there being any actual trading; xix) that one of these entities availed huge credit facilities to the tune of Rs. 15 crores from a nationalized bank, by showing such huge turnover without there being none xx) that apart from indulging in circular trading among themselves, these companies also created fake GST invoices to enable their friendly business e....
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....pon the police officer to arrest a person despite such person complying with the notice, the same has to be done only for reasons to be recorded; (iii) that since it is always open to the respondents to scrutinise the books of accounts and pass orders of assessment reversing the input tax credits availed by the dealers under the Act, there is no necessity to arrest the petitioners, especially when no adjudication has taken place under the Act; (iv) that since the officers under the CGST Act, 2017 are not police officers and they are not entitled to seek custody of the persons arrested under the Act, the arrested person will only be remanded to judicial custody and hence there is no chance for the officers to conduct any enquiry with him after arrest. (v) that the power to order arrest, conferred upon the Commissioner under Section 69 (1) of the Act is available only in cases where he has reason to believe; (vi) that since the power under section 69(1) is made, under sub- Section (3), subject to the provisions of the Cr.P.C., the phrase "reason to believe" is to be understood in the context of how the said phrase is defined in Section 26 of the Indian Penal Code; and ....
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....ner or the appropriate officer under the Revenue Laws are not police officers and that at the stage of issue of notices under Section 70 of the Act, the Court cannot interfere. 11. We have carefully considered the above rival contention. Discussion and Analysis: 12. We do not think that it is necessary for us to deal with some of the contentions raised by the learned Additional Solicitor General, as the learned Senior Counsel appearing for the petitioners do not dispute the correctness of the same. The fact (1) that until a prosecution is launched, by way of a private complaint with the previous sanction of the Commissioner, no criminal proceedings can be taken to commence, (2) that persons who are summoned under Section 70(1) of the Act and persons whose arrest is authorised under Section 69(1) of the Act are not to be treated as persons accused of any offence until a prosecution is launched and (3) that an officer of the Central Tax authorised under Section 69(1) of the Act to arrest a person is not a police officer, are all not disputed by the learned Senior Counsel for the petitioners. Therefore, it is not necessary to consider in great detail, the decisions of the Suprem....
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....l. Whether Article 226 can be used as a substitute to section 438, Cr.P.C 15. What the petitioners seek in these cases is a direction to the respondents not to arrest them in exercise of the power conferred by Section 69(1) of the CGST Act, 2017. This in essence, is akin to a prayer for anticipatory bail. Since no first information report gets registered before the power of arrest under Section 69(1) of the CGST Act, 2017 is invoked, the petitioners cannot invoke Section 438 of the Code of Criminal Procedure for anticipatory bail. Therefore, the only way they can seek protection against pre-trial arrest (actually pre-prosecution arrest) is to invoke the jurisdiction of this Court under Article 226 of the Constitution of India. 16. The contention of Mr.K. M. Nataraj, learned Additional Solicitor General contended that writ proceedings cannot be converted into proceedings for anticipatory bail, is unacceptable. If the enquiry initiated by the Commissioner of GST is actually a criminal proceeding, then the petitioners can perhaps invoke the jurisdiction of this Court or of the Court of Sessions under Section 438 Cr.P.C. But, if the enquiry by the respondents is not a criminal pr....
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....dence. He is also obliged not to insult and not to cause any interruption to the Proper Officer in the course of such proceedings. 21. A person who faces the threat of arrest in a criminal proceeding, may be entitled to invoke Section 438 Cr.P.C., subject to 2 conditions. They are (i) that section 438, Cr.P.C., applies to the State in which the prosecution takes place and (ii) that the application of Section 438 Cr.P.C., is not ousted by the special enactment under which such a person is prosecuted. For instance, Section 438 Cr.P.C., is not applicable in some of the States such as the State of Uttar Pradesh. Similarly, the provision for anticipatory bail stands excluded by Section 18 of the Scheduled Castes and Scheduled Tribes (Prevention of Atrocities) Act, 1989. 22. Where the applicability of Section 438 Cr.P.C. is specifically excluded, the High Court would be extremely cautious in exercising the same power indirectly by resorting to Article 226 of the Constitution of India. In Km. Hema Mishra v. State of Uttar Pradesh 2014 (4) SCC 453, the Supreme Court noted the decision of the Constitution Bench in Kartar Singh v. State of Punjab 1994 (3) SCC 569, wherein it was held tha....
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....ory functions. 25. While this Court may have to look into the facts of these cases for examining whether the cases of the petitioners would fall under the category of exceptional cases as indicated in Kartar Singh and Km. Hema Mishra, this Court should also see whether by issuing the writ of Mandamus, we would be preventing the Commissioner or Proper Officer from performing any of their statutory functions. 26. Arguments were advanced on both sides on the question as to the stage at which the provisions of Cr.P.C. would come into play under Section 69 (3) of the CGST Act, 2017, especially for the purpose of finding out the applicability of Sections 41 and 41A of the Cr.P.C. Section 41A was inserted in the Code of Criminal Procedure by way of Criminal Procedure Code Amendment Act, 2008 and was further modified by another Amendment Act, 2010. Section 41A(3) of Cr.P.C., prohibits the arrest of a person who complies and continues to comply with a notice for appearance issued under sub- Section (1) of Section 41A of Cr.P.C. However, Section 41A(3) of Cr.P.C. also gives discretion to the Police Officer, for reasons to be recorded, to arrest the person even though he complied with and....
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....arrest is available only in cases where the Commissioner has reasons to believe that a person has committed any offence specified in clauses (a) to (d) of sub-Section (1) of Section 132 CGST Act, 2017. The offences specified in clauses (a) to (d) of sub-Section (1) of Section 132 CGST Act, 2017 are made cognizable and nonbailable under Section 132(5) of the CGST Act, 2017. 31. Therefore, it is clear from sub-Section (1) of Section 69 of the CGST Act that the power of the Commissioner to order the arrest of a person, can be exercised only in cases where such a person is believed to have committed a cognizable and nonbailable offence. As we have pointed out elsewhere, Section 132(1) of CGST Act, 2017 lists out 12 different types of offences from clauses (a) to (l). The offences specified in clauses (a) to (d) of sub- Section (1) of Section 132 are declared cognizable and non-bailable under sub-Section (5) of Section 132 CGST Act, 2017. All the other offences specified in clauses (f) to (l) of sub-Section (1) of Section 132 of the CGST, 2017 Act are declared as non-cognizable and bailable under sub-Section (4) of Section 132 of CGST Act, 2017. 32. But the incongruity between Secti....
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.... upon him, that the information supplied by him is true) supplies false information; or (l) attempts to commit, or abets the commission of any of the offences mentioned in clauses (a) to (k) of this section, shall be punishable-- (i) in cases where the amount of tax evaded or the amount of input tax credit wrongly availed or utilised or the amount of refund wrongly taken exceeds five hundred lakh rupees, with imprisonment for a term which may extend to five years and with fine; (ii) in cases where the amount of tax evaded or the amount of input tax credit wrongly availed or utilised or the amount of refund wrongly taken exceeds two hundred lakh rupees but does not exceed five hundred lakh rupees, with imprisonment for a term which may extend to three years and with fine; (iii) in the case of any other offence where the amount of tax evaded or the amount of input tax credit wrongly availed or utilised or the amount of refund wrongly taken exceeds one hundred lakh rupees but does not exceed two hundred lakh rupees, with imprisonment for a term which may extend to one year and with fine; (iv) in cases where he commits or abets the commission of an offence specified in c....
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.... and bailable, could be arrested at all, since Section 69(1) of the CGST Act, 2017 does not confer power of arrest in such cases. 35. The fact that the power of arrest under Section 69(1) of the CGST Act, 2017 is confined only to cognizable and non-bailable offences, is also fortified by sub-Section (2) of Section 69 which obliges the Officer, who carries out the arrest to inform the arrested person of the grounds of arrest and to produce him before a Magistrate within 24 hours. The duty enjoined upon the Officer carrying out the arrest, to inform the arrested person of the grounds of arrest and to produce him before a Magistrate within 24 hours, is co-relatable under sub-Section (2) of Section 69 of the CGST Act, 2017 to Section 132(5) of the CGST Act, 2017 that deals only with cognizable and non-bailable offences. 36. But, interestingly, clauses (a) and (b) of sub-Section (3) of Section 69 of the CGST Act, 2017 deal in entirety only with cases of persons arrested for the offences which are indicated as noncognizable and bailable. The phrase "subject to the provisions of the Code of Criminal Procedure" is used only in sub-Section (3), which deals in entirety only with the proc....
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....ns who are believed to have committed cognizable and non-bailable offences, but Section 69(3) of the CGST Act, 2017 deals with the grant of bail and the procedure for grant of bail even to persons who are arrested in connection with non-cognizable and bailable offences and (2) in the light of the fact that the Commissioner of GST is conferred with the powers of search and seizure under Section 67(10) of the CGST Act, 2017, in the same manner as provided in Section 165 of the Cr.P.C., 1973, the contention of the Additional Solicitor General that the petitioners cannot take umbrage under Sections41 and 41A of Cr.P.C. may not be correct. 41. Though for the purpose of summoning of witnesses and for summoning the production of documents, the Proper Officer holding the enquiry under the CGST Act, 2017 is treated like a Civil Court, there are four other places in the Act, where a reference is made, directly or indirectly, to the Cr.P.C. They are (1) the reference to Cr.P.C. in relation to search and seizure under Section 67(10) of CGST Act, 2017, (2) the reference to Cr.P.C. under sub-Section (3) of Section 69 in relation to the grant of bail for a person arrested in connection to a non....
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.... "reasons to believe." 44. It was contended by Mr. Niranjan Reddy, learned Senior Counsel for the petitioners that under Section 26 IPC, a person is said to have "reason to believe", if he has sufficient cause to believe. Therefore, he contended that an authorization for arrest issued under Section 69(1) of the CGST Act, 2017 should contain reasons in writing. But in one of the cases on hand, the authorization for arrest does not contain reasons. Therefore, it was contended that the authorization was bad. 45. But, as we have pointed, the requirement under Section 41A(3) of Cr.P.C. is the "recording of a reason", while the requirement under Section 69(1) of CGST Act, 2017 is the "reason to believe". In fact, on the question as to whether or not, reasons to believe should be recorded in the authorization for arrest, the learned Additional Solicitor General submitted that reasons are recorded in files. The learned Additional Solicitor General also produced the files. 46. If reasons to believe are recorded in the files, we do not think it is necessary to record those reasons in the authorization for arrest under Section 69(1) of the CGST Act. Since Section 69(1) of the CGST Act, ....
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....7 prescribes a procedure for assessment even in cases where the information furnished in the returns is found to have discrepancies and that unless a summary assessment or special audit is conducted determining the liability, no offence can be made out under the Act. Therefore, it is their contention that even a prosecution cannot be launched without an assessment and that therefore, there is no question of any arrest. 51. It is true that CGST Act, 2017 provides for (i) self assessment, under Section 59, (ii) provisional assessment, under Section 60, (iii) scrutiny of returns, under Section 61, (iv) assessment of persons who do not file returns, under Section 62, (v) assessment of unregistered persons, under Section 63, (vi) summary assessment in special cases, under Section 64 and (vii) audit under Sections 65 and 66. 52. But, to say that a prosecution can be launched only after the completion of the assessment, goes contrary to Section 132 of the CGST Act, 2017. The list of offences included in sub-Section (1) of Section 132 of CGST Act, 2017 have no co-relation to assessment. Issue of invoices or bills without supply of goods and the availing of ITC by using such invoices or....
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....trate within 24 hours. Immediately, upon production, the Magistrate may either remand him to judicial custody or admit the arrested person to bail, in accordance with the procedure prescribed under the Code of Criminal Procedure. There is no question of police custody or custody to the Proper Officer in cases of this nature. Therefore, it is contended by Mr. Raghunandan Rao, learned Senior Counsel for the petitioners that the arrest under Section 69, does not advance the cause of investigation/enquiry, but only provides a satisfaction to the respondents that they have punished the arrested person even before trial. According to the learned Senior Counsel, the arrest of a person which will not facilitate further investigation, has to be discouraged, since the same has the potential to punish a person before trial. 56. But, the aforesaid contention proceeds on the premise as though the only object of arresting a person pending investigation is just to facilitate further investigation. However, it is not so. The objects of pre-trial arrest and detention to custody pending trial, are manifold as indicated in section 41 of the Code. They are: (a) to prevent such person from committ....