TaxTMI 
TaxTMI 
2019 (4) TMI 1320
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....s Tax Act, 2017 (for short 'CGST Act') and the invocation of the 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....
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....e enquiry and cooperated with the authorities. However, the petitioner claims 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.....
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....ST or without any transfer of goods. Therefore, challenging both the search 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. Th....
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....e vehicle brought by the 3rd respondent, to his office; that in the office a statement 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 ....
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....s. 26.95 crores; xiii) that one of these entities availed fraudulent ITC to the tune of Rs. 39.29 crores without actual receipt of goods; xiv) that one 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 suc....
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....er sections 41 and 41-A of the Code of Criminal Procedure, after its amendment, a person cannot be arrested so long as such person complies and continues to comply with the notice for his appearance; (ii) that though Section 41A (3) of the Code confers discretion upon 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 ha....
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....at the petitioners are not entitled to convert the writ Court into a Court of anticipatory bail. 10. The learned Additional Solicitor General placed reliance upon several judgments of the Supreme Court to drive home the point that the proceedings under the Act till the stage of launching of the prosecution are not criminal proceedings and that the Commissioner 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 ....
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....ng the protection of Article 20(3) of the Constitution of India. On the other hand, the petitioners agree and undertake to appear before the officers and cooperate in the investigation. Their main grievance is about the possibility of their arrest and detention to custody. But the objection of the respondents is that writ proceedings are not to be converted into proceedings for anticipatory bail. 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 Additiona....
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.... intentionally gives false evidence or fabricates false evidence or intentionally offers any insult or causes any interruption to any public servant. 20. Therefore, even if the enquiry before the Proper Officer under CGST Act, 2017 is not by its nature, a criminal proceeding, it is nevertheless a judicial proceeding and hence, the person summoned is obliged not to give false evidence nor to fabricate evidence. 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. Wher....
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....mental principle, a writ of Mandamus would lie only to compel the performance of a statutory or other duty. There is a fundamental distinction between a petition for anticipatory bail and the writ of mandamus to direct an officer not to effect arrest. A writ of mandamus would lie only to compel the performance of a statutory or other duty. No writ of mandamus would lie to prevent an officer from performing his statutory 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 Cod....
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....er or the Assistant Commissioner shall, for the purpose of releasing an arrested person on bail or otherwise, have the same powers and be subject to the same provisions as an officer-in-charge of a police station." Some incongruities in section 69 and 132, CGST Act 30. It can be seen from the language employed in sub-Sections (1), (2) and (3) of Section 69, that there are some incongruities. Under sub-Section (1) of Section 69, the power to order 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 ....
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....made thereunder; (i) receives or is in any way concerned with the supply of, or in any other manner deals with any supply of services which he knows or has reasons to believe are in contravention of any provisions of this Act or the rules made thereunder; (j) tampers with or destroys any material evidence or documents; (k) fails to supply any information which he is required to supply under this Act or the rules made thereunder or (unless with a reasonable belief, the burden of proving which shall be 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 h....
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....nt upon conviction, then the power of Commissioner, who is not a Police Officer, to order the arrest of a person should also emanate from prescription contained in the Act itself. Section 69(1) of CGST Act, 2017 very clearly delineates the power of the Commissioner to order the arrest of a person whom he has reasons to believe, to have committed an offence which is cognizable and non-bailable. Therefore, we do not know how a person whom the Commissioner believes to have committed an offence specified in clauses (f) to (l) of sub-Section (1) of Section 132 of CGST Act, which are non-cognizable 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....
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....Act except those under clauses (a) to (d) of Section 132 (1), are made non-cognizable and bailable, notwithstanding anything contained in Cr.P.C. In addition, Section 67(10) of the CGST Act, 2017 makes the provisions of Cr.P.C. relating to search and seizure, apply to searches and seizures under this Act, subject to the modification that the word "Commissioner" shall substitute the word "Magistrate" appearing in Section 165 (5) of Cr.P.C., in its application to CGST Act, 2017. 40. Therefore, (1) in the light of the fact that Section 69(1) of the CGST Act, 2017 authorizes the arrest only of persons 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 Se....
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....e irrevocable guarantee against arrest. Despite the compliance with the notices of appearance, a Police Officer himself is entitled under Section 41A(3) Cr.P.C., for reasons to be recorded, arrest a person. At this stage, we may notice the difference in language between Section 41A(3) of Cr.P.C. and 69(1) of CGST Act, 2017. Under Section 41A(3) of Cr.P.C., "reasons are to be recorded", once the Police Officer is of the opinion that the persons concerned ought to be arrested. In contrast, Section 69(1) uses the phrase "reasons to believe". There is a vast difference between "reasons to be recorded" and "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....
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....account on the facts, will only be a superficial examination of facts. 49. In essence, the main allegation of the Department against the petitioners is that they are guilty of circular trading by claiming input tax credit on materials never purchased and passing on such input tax credit to companies to whom they never sold any goods. The Department has estimated that fake GST invoices were issued to the total value of about Rs. 1,289 crores and the benefit of wrongful ITC passed on by the petitioners is to the tune of about Rs. 225 crores. 50. The contention of the petitioners is that the CGST Act, 2017 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....
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....e part of the petitioners is so huge. Therefore, the argument that there cannot be any arrest as long as the offences are compoundable, is an argument of convenience and cannot be accepted in cases of this nature. 55. Another argument advanced by the learned Senior Counsel for the petitioners is that since the Proper Officer under the CGST Act, 2017, even according to the respondents is not a Police Officer, he cannot and he does not seek custody of the arrested person, for completing the investigation/enquiry. Section 69(2) obliges the Officer authorized to arrest the person, to produce the arrested person before a Magistrate 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 the....