Jagdish Arora and another Vs Union of India (Madhya Pradesh HC)
In the instant case, the petition is filed for obtaining bail against in respect of the offence punishable under Section 132(1)(a) read with section 132(1)(i) of the Central Goods and Service Tax Act, 2017.
HC state that the parties at length and bestowed our anxious consideration on their respective arguments advanced. The record was also produced by the respondent in a sealed. HC have gone through the record in order to ascertain the existence of “reasons to believe” for the proceedings being initiated against the applicants. HC do not perceive any material, except the statement of the employee. There is no documentary material produced on record to show that the present applicants were legally in charge and responsible for the day-to-day working of the Company. They had already resigned legally from the Directorship of the Company. Merely on a bald statement of an employee of the Company, it cannot be held that the present applicants were in charge and responsible for the functions of the Company.
On a careful consideration of nature and gravity of the allegations made against the applicants and the specific evidence collected in respect of the allegations levelled, elaborate discussion of which would not be apt, as it may adversely affect the interest of either party, the specific facts put forth by the learned senior counsel for the applicants and the reply and other facts and circumstances of the case, in the considered opinion of this Court, the case for granting bail is made out. Therefore, without commenting on the merits of the case, the application for grant of bail to the applicants stands allowed.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
Hearing convened through video conferencing.
2. This is the first bail application filed under Section 439 of the Code of Criminal Procedure [for short “the CrPC”] on behalf of the applicants, namely, Jagdish Arora and Ajay Kumar Arora, who have been taken into judicial custody in connection with Crime No.DGGI/BhZU/1204/03/2020-21/SDPL, registered at the Central Goods and Service Tax, Bhopal, in respect of the offence punishable under 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 16-7- 2020.
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 8- 7-2020 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 applicants herein, are Directors/ Managers/Officers/employees or authorized representatives of the SDPL and as such, they are not responsible for the day-to-day business affairs of the Company. In fact, both the applicants had resigned their Directorship from the SDPL on 01-4-2009, i.e. nearly 11 years ago. A certified copy of Form-32 having the details of resignation from the Directorships is appended to the application as Annexure-P/3. It is asserted that the CGST Department, however, has not collected or placed on record even an iota of documentary evidence in order to substantiate their version. It is strenuously urged that the applicants are entitled to bail on this ground alone.
6. It is putforth that initially the GST authorities had communicated that the demand of GST liability was made to the extent of ₹ 7,96,00,000/-. Thus, in order to demonstrate its bona fide the SDPL immediately deposited ₹ 8 crores under protest. According to the petitioners the CGST Department has now increased the purported liability to ₹ 33 crores as an afterthought.
7. It is argued that the instant arrest proceedings are completely premature, as till date the assessment proceedings have not commenced and, therefore, there is no concretized liability that the GST Department can fasten on the SDPL. To bolster the submission, reliance is placed on the decisions of the High Court of Madras in the case of Jayachandran Alloys Pvt. Ltd. vs. Superintendent of GST and Central Excise – W.P. No.5501/2019 and the Delhi High Court in Make My Trip (MMT) vs. Union of India, 2016 (44) STR 481 (Delhi), confirmed by the Supreme Court in the judgment rendered in the case of Akhil Krishan Maggu and another vs. Deputy Director, DGGI and Ors – C.W.P. No.24195/2019 (OM).
8. It is stated on behalf of the applicants that the SDPL is a private limited company which was incorporated in the year 1986 under the provisions of the Companies Act, 1956. The SDPL is engaged in the business of manufacture and sale of alcohol based products and has made its mark across the country, primarily on account of consistently and uniformly manufacturing high quality products. It is a significant and honest contributor towards the Government exchequer and contributes about ₹ 38 crores annually on account of various taxes. The company also provides employment to about 800-1000 persons across India.
9. It 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 the State Excise Department. Furthermore, even the raw material for the production of the hand sanitizer which is Rectified Spirit (RS) or ENA, also known as Neutral Spirit, is a controlled substance and the usage and manufacturing of which is monitored by the Excise Department.
12. It is next pleaded that as per Distillery, Bottling and Warehouse Rules, made under the Madhya Pradesh Excise Act, 1915, the manufacturing premises are under the direct control of an Excise Officer, who oversees the factory for 24 hrs. The said officer is responsible for monitoring the production carried out at such controlled premises and the dispatches/supply of all alcohol based products from the premises. The Excise Officer has issued a certificate dated 30-6-2020 certifying that the total production of hand sanitizer by the SDPL till 30-6-2020 has been 2090245 litres and that the company has supplied a total of 917721.46 litres of sanitizer. A copy of the said certificate is appended as Annexure- P/8.
13. It is asseverated that the SDPL has filed its GST returns for March and April, 2020, wherein the GST Tax has been paid at ₹1,72,03,623/-. The due date for GSTR 3B return for the month of May, 2020 was 27th June 2020 and GSTRI due date is 28th July 2020, which are yet to be filed. The Central Board of Indirect Taxes has extended the limitation for filing of GST returns, vide Notifications dated 03-4-2020 and 24-6-2020, therefore, the Company is not in breach of any statutory or regulatory deadlines and it has fully complied with the GST regime.
14. The GST Department carried out search and seizure proceedings at the premises of the SDPL on 26-6-2020 which continued till 28-6-2020 and thereafter, on 30-6-2020. It is the case of the applicants that the search proceedings were carried out in complete derogation of the procedure envisaged in law and in violation of COVID-19 Guidelines. The search warrants have not been provided/served/shown to responsible persons; documents have been seized without proper inventory and without providing copies thereof, stock is being taken randomly without the aid of SDPL’s Store Manager; and proper panchnamas are not being prepared and served by the respondent. It is canvassed that because of above-mentioned irregularities, several employees of the Company were abused, humiliated and even assaulted. They are being interrogated rigorously till 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 Section 132(5) of the CGST Act. The GST authorities have committed mischief in valuation of the hand rub sanitizer manufactured by the SDPL with the sole motive of taking the alleged tax evasion above ₹500 lacs. The case of the GST Department is completely contrary to the figures certified by the Excise Department. A comparative chart of CGST and actual figures of the Excise Department has been reproduced in the application. On the basis of the figures enumerated in the chart it is submitted that the figure for total production, supply and closing stock of sanitizer, as estimated by the CGST, is not correct and the same is based on hypothetical reasoning. The basis of calculation made by the GST Department is completely erroneous and contrary to law.
18. It is also asseverated that for the sake of argument, even if the allegations of GST authorities are taken at the face value, the GST assessable upon the sale of sanitizer viz. ‘Genius’ at most, ought to be valued as follows :
