TaxTMI 
TaxTMI 
TaxTMI 
2026 (1) TMI 772
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....ervices Tax Act, 2017 ('the Act' for short). On 03-01-2026 at about 1.30 p.m. summons was issued to the petitioners requiring them to attend a hearing at the office of the 2nd respondent at 2.30 p.m. The averment is that, at that point of time both the husband and the wife were arrested and information of arrest was given on the evening of the same day. It is the averment that about 12.30 A.M. the grounds of arrest and other documents were served upon the daughter, the 1st petitioner. Presently, both the husband and wife are in custody. The daughter and the mother are now at the doors of this Court in the subject petition seeking quashment of arrest memo and a declaration holding that the arrest was illegal. 3. Heard Sri Sandesh J. Chouta, learned senior counsel appearing for the petitioners and Sri B. A. Belliappa, learned Special Public Prosecutor appearing for the respondents. 4. The learned senior counsel Sri Sandesh J. Chouta appearing for the petitioners would submit that the daughter/1st petitioner is seeking interim bail for the mother on humanitarian grounds, that she has to look after a child of 11 years old and that of the 1st petitioner who is 18 years old. He wou....
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....short "the PML Act"). This Court held that the power of arrest granted to the Directorate of Enforcement (for short "DoE") under Section 19 of the PML Act is fenced with certain preconditions. These preconditions act as stringent safeguards to protect the life and liberty of individuals. The relevant portion reads: (SCC pp. 262-63, para 9) "9. A bare reading of the section reflects, that while the legislature has given power to the Director, Deputy Director, Assistant Director, or an authorised officer to arrest a person, it is fenced with preconditions and requirements, which must be satisfied prior to the arrest of a person. The conditions are: (i) The officer must have material in his possession. (ii) On the basis of such material, the authorised officer should form and record in writing, "reasons to believe" that the person to be arrested, is guilty of an offence punishable under the PML Act. (iii) The person arrested, as soon as may be, must be informed of the grounds of arrest. These preconditions act as stringent safeguards to protect life and liberty of individuals. We shall subsequently interpret the words "material", "reason to....
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....e authorised officer. It is difficult to accept that the "reasons to believe", as recorded in writing, are not to be furnished. As observed above, the requirements in Section 19(1) are the jurisdictional conditions to be satisfied for arrest, the validity of which can be challenged by the accused and examined by the court. Consequently, it would be incongruous, if not wrong, to hold that the accused can be denied and not furnished a copy of the "reasons to believe". In reality, this would effectively prevent the accused from challenging their arrest, questioning the "reasons to believe". We are concerned with violation of personal liberty, and the exercise of the power to arrest in accordance with law. Scrutiny of the action to arrest, whether in accordance with law, is amenable to judicial review. It follows that the "reasons to believe" should be furnished to the arrestee to enable him to exercise his right to challenge the validity of arrest. 42. We would accept that in a one-off case, it may not be feasible to reveal all material, including names of witnesses and details of documents, when the investigation is in progress. This will not be the position in most cases. D....
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....attention to the use of the expression "material in possession" in Section 19(1) of the PML Act instead of "evidence in possession". Though etymologically correct, this argument overlooks the requirement that the designated officer should and must, based on the material, reach and form an opinion that the arrestee is guilty of the offence under the PML Act. Guilt can only be established on admissible evidence to be led before the court, and cannot be based on inadmissible evidence. While there is an element of hypothesis, as oral evidence has not been led and the documents are to be proven, the decision to arrest should be rational, fair and as per law. Power to arrest under Section 19(1) is not for the purpose of investigation. Arrest can and should wait, and the power in terms of Section 19(1) of the PML Act can be exercised only when the material with the designated officer enables them to form an opinion, by recording reasons in writing that the arrestee is guilty." 37. The investigating officer is also required to look at the whole material and cannot ignore material that exonerates the arrestee. A wrong application of law or arbitrary exercise of duty by the designat....
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....levant portion reads: (Arvind Kejriwal case [Arvind Kejriwal v. Enforcement Directorate, (2025) 2 SCC 248 : (2025) 1 SCC (Cri) 695], SCC p. 279, para 44) "44. We now turn to the scope and ambit of judicial review to be exercised by the court. Judicial review does not amount to a mini-trial or a merit review. The exercise is confined to ascertain whether the "reasons to believe" are based upon material which "establish" that the arrestee is guilty of an offence under the PML Act. The exercise is to ensure that the DoE has acted in accordance with the law. The courts scrutinise the validity of the arrest in exercise of power of judicial review. If adequate and due care is taken by the DoE to ensure that the "reasons to believe" justify the arrest in terms of Section 19(1) of the PML Act, the exercise of power of judicial review would not be a cause of concern. Doubts will only arise when the reasons recorded by the authority are not clear and lucid, and therefore a deeper and in-depth scrutiny is required. Arrest, after all, cannot be made arbitrarily and on the whims and fancies of the authorities. It is to be made on the basis of the valid "reasons to believe", meeting the....
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....eview of errors of law when constitutional or statutory terms, essential for the exercise of power, are misapplied or misconstrued. Fourthly, judicial review is permissible to check improper exercise of power. For instance, it is an improper exercise of power when the power is not exercised genuinely, but rather to avoid embarrassment or for wreaking personal vengeance. Lastly, judicial review can be exercised when the authorities have not considered grounds which are relevant or has accounted for grounds which are not relevant." ... ... ... 52. To a large extent, our reasoning and the ratio on the applicability of the Code to the Customs Act would equally apply to the GST Acts in view of Sections 4 and 5 of the Code. Sub-section (10) to Section 67 of the CGST Act postulates that the provisions of the Code relating to search and seizure shall, as far as may be, apply to search and seizure under the GST Acts, subject to the modification that for the purpose of sub-section (5) to Section 165 of the Code, the word "Magistrate" shall be substituted with the word "Commissioner". Section 69, which deals with the power of arrest, a provision which we will refer to subseq....
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....d be supported by referring to relevant and sufficient material. 59. The aforesaid exercise should be undertaken in right earnest and objectively, and not on mere ipse dixit without foundational reasoning and material. The arrest must proceed on the belief supported by reasons relying on material that the conditions specified in sub-section (5) of Section 132 are satisfied, and not on suspicion alone. An arrest cannot be made to merely investigate whether the conditions are being met. The arrest is to be made on the formulation of the opinion by the Commissioner, which is to be duly recorded in the reasons to believe. The reasons to believe must be based on the evidence establishing-to the satisfaction of the Commissioner-that the requirements of sub-section (5) to Section 132 of the CGST Act are met. 60. Our attention was drawn to the judgment of the High Court of Delhi in MakeMyTrip (India) (P) Ltd. v. Union of India [MakeMyTrip (India) (P) Ltd. v. Union of India, (2016) 96 VST 37 : 2016 SCC OnLine Del 4951], which is a decision interpreting the power of arrest under the Finance Act, 1994. These provisions are related to service tax. Excise duty, service tax, an....
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.... "F. No. GST/INV/Instructions/2021-22 GST-Investigation Unit 17-8-2022 Instruction No. 02/2022-23 [GST - Investigation] Subject: Guidelines for arrest and bail in relation to offence punishable under the CGST Act, 2017 - reg. Hon'ble Supreme Court of India in its judgment dated 16-8-2021 in Siddharth v. State of U.P. [Siddharth v. State of U.P., (2022) 1 SCC 676 : (2022) 1 SCC (Cri) 423], has observed as follows: (SCC p. 682, para 10) '10. We may note that personal liberty is an important aspect of our constitutional mandate. The occasion to arrest an accused during investigation arises when custodial investigation becomes necessary or it is a heinous crime or where there is a possibility of influencing the witnesses or accused may abscond. Merely because an arrest can be made because it is lawful does not mandate that arrest must be made. A distinction must be made between the existence of the power to arrest and the justification for exercise of it [Joginder Kumar v. State of U.P., (1994) 4 SCC 260 : 1994 SCC (Cri) 1172]. If arrest is made routine, it can cause incalculable harm to the reputation....
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....less such person is arrested, his presence before investigating officer cannot be ensured. 3.3. Approval to arrest should be granted only where the intent to evade tax or commit acts leading to availment or utilisation of wrongful Input Tax Credit or fraudulent refund of tax or failure to pay amount collected as tax as specified in sub-section (1) of Section 132 of the CGST Act, 2017, is evident and element of mens rea/guilty mind is palpable. 3.4. Thus, the relevant factors before deciding to arrest a person, apart from fulfilment of the legal requirements, must be that the need to ensure proper investigation and prevent the possibility of tampering with evidence or intimidating or influencing witnesses exists. 3.5. Arrest should, however, not be resorted to in cases of technical nature i.e. where the demand of tax is based on a difference of opinion regarding interpretation of law. The prevalent practice of assessment could also be one of the determining factors while ascribing intention to evade tax to the alleged offender. Other factors influencing the decision to arrest could be if the alleged offender is cooperating in the investigation viz. complia....
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.... It further states that efforts should be made to file a prosecution complaint under Section 132 of the CGST Act at the earliest and preferably within 60 days of arrest, where no bail is granted. Even otherwise, the complaint should be filed within a definite time-frame. A report of arrests made must be maintained and submitted as provided in Para 6.1 of the Instruction. 64.5. The aforesaid directions in the circular/instruction should be read along with the specific directions outlined in the earlier judgments of this Court and the present judgment. ... ... ... 91. However, when the legality of such an arrest made under the special Acts like PMLA, UAPA, Foreign Exchange, Customs Act, GST Acts, etc. is challenged, the Court should be extremely loath in exercising its power of judicial review. In such cases, the exercise of the power should be confined only to see whether the statutory and constitutional safeguards are properly complied with or not, namely, to ascertain whether the officer was an authorised officer under the Act, whether the reason to believe that the person was guilty of the offence under the Act, was based on the "material" in possession....
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....nce, to maintain law and order in the society, etc. For these or such other reasons, arrest may become an inevitable part of the process of investigation. 94. It is pertinent to note that the special Acts are enacted to achieve specific purposes and objectives. The power of judicial review in cases of arrest under such special Acts should be exercised very cautiously and in rare circumstances to balance individual liberty with the interest of justice and of the society at large. Any liberal approach in construing the stringent provisions of the special Acts may frustrate the very purpose and objective of the Acts. It hardly needs to be stated that the offences under the PMLA or the Customs Act or FERA are the offences of very serious nature affecting the financial systems and in turn the sovereignty and integrity of the nation. The provisions contained in the said Acts therefore must be construed in the manner which would enhance the objectives of the Acts, and not frustrate the same. Frequent or casual interference of the courts in the functioning of the authorised officers who have been specially conferred with the powers to combat the serious crimes, may embolden the un....
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....s crimes may embolden the unscrupulous elements to commit such crimes. Therefore, minor procedural lapses on the part of the authorised officers may not be seen with magnifying glass. 7.2. Prior to the judgment of the Apex Court in the case of RADHIKA AGARWAL supra, a Division Bench of the High Court of Telangana in the case of P.V. RAMANA REDDY v. UNION OF INDIA 2019 SCC OnLine TS 3332, considers the interplay between Section 69 of the Act, and Section 41-A of the Cr.P.C., and holds as follows: ".... .... .... 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 the 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-cognizable and bailable offence, (3) the reference to Cr. P. C. i....
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....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 the Cr.P.C. is the "recording of a reason", while the requirement under section 69(1) of the 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 th....
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....Whether prima facie the ingredients of the offence are made out, on the basis of the allegations as they stand, in the FIR. 64.6. The significant interests of the public or the State and other similar considerations. 65. These principles have evolved over a period of time and emanate from the following (among other) decisions: Prahlad Singh Bhati v. State (NCT of Delhi) [Prahlad Singh Bhati v. State (NCT of Delhi), (2001) 4 SCC 280 : 2001 SCC (Cri) 674] ; Ram Govind Upadhyay v. Sudarshan Singh [Ram Govind Upadhyay v. Sudarshan Singh, (2002) 3 SCC 598 : 2002 SCC (Cri) 688] ; State of U.P. v. Amarmani Tripathi [State of U.P. v. Amarmani Tripathi, (2005) 8 SCC 21 : 2005 SCC (Cri) 1960 (2)] ; Prasanta Kumar Sarkar v. Ashis Chatterjee [Prasanta Kumar Sarkar v. Ashis Chatterjee, (2010) 14 SCC 496 : (2011) 3 SCC (Cri) 765] ; Sanjay Chandra v. CBI [Sanjay Chandra v. CBI, (2012) 1 SCC 40 : (2012) 1 SCC (Cri) 26 : (2012) 2 SCC (L&S) 397] and P. Chidambaram v. CBI [P. Chidambaram v. CBI, (2020) 13 SCC 337 : (2020) 4 SCC (Cri) 528] . ... ... ... 68. Mr Kapil Sibal, Mr Amit Desai and Mr Chander Uday Singh are undoubtedly right in submitting that the procedura....
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....s, reasoning and conclusion 11. Having given the matter our anxious and thoughtful consideration, though the appellant may have a point that, strictosensu, in a petition under Section 439 of the Code, the court concerned ought not to travel beyond considering the specific issue viz. whether to grant bail or reject bail to an accused in custody, it cannot be lost sight of that the Court concerned herein was not a "Court of Session" but the High Court for the State of Madhya Pradesh, established under Article 214 of the Constitution of India (hereinafter referred to as "the Constitution"). 12. This singular fact, for reasons elaborated hereinafter, leads us to decline interfering with the impugned judgment [Shiv Kumar Kushwah v. State of M.P., 2022 SCC OnLine MP 5851], but for different reasons. We have no hesitation in stating that had the impugned judgment been rendered by a Court of Session, the factors that would have weighed with us would be starkly different. 13. A little digression is necessitated. The High Court is a constitutional court, possessing a wide repertoire of powers. The High Court has original, appellate and suomotu powers under Articles....
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....f separate proceedings taking recourse to Article 226 of the Constitution, after formulating reasons and points for consideration. Thereafter, the matter should have been referred to the learned Chief Justice of the High Court for placing it before an appropriate Bench, which would proceed in accordance with law, of course, after affording adequate opportunity to the person(s) proceeded against. 16. With regard to the High Court's justified concern to prevent miscarriage of justice, separate/fresh proceedings could have been instituted as indicated above. We hasten to add that our observations are not to be construed to imply that the High Courts should delve into the efficacy of investigation at the stage of bail, and the present judgment is not to be misread to haul up the investigative agencies/officers in all cases. 17. This Court could have interfered with the "direction" for departmental proceedings against the appellant, as the learned counsel for the appellant advanced, had been so done in Sangitaben Shaileshbhai Datanta [Sangitaben Shaileshbhai Datanta v. State of Gujarat, (2019) 14 SCC 522: (2020) 1 SCC (Cri) 395] and M. Murugesan [State v. M. Muruge....
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....hs display, the same are inapplicable to the extant factual matrix. It is too well settled that judgments are not to be read as Euclid's theorems; they are not to be construed as statutes, and; specific cases are authorities only for what they actually decide. We do not want to be verbose in reproducing the relevant paragraphs but deem it proper to indicate some authorities on this point - Sreenivasa General Traders v. State of A.P. [Sreenivasa General Traders v. State of A.P., (1983) 4 SCC 353] and Amar Nath Om Prakash v. State of Punjab [Amar Nath Om Prakash v. State of Punjab, (1985) 1 SCC 345 : 1985 SCC (Tax) 92] - which have been reiterated, inter alia, in BGS SGS SOMA JV v. NHPC [BGS SGS SOMA JV v. NHPC, (2020) 4 SCC 234 : (2020) 2 SCC (Civ) 606] and Chintels (India) Ltd. v. Bhayana Builders (P) Ltd. [Chintels (India) Ltd. v. Bhayana Builders (P) Ltd., (2021) 4 SCC 602] 20. In the present case, the judgment impugned [Shiv Kumar Kushwah v. State of M.P., 2022 SCC OnLine MP 5851] was passed before the final disposal of the bail application by the High Court. On a closer scrutiny of the judgment impugned [Shiv Kumar Kushwah v. State of M.P., 2022 SCC OnLine MP 5851]....
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....ustice, cannot be ruled out, and may, in fact, have increased. The significance of the investigative component cannot be emphasised enough, and the views of this Court on such aspect have been brought to the fore in Manu Sharma v. State (NCT of Delhi) [Manu Sharma v. State (NCT of Delhi), (2010) 6 SCC 1 : (2010) 2 SCC (Cri) 1385] and Manoj v. State of M.P. [Manoj v. State of M.P., (2023) 2 SCC 353 : (2023) 2 SCC (Cri) 1]. 24. In this connection, on a slightly different but connected context, it would be apposite to refer to the judgment in State of Gujarat v. Kishanbhai [State of Gujarat v. Kishanbhai, (2014) 5 SCC 108 : (2014) 2 SCC (Cri) 457], wherein the Court opined and directed as under : (SCC pp. 137-38, para 22) "22. Every acquittal should be understood as a failure of the justice delivery system, in serving the cause of justice. Likewise, every acquittal should ordinarily lead to the inference, that an innocent person was wrongfully prosecuted. It is therefore, essential that every State should put in place a procedural mechanism which would ensure that the cause of justice is served, which would simultaneously ensure the safeguard of interest of those who....
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....erely reiterative, perhaps in more direct terms, of what had been stated before it. As such, purely, in the extant facts and circumstances, the impugned judgment [Shiv Kumar Kushwah v. State of M.P., 2022 SCC OnLine MP 5851] does not warrant any interference by this Court. We propose no order as to costs." (Emphasis supplied) The Apex Court in SANJAY DUBEY supra holds that in exceptional circumstances where the High Court is satisfied that there were grave lapses on the part of the Police or Investigative machinery which may have fatal consequences on the justice delivery system, may interfere in matters regarding bail, which would otherwise be entertainable under Section 439 of the Cr.P.C. 10. The High Court of Delhi in the case of RAM KISHOR ARORA v. DIRECTOR, DIRECTORATE OF ENFORCEMENT 2023 SCC OnLine Del 5960 holds as follows: ".... ...... ..... 86. I consider that in view of the orders passed by learned Special Judge on 28.06.2023 whereby he found sufficient material on the record and recorded a finding that the investigating agency has complied with the provisions of law while arresting the applicant accused this judgment rather favours the ED....