Celebrated case of P.V. Ramana Reddy decided by Telangana High Court on 18-04-2019 has been left unperturbed by Supreme Court in [2019] 106 taxmann.com 301 (SC) and pronounced on 27-05-2019. In Sapna Jain & Ors also, Supreme Court has advised that High Courts while entertaining pre arrest petitions will Keep in mind the order of Telangana High Court in similar matter.

This case elaborates some important propositions of the law. Following Important lessons can be drawn from this case:

1. Reference to Criminal Procedure Code in GST Law

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 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. in Section 132 (4) while making all offences under the CGST Act, 2017 except those specified in clauses (a) to (d) of Section 132 (1) of CGST Act, 2017 as non-cognizable and bailable and

(4) the reference to Sections 193 and 228 of IPC in Section 70(2) of the CGST Act, 2017.

[Para 41]

2 Benefits of law available at accusation stage not available at Inquiry stage

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 be treated as persons accused of any offence until a prosecution is launched [Para 12]

That a person against whom an enquiry is undertaken under the relevant provisions of the tax laws, does not automatically become a person accused of an offence, until prosecution is launched,[Para 13(iii)

That the statements made by persons in the course of enquiries under the tax laws, cannot be equated to statements made by persons accused of an offence, {para 13(iv)

Hence such a person can not enjoy the benefit of Article 20(3) of the Constitution which says that :

“………. No person accused of any offence shall be compelled to be a witness against himself………..” [Para 13(v)]

3 That an officer of the Central Tax authorised under Section 69(1) of the Act to arrest a person is not a police officer
4D. Statement before officer is not a statement before police officer and hence evidentiary value does not get lost

Decisions of the Supreme Court in Badaku Joti Savant v. State of Mysore 1966 taxmann.com 1,

1. Power of a Central Excise Officer under Section 21 does not include the power to submit a charge sheet under Section 173 of the Cr. P.C. “All that Section 21 provides is that for the purpose of his inquiry a Central Excise Officer shall have the powers of an Officer-in-charge of a police station when investigating a cognisable case. But even so it appears that these powers do not include the power to submit a charge sheet under Section 173 of the Cr. P.C.”

2. A Central Excise Officer is not a Police Officer. “We are of the opinion that mere conferment of powers of investigation into criminal offences under Section 9 of the Act does not make a Central Excise Officer a Police Officer even in the broader view mentioned above. Otherwise any person entrusted with investigation under Section 202 of the Cr. P.C. would become a Police Officer.”

3. The statement made before a Central Excise Officer is admissible in evidence. “In this view of the matter the statement made by the appellant to the Deputy Superintendent of Customs and Excise would not be hit by Section 25 of the Evidence Act and would be admissible in evidence unless the appellant can take advantage of Section 24 of the Evidence Act.”

[Para 12]

5 Person can be prevented to take assistance of lawyer

Poolpandi v. Superintendent, Central Excise 1992 taxmann.com 30.

Refusal to allow presence of a counsel during interrogation does not violate the protection under Article 20(3) or 21 of the Constitution of India [ratio of Supreme Court judgment in Romesh Chandra Mehta v. State of West Bengal–1985 ECR 2239 (SC):ECR C Cus 620 SC]. “We do not find any force in the arguments…..that if a person is called away from his own house and questioned in the atmosphere of the customs office without the assistance of his lawyer or his friends his constitutional right under Article 21 is violated., ….

For achieving the object of such an enquiry if the appropriate authorities be of the view that such persons should be dissociated from the atmosphere and the company of persons who provide encouragement to them in adopting a non-cooperative attitude to the machineries of law, there cannot be any legitimate objection in depriving them of such company. The relevant provisions of the Constitution in this regard have to be construed in the spirit they were made and the benefits thereunder should not be “expanded” to favour exploiters engaged in tax evasion at the cost of public exchequer. Applying the just, fair and reasonable test’ we hold that there is no merit in the stand of appellant before us.”

[Para 12]

6 Proceedings u/s 70 are judicial proceedings and not criminal proceedings

Under sub-Section (1) of Section 70 of the CGST Act, 2017 the proper officer under the CGST Act 2017 has the power to summon a person either to give evidence or to produce a document. The power has to be exercised in the manner as provided in the case of a civil Court under the CPC. In other words, the Proper Officer under the Act can be taken to have been conferred with the powers conferred upon the civil Court under Order XVI CPC.[Para 18]

The interesting part of Section 70 is sub-Section (2) of Section 70. This sub-Section declares every enquiry to which Section 70(1) relates, to be deemed to be a judicial proceeding within the meaning of Sections 193 and 228 of the Indian Penal Code. As a consequence, a person who is summoned under Section 70(1) of the CGST Act, 2017, to give evidence or to produce document becomes liable for punishment, if he intentionally gives false evidence or fabricates false evidence or intentionally offers any insult or causes any interruption to any public servant [Para 19]

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.

7 Pre Arrest Caution not available under Section 438 of Code of Criminal Procedures at the inquiry stage

Section 438 of CrPC

When any person has reason to believe that he may be arrested on an accusation of having committed a non- bailable offence, he may apply to the High Court or the Court of Session for a direction under this section; and that Court may, if it thinks fit, direct that in the event of such arrest, he shall be released on bail.

However, 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 [Para 12]

Seeking direction not to arrest in exercise of the power conferred by Section 69(1) of the CGST Act, 2017 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.[Para 15]

Powers available with High Court under Article 226 can be converted into proceedings for anticipatory bail [Para 16]

Pre Arrest protection available under Article 226 also to be exercised sparaingly

However In Km. Hema Mishra v. State of Uttar Pradesh 2014 (4) SCC 453, the Supreme Court noted the decision of the Constitution Bench in Kartar Singh v. State of Punjab1994 (3) SCC 569, wherein it was held that a claim for pre-arrest protection is neither a statutory right nor a right guaranteed under Articles 14, 19 and 21 of the Constitution of India. Though the Constitution Bench held that there is no bar for the High Court to entertain an application for pre-arrest protection under Article 226 of the Constitution of India, it was held that the power should be exercised sparingly [Para 22]

High Court is not completely denuded of its powers under Article 226 of the Constitution of India, to grant such a relief in appropriate and deserving cases. The learned Judge pointed out that this power is to be exercised with extreme caution and sparingly in those cases where the arrest of a person would lead to total miscarriage of justice. [Para 23]

8 Pre Arrest Protection available in section 438 barred post prosecution also in certain cases and Art. 226 is not 2nd window in such cases
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. [Para 21]In Km. Hema Mishra v. State of Uttar Pradesh 2014 (4) SCC 453″Obviously, when provisions of Section 438 of Cr.P.C., are not available to the accused persons in the State of Uttar Pradesh, under the normal circumstances such an accused person would not be entitled to claim such a relief under Article 226 of the Constitution of India. It cannot be converted into a second window for the relief which is consciously denied statutorily making it a case of casus omissus. [Para 22]
8 Writ of Mandmaus to prevent officer from affecting arrest can not lie
As a fundamental 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.
9 Protection from Arrest available under Section 41A(3) of Cr. PC

Section 41A(3): Where such person complies and continues to comply with the notice, he shall not be arrested in respect of the offence referred to in the notice unless, for reasons to be recorded, the police officer is of the opinion that he ought to be arrested.

Section 41-A was inserted in Cr.P.C. by Section 6 of the Code of Criminal Procedure (Amendment) Act, 2008. Under sub-Section (3) of Section 41A Cr.P.C., a person who complies with a notice for appearance and who continues to comply with the notice for appearance before the Summoning Officer, shall not be arrested. In fact, the duty imposed upon a Police Officer under Section 41A(1) Cr.P.C., to summon a person for enquiry in relation to a cognizable offence, is what is substantially ingrained in Section 70(1) of the CGST Act. Though Section 69(1) which confers powers upon the Commissioner to order the arrest of a person does not contain the safeguards that are incorporated in Section 41 and 41A of Cr.P.C., Section 70(1) of the CGST Act takes care of the contingency.

In any case, the moment the Commissioner has reasons to believe that a person has committed a cognizable and non-bailable offence warranting his arrest, then we think that the safeguards before arresting a person, as provided in Sections 41 and 41A of Cr.P.C., may have to be kept in mind.

But, it may be remembered that Section 41A(3) of Cr.P.C., does not provide an absolute 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.

[Para 41,42,43]

10 Difference between “recording of reasons”[S.41A(3)of Cr PC] and “reason to believe”[S.69(1) of CGST]: Recording in files is sufficient
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.” [Para 43]Held by Court that 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 the CGST Act. Since Section 69(1) of the CGST Act, 2017 specifically uses the words “reasons to believe”, in contrast to the words “reasons to be recorded” appearing in Section 41A(3) of Cr.P.C., we think that it is enough if the reasons are found in the file, though not disclosed in the order authorizing the arrest.[Para 46]
11 Whether limited protection available under section 41A(3) of Cr PC can make writ under Article 226 non maintainable ?
Once it is found that Article 226 of the Constitution of India can be invoked even in cases where Section 438 Cr.P.C. has no application (in contrast to cases such as those under the SC/ST Act where it stands expressly excluded) and once it is found that the limited protection against arrest available under Sections 41 and 41A Cr.P.C. may be available even to a person sought to be arrested under Section 69(1) of the CGST Act, 2017 (though the necessity to record reasons in the authorization for arrest may not be there), it should follow as a coronary that the writ petitions cannot be said to be not maintainable.[Para 47]
12 Incongruities in section 69 and 132, CGST Act
There are 12 types of offences in section 132. First 4 offences are only cognizable and non bailable while all other are non cognizable and bailable u/s 132 (4) and (5).

Cognizable offences are those offences where arrest can be made without warrants

Power to arrest u/s 69(1) is only for first 4 offences , which are cognizable and non bailable. Court held that we do not know how an order for arrest can be passed under Section 69(1) in respect of offences which are declared non-cognizable and bailable under sub-Section (4) of Section 132 of CGST Act.[Para 32]

Further, 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.[Para 34]

Even though Section 69(1) of the CGST Act, 2017 does not confer any power upon the Commissioner to order the arrest of a person, who has committed an offence which is non-cognizable and bailable, sub-Section (3) of Section 69 of the CGST Act, 2017 deals with the grant of bail, remand to custody and the procedure for grant of bail to a person accused of the commission of non-cognizable and bailable offences.

Thus, there is some incongruity between sub-Sections (1) and (3) of Section 69 read with section 132 of the CGST Act, 2017.[Para 37]

13 Whether arrest can be prevented on the ground that further investigation in the case shall be hampered
The objects of pre-trial arrest and detention to custody pending trial, are manifold as indicated in section 41 of the Code. They are:

(a) to prevent such person from committing any further offence;
(b) proper investigation of the offence;
(c) to prevent such person from causing the evidence of the offence to disappear or tampering with such evidence in any manner;
(d) to prevent such person from making any inducement, threat or promise to any person acquainted with the facts of the case so as to dissuade him from disclosing such facts to the Court or to the police officer;

Therefore, it is not correct to say that the object of arrest is only to proceed with further investigation with the arrested person.

It is true that in some cases arising out of similar provisions for arrest under the Customs Act and other fiscal laws, the Supreme Court indicated that the object of arrest is to further the process of enquiry. But, it does not mean that the furthering of enquiry/ investigation is the only object of arrest.

[Para 56,57]

14 Whether protection under Article 226 is available in case of circular trading
We have already indicated on the basis of the ratio laid down by the Constitution Bench in Kartar Singh and the ratio laid down in Km. Hema Mishra that the jurisdiction under Article 226 of the Constitution of India to grant protection against arrest, should be sparingly used.[Para 48]Further Held by the Court that the petitioners have allegedly involved in circular trading with a turnover on paper to the tune of about Rs.1,289.00 crores and a benefit of ITC to the tune of Rs.225.00 crores. The GST regime is at its nascent stage. The law is yet to reach its second anniversary. There were lot of technical glitches in the matter of furnishing of returns, making ITC claims etc. Any number of circulars had to be issued by the Government of India for removing these technical glitches.If, even before the GST regime is put on tracks, some one can exploit the law, without the actual purchase or sale of goods or hiring or rendering of services, projecting a huge turnover that remained only on paper, giving rise to a claim for input tax credit to the tune of about Rs.225.00 crores, there is nothing wrong in the respondents thinking that persons involved should be arrested. Generally, in all other fiscal laws, the offences that we have traditionally known revolve around evasion of liability. In such cases, the Government is only deprived of what is due to them. But in fraudulent ITC claims, of the nature allegedly made by the petitioners, a huge liability is created for the Government. Therefore, the acts complained of against the petitioners constitute a threat to the very implementation of a law within a short duration of its inception.“……………… we do not wish to grant relief to the petitioners against arrest, in view of the special circumstances which we have indicated above……………….”

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One Comment

  1. Ram says:

    Respected Sir,
    may be by mistake ITC Claimed but not Show in GSTR-2A Annual return in Reverse ITC in Table 7. first effect 7.Details of ITC Reversed and Ineligible ITC for the financial year and how to second effect on ITC reversed for Annaul return .

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October 2021