TaxTMI 
TaxTMI 
2020 (8) TMI 448
X X X X Extracts X X X X
X X X X Extracts X X X X
....r Section 132(1)(a) read with section 132(1)(i) of the Central Goods and Service Tax Act, 2017 [hereinafter referred to as "the CGST Act"]. 3. The bail application preferred by the applicants under Section 437 of the CrPC before the learned Judicial Magistrate First Class, Bhopal, was rejected on 14-7-2020. Thereafter, they moved an application before the Court of Sessions under Section 439 of the CrPC, which also faced dismissal vide impugned order dated 16-72020. 4. Shorn of unnecessary details : the factual expose' adumbrated in a nutshell, are that the applicants were taken into custody by the Central Goods and Service Tax Department (CGST Department) on 7-7-2020, while their formal arrest was shown on 87-2020 under Section 69 of the CGST Act, and they have been in jail since 9-7-2020. The instant case arises out of proceedings initiated by the CGST Department in relation to purported evasion of Goods and Service Tax (GST) by the Company - Som Distilleries Pvt. Ltd. [hereinafter referred to as "SDPL"] purportedly leviable and evaded on account of production and sale of sanitizers. 5. At the outset, the petitioners claimed that neither Jagdish Arora nor Ajay Kumar Arora, the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is pleaded that prior to March, 2020 the SDPL was not manufacturing sanitizers. On 19-3-2020 vide order No.1(2)/2020-SP-1 the Government of India directed the Chief Secretaries of all States to initiate steps to enhance production of hand sanitizers and further accord necessary permission to sanitizer manufacturers and distilleries, which on account of having existing infrastructure and ability to manufacture alcohol based products, could easily manufacture sanitizers. This was done to meet the increased demand in order to curb the spread of the COVID-19 pandemic. 10. Accordingly the State of Madhya Pradesh issued a licence to the SDPL to manufacture hand rub sanitizer for the period 24-03-2020 to 30-6-2020. Subsequently, the licence was extended by the State of Madhya Pradesh, till 30-6-2025. 11. On 4-4-2020, the SDPL was granted a certificate of approval by the Government Analyst, who confirmed the fact that the sanitizers produced by the Company were in conformity with the prescribed standards. The SDPL commenced production of hand sanitizers on 25-03-2020. As hand sanitizers are also an alcohol based product, manufacturing of the same is heavily regulated and monitored by th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... late hours and are not being spared and allowed to go home, nor they have been allowed to meet their lawyers. It is averred that a false declaration about permitting the applicants to meet their lawyers has been made in the memo of arrest. Further, the employees of the Company have been physically tortured and beaten up inhumanly. 15. It is further argued on behalf of the applicants that being aggrieved by the action of the GST Department, the SDPL has preferred a writ petition before this Court forming the subject-matter of W.P. No.9650/2020 [Som Distilleries vs. Directorate of GST & Others], wherein notice has been issued to the respondents vide order dated 14-7-2020. 16. It is also contended that the levy of GST in the present case is illegal as the GST is to be paid on the actual amount of sale consideration. A dispute is raised about the GST to be paid by the Company as both, the quantity and the valuation are based on hypothetical reasonings. 17. The action of the CGST authorities has also been challenged as they have committed deliberate and egregious errors in valuation of the purported GST liability of the SDPL, in order to bring the alleged acts within the purview of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Patel vs. Commissioner of Central Goods and Services Tax (R/Crl Misc. Application No.1442 of 2020) and the Calcutta High Court rendered in the case of Sanjay Kumar Bhuwalka vs. Union of India (CRM No.3327 of 2018), wherein benefit of bail was granted to the accused persons on deposit of certain portion of disputed liabilities/dues. 21. That apart, reference is made to Sub-section (7) of Section 107 of the CGST Act, which postulates that where the appellant has paid the amount under sub-section (6), the recovery proceedings for the balance sum, shall be deemed to be stayed. It is putforth that the statutory provision under the CGST Act permits the applicants to prefer an appeal against the amount of tax in dispute upon depositing of such amount and further stays the recovery proceedings during the pendency of such appeal. It is strenuously urged that the applicants could have conveniently preferred such an appeal by depositing 10% of the amount in dispute. However, it is pertinent to note that to show their bonafide, the Company has already deposited the entire disputed amount of Rs.8 crores, under protest. 22. The next plank of submission on behalf of the applicants is that their....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to the established criminal jurisprudence concerning vicarious liability of penal provisions of India. 25. A reference is made to clause (1) of Section 137 of the CGST Act, which stipulates that a person who at the time of the alleged offence was in charge of, and was responsible to, the Company for the conduct of business of the Company, as well as the Company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. In the present case the applicants, who are neither Directors nor they occupy any Managerial post or position in the Company, cannot, by any stretch of imagination, be observed to be persons - in charge of and responsible to the Company for the conduct of business of the Company and hence, be deemed guilty of the alleged offence. It is, therefore, submitted that the applicants have been wrongly arraigned as accused in the instant case. The applicants are not Directors of the SDPL, therefore, they could not be held responsible for the GST tax evasion, if any, by the Company. 26. The petitioners urges that the alleged offences are punishable with imprisonment of only upto a maximum period of five years, therefo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. (3) Where an offence under this Act has been committed by a taxable person being a partnership firm or a Limited Liability Partnership or a Hindu Undivided Family or a trust, the partner or karta or managing trustee shall be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly and the provisions of sub-section (2) shall, mutatis mutandis, apply to such persons. (4) Nothing contained in this section shall renderany such person liable to any punishment provided in this Act, if he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence. Explanation.--For the purposes of this section,-- (i) "company" means a body corporate and includes a firm or other association of individuals; and (ii) "director", in relation to a firm, means apartner in the firm." 28. The arrest of the applicants under Section 69(1) of the CGST Act was assailed to be bad in law, as there is failure on the part of the prosecution t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....company and in addition is also in charge of the business of the company. There may be many directors and secretaries who are not in charge of the business of the company at all. The meaning of the words "person in charge of the business of the company" was considered by this Court in Girdhari Lal Gupta v. D.N. Mehta [1971 (3) SCC 189] followed in State of Karnataka v. Pratap Chand [1981 (2) SCC 335] and Katta Sujatha vs. Fertiliser & Chemicals Travancore Ltd. [2002 (7) SCC 655]. This Court held that the words refer to a person who is in overall control of the day to day business of the company. This Court pointed out that a person may be a director and thus belongs to the group of persons making the policy followed by the company, but yet may not be in charge of the business of the company; that a person may be a Manager who is in charge of the business but may not be in overall charge of the business; and that a person may be an officer who may be in charge of only some part of the business. 23. Therefore, if a person does not meet the first requirement, that is being a person who is responsible to the company for the conduct of the business of the company, neither the question....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e CGST Act, which is to recover the dues payable under the Act and as such its primary object cannot be meted out by imposing punitive punishment. 34. Prayer for grant of bail has also been made on medical grounds. It is stated that the applicant No.2, Ajay Kumar Arora is an old and infirm person of 61 years of age. He is a heart patient having undergone an open heart bypass surgery in the year 2009. He is also suffering from an extreme form of Asthma and as such, is highly vulnerable to the COVID-19 virus. Despite these ailments, with a view to demonstrate his bona fide, he joined the proceedings before the G.S.T. Officers for the first time on 02-7-2020. On that day, he was interrogated from 12 noon till 10 p.m. After fully co-operating with the Department, he gave a written intimation humbly requesting to be excused from personal appearance on account of his health condition and his peculiar vulnerability on account of COVID-19 pandemic. Despite his precarious health he was again called on 3-7-2020, 4-7-2020 and 6-7-2020 and further fully cooperated with the Department. Copies of medical documents have been placed on record. 35. On behalf of applicant No.1 - Jagdish Arora, it ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....are liable to be addressed swiftly and effectively by the Department, (the statute in question being a revenue statute where strict interpretation is the norm), officials cannot be seen to be acting in excess of the authority vested in them under the Statute. I am of the considered view that the power to punish set out in Section 132 of the Act would stand triggered only once it is established that an assessee has committed an offence that has to necessarily be post-determination of the demand due from an assessee, that itself has to necessarily follow the process of an assessment." (c) The High Court of Delhi in the case of Make My Trip (MMT) India Private Ltd. (supra) while dealing with the power of arrest under the Finance Act, 1994 held that without any determination to straight-way conclude, that the petitioners had collected and not deposited service tax in excess of Rs.50 lakhs and thereby had committed a cognizable offence, would be putting the cart before the horse. (d) The decision in Make My Trip (MMT) India Private Ltd. (supra) was affirmed by the Supreme Court in Civil Appeal No.8080 of 2018, by way of a speaking order stating that the issue is as to whether the po....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hable with a maximum of 5 years and is compoundable. (n) Frivolity in prosecution has to be considered and in the event of there being some doubt as to the genuineness of the prosecution, in the normal course of events, the accused is entitled to an order of bail. [See : Ram Govind Upadhyay vs. Sudarshan Singh, AIR 2002 SC 1475] (o) The applicant No.1 - Jagdish Arora, aged about 64 years, is a heart patient and had a Stent placement in the year 2010. He has also a long history of gastroenterology diseases. He was admitted to the ICU of J.P. Hospital Bhopal, on 8-7-2020. (p) The applicant No.2 - Ajay Kumar Arora, aged about 61 years, is also a heart patient and had undergone an open heart bypass surgery in the year 2009. He is also an asthmatic. 37. The respondent submitted that the entire exercise undertaken, is strictly in accordance with the provisions of Sections 67 and 69 of the CGST Act. There is sufficient material to establish direct involvement of the applicants in the three Companies under investigation. There is basis of investigation which is evident from the note-sheets - investigation reports. It is submitted that an intelligence was received from the Director G....