Dilemma Of Professionals – In Regard To Arrest Under GST Act, 2017 (For Themselves Or For Their Clients)

After seeing a significant rise in arrest of Professionals or Businessmen by GST Authorities all around the Country, there has come a need to shed some light on this Topic, as it is the need of the Hour to understand the intent of the Legislature as well as how the same has to be dealt by the Professionals if push comes to shove. In this Article, I have tried to encapsulate the what’s, the who’s and the When’s of provision of Adjudication of Liability by the Department and the use of Draconian Provision of Arrest under the CGST Act, 2017 against the Professionals. This Article will revolve around the Scenario given Below:

Businessmen – Accused of any offence under Section 132 of the CGST Act, 2017

Professionals – Either are unaware or are indulged in commissions of any offence under Section 132 of the CGST Act, 2017

WHAT IS THE DILEMMA

<DISCUSSION IN INVESTIGATION ROOM/PREMISES>

During investigation or search or in the office of GST Department any professional, very often, comes across a situation, where either he understands or explains to businessman that the IO is tending towards calculation of evasion crossing the limit of bailable offence and they may issue arrest memo at any time i.e. excess utilisation of ITC or evasion of GST liability more than 5 cr.

Here, it is pertinent to understand- one myth that the Arrest can be done during Search & Seizure only – The Act has not defined any such linkage with type of checking and arrest, it depends on quantum of evasion only that may be disclosed during normal departmental enquiry, Audit or Anti Evasion or DGGSTI etc. For example, do not assume in proceedings of DGGSTI enquiry they recover the amount only, that may be of any quantum, if they see any problem in recovery or client may escape by no attendance then they can also issues summon with the intention to arrest, as is evident from Section 69 of the CGST Act, 2017.

<OTHER DILEMMA>

Further dilemma of professionals is that they assume that Investigation under section 73 or 74 or 76 or 132 (a) to (d) etc of CGST Act is worrisome and/or it’s consequences are bad. Their worries are that my client should not be further enquired (in client language – harassed) neither he should be troubled, otherwise, my (Professional’s) capability of handling the matter will come within the bounds of incompetence. Even sometimes, it worries the professionals that just because the professional has certified some documents during his tenure with the Client or he was associated with the Client in his Good Old days or he may be part of clients’ current accounting system etc., the professional himself may be roped in the Investigation by the GST Department, which ultimately would result into Arrest under Section 132 of the CGST Act, 2017.

<WHAT IS ACTUALLY THE JURISPRUDENCE/PHIOSOPHY BEHIND the POWER TO ARREST UNDER GST REGIME>

All professionals must understand the Law in its letter and spirit and the intent of the Legislature before blaming the authorities and claiming clients’ innocence. By way of an example given below, one might understand the plight of the GST Department for resorting to the extreme measures of Arrest:

$ Suppose, A sell to B, B to C, C to D and finally ultimate consumer is E. Here I am taking E as a really a genuine and actual consumer.

Situation 1 – Now what may happen A purchased goods from nontax paid buyer [Attracts 132(1)(a)] and took fake ITC claim in selling to B and so on and goods reached to E actual physical goods now chain of ITC from B to D is good because they have paid full amount by banking channel, proper E Way Bill, Toll slips even photos of goods when loaded/unloaded in Trucks. Therefore, B, C, D & E are very genuine buyers & seller & consumer.

But in above example except on margins no GST paid to Government by B to E while A is totally eating the GST at first point. – Now as a professional you think what Govt should do?

Now come to Situation 2 when at the same premises or many companies made and maintain by some professionals and clients issues fake invoices [Attracts u/s 132(1)(b) & (c)] either sale or purchase – now it is being caught by Form 2A or 2B mismatch – another scrutiny or investigation matter. You are adviser or account handler of last person where you see genuine purchase Invoice, bank payment, supported by E way bill, ITC is also reflected in 2B. Now as a professional you think what Govt should do?  

Note: Cameras on Toll roads are to be installed, check points at border are not fully equipped, no mechanism that if not in 2B then you cannot claim ITC and specially in Service Sector such check mechanism is still not fool proof so that these all things are still being handled by department through letters and scrutiny. Even now GSTR 9 & 9C are self-certified no involvement of professionals’ certification and Tax Audit limits also increased.

ANALYSIS & ROLE OF PROFESSIONALS IN ABOVE SITUATIONS:

In both situations – Govt is at loss and except on margins they do not get GST and before amendment in section – 75(12) with explanation Govt was not in position to ascertain liability mismatch in GSTR 1 & 3B. (w.e.f 1st Jan 2022) except letters of investigation or scrutiny.

This is important for professionals to understand provisions for arrest in law:

Authorising Section – 69 of CGST Act, 2017

Charging Section – Offence under – 132 (1) – (a), (b), (c), (d) punishable  – u/s (i) or (ii) of section 132(1) or 132(2)

Arrest Prevails –  U/s 132 (4)(1) for admitted to bail or default of bail, forwarded to the custody of the Magistrate

No Arrest –   Other than above is bailable or non-cognizable offence then DC or AC can release otherwise having all powers like Police Station OI.

Offences –  U/s 132(1)(a) – Supply without Invoice NB

(NB – Non Bailable)   U/s 132(1)(b) – Invoice without supply NB

U/s 132(1)(c) – Fraudulently ITC availed NB

 U/s 132(1)(d) – Tax collected but not paid NB

U/s 132(1)(e) – Evasion not covered above

U/s 132(1)(f) – Falsify accounts

U/s 132(1)(g) – Wrong Supply/Service received

U/s 132(1)(h) – Moving of confiscated goods

U/s 132(1)(i) – Received service/goods in contravention of any provision

U/s 132(1)(j) – Tempers evidences

U/s 132(1)(k) – Fails or supply fake information

U/s 132(1)(l) – attempts to commit (a) to (k) above

Punishments – U/s 132(1)(i) evasion > 5crore imprisonment up to 5 years & with fine NB

U/s 132(1)(ii) <2 crores evasion <5 crores imprisonment up to 3 years & with fine

U/s 132(1)(iii) <1 crores evasion <2 crores imprisonment up to 1 years & with fine

U/s 132(1)(iv) – for clauses (f), (g) & (j) up to 6 months imprisonment or with fine or with both

Evasion Means – Amount of tax evaded or the amount of ITC availed or utilised or the amount of refund wrongly taken

Non Bailable – U/s 132(5) – Offences u/s 132(1)(a) to (d) & 132(1)(i) are non bailable.

HOW TO HANDLE SUCH A SITUATION – PRACTICAL GUIDE

At the outset, I wish to submit that there is nothing that one can do to stop the Department from exercising its power to Arrest as given under Section 69 of the CGST Act, 2017. It is only the after math that one can handle or look for solutions, but, there are measure that one can take where such a situation can be avoided, which may come in a way of precaution but it is not absolute.

In a situation, when one receives a Summon from the GST Department:

Summons are given under the hand and seal of the Intelligence Officer U/s. 70 of the CGST Act, 2017, it may be given at the time of Search and Seizure operation or at any given point. It is advised that one should not avoid investigation and compliance to summons only establishes bonafide, which is beneficial and in favour of the Summoned professional at the time of adjudication of the Dispute before the Hon’ble Court.

It is pertinent to note that at this stage it is recommended to all the professionals to firstly always keep eyes wide open while affixing your signatures on any document, be it digitally signed or physically, in as much as ignorance is no excuse in Law. Secondly, no one should ever share any of their credentials to their fellow professionals , even if the other professional is their most trusted partner/Friend and even if one has shared such credentials the Password for using such credentials shall be changed. All of this might sound paranoid but at the hour of need all of this will only help you.

Example: One of your fellow professional had asked for your login ID and password for uploading of CA Certificates and you gave the credentials to the Fellow Professional, however after the work was done you never changed your password, then your login ID can be used by fellow professionals (and in good faith you tell him OTP also) who have been corrupted by the System but at the end of the Day you will be responsible as the same has been uploaded through your Login ID. (This is case recently arrest of two Cas in Gurugram)

In a Situation of Arrest:

For the GST Department to Arrest a professional, the Department has to make a prima facie case that the Professional has committed an Offence  under section 132(1) (a) to (d) of the CGST Act, 2017, rest of the provisions of S. 132 as mentioned earlier are bailable and warrant to Arrest.

Mostly, a professional can only be said to have committed an offence under Section 132 (g):

“obstructs or prevents any officer in the discharge of his duties under this Act;”

Or 132(l):

“attempts to commit, or abets the commission of any of the offences mentioned in clauses (a) to (k) of this section…”

Dilemma of Professionals in regard to Arrest under GST

It may be noted that both of the above sections are bailable under Section 132 of the CGST Act, 2017.

Here pertinent to note that – whoever commits, or causes to commit and retain the benefits arising out of, any of the offences u/s 132 of the Act, now if arresting authorities have reason to believe that professional associated with the client has retained the benefits in addition to his professional fee can also invoke the provisions of arrest – non bailable against the professional.

Right to Retract from the statements given to the IO while interrogation or Arrest:

When any statement is given by an Accused before the IO or any other Authority, if such statements are taken under pressure or by force then such statements can be retracted either by moving such a statement before the Jail Superintendent or before the Concerned Court.

In this regard, Hon’ble Delhi High Court in Sanjay Maheshwari v. Commissioner of Customs while upholding the sanctity of Retraction Statements, has categorically held that:

“The Supreme Court in A. Tajudeen v. Union of India 2015 (317) 177 (SC) where it was held that statements made during a police or enforcement office raid, or contemporaneously, are suspect and if such statements are retracted subsequently, they “ought not to be readily believable, unless there is independent corroboration of certain material aspects of the said statements, through independent sources..”

It is further submitted that the statements of an accused recorded by the Department cannot be read against the Applicant under Article 20(3) of the Indian Constitution, which categorically states that:

“No person accused of any offence shall be compelled to be a witness against himself.”

Retractions should be done at the time of production of the Accused before the Concerned Magistrate, as the Department within 24 hours of arrest have to produce the Accused before the Concerned Magistrate otherwise the Arrest can be termed to be illegal (as per Section 167(2) of the Cr. P.C.)

Once Arrested the Concerned Court has the power to send the Accused to Judicial Custody for a period of 15 Days which can be extended from time to time.

One must be confused as to when one did not commit any offence then how can one be arrested. The answer to the same is simple in as much as while being investigated it is for the officer to record such reasons ad the same has to be approved by the Commissioner, and all of this is done on the pretext of  reasons to believe alone. Hence, the Investigation Authority does not have to prove while arresting a professional that the Accused, beyond a shadow of doubt has committed the Offence, it only has to establish a prima facie case as to whether such offence has been committed or not is a subject matter of Trial.

Filing of Bail:

This is a Tricky part of Arrest in as much as, Bail is filed by an Advocate representing the Accused. It is trite law that filing of Bail can be said to be the right of the Accused but Grant of Bail is not, grant of Bail is discretionary and depends upon the Lawyer and the Judge. There is no straight jacket Formula as to when to file such application and what to write in it, it is all dependent upon the Legal Professional and his strategy to tackle the matter at hand.

Although, an accused can keep filing Bail Applications as there is no bar in filing of the same but it is advised that rushing into filing of bail might harm the case of the Accused and can result into early rejection Order by the Hon’ble Court, which might delay the grant of Bail by considerable amount of time.

So one should file the Application after some time of Arrest so that the object of arrest is not frustrated. As the judge before whom such application lies has to balance both the sides of the Scale and cannot just presume that the Accused is innocent. Bail is a game of Patience.

After the Bail is Granted:

Once the Bail has been granted by the Concerned Court, the matter then goes to trial and the basic procedure for criminal Trial kicks in, which requires to be dealt in a separate Article.

CONCLUDING REMARKS:

It looks at present Govt Authorities are very strict and at the same time unnecessary harassing the people – it is a casual and very general remark and it is far off from the real scenario. In my whole carrier of practice, I have seen “No smoke without fire”. The involved professional & client both know very well their extent of involvement and everybody should avoid malpractice and like a law-abiding citizen he should perform his duties.

Now again you are standing at Dilemma – then how to work as professional because most of the time due to any reason client did some mistake or fraud knowingly or unknowingly. So, here role of our Institute comes who always provide us huge professional material – guidelines & controlling measures so if we read them carefully and disclose everything to the client or Govt Authorities then you are protected by Law itself otherwise be ready for the consequences.

FEW TIPS: –

$. Always take defined- approved & signed procedure in writing from client if your office is doing data entry or filling & filing GST or any other return.

$. In raising bills give clear cut description of services performed.

$. Always send details/data for approval from client before filing return.

$. Never work back dated – always work on and forward – means do not sign back dated any document. Generate correct UDIN well in time.

$. Always take declaration or undertaking from client that he has given you complete and correct information/supports/data etc.

$. For any certification work – take appointment letter for scope of certification and define at certificate itself part of your certification and part of client, if possible, sign jointly, also define purpose and use of certificate – i.e. limited purpose certificate – avoid “To whomsoever” specify if asking authority is available.

$. Always read a clause of Act/Letter of intent/disbursement/tender etc where your certificate is asked for – only that portion of required to be full filled nothing certify extra on the belief of superficial knowledge of client.

$. Do not share your User ID & Password of UDIN to even your any close friend – before giving any OTP first check what has been filled in form/ document/report/statement etc.

Rest I am leaving at your best wisdom and professional expertise which comes with the passage of time. Good luck and enjoy practical implementation of this article.

CA Rajiv Nigam, – [email protected]

Advocate Anant Nigam – [email protected]

Author Bio

Qualification: CA in Practice
Company: RAJIV NIGAM & ASSOCIATES
Location: NEW DELHI AND NOIDA, New Delhi, IN
Member Since: 17 Jul 2017 | Total Posts: 33
RUNNING RAJIV NIGAM FCA PRACTISING FIRM FOR DIRECT & INDIRECT TAXATION & VIRTUAL CFO FOR START UPS View Full Profile

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