MAY 29, 2019

By Vijay Kumar

THE power and mode of arrest under the GST laws have created quite a sensation recently with conflicting judgements from different High Courts and the matter being listed before the Supreme Court today.

Section 69 of the CGST Act reads as,

69. Power to arrest. -  (1) Where the Commissioner has reasons to believe that a person has committed any offence specified in clause (a) or clause (b) or clause (c) or clause (d) of sub-section (1) of section 132 which is punishable under clause (i) or (ii) of sub-section (1), or sub-section (2) of the said section, he may, by order, authorise any officer of central tax to arrest such person

(2) Where a person is arrested under sub-section (1) for an offence specified under subsection (5) of section 132, the officer authorised to arrest the person shall inform such person of the grounds of arrest and produce him before a Magistrate within twenty-four hours.

(3) Subject to the provisions of the Code of Criminal Procedure, 1973,-  (2 of 1974.)

(a) where a person is arrested under sub-section (1) for any offence specified under sub-section (4) of section 132, he shall be admitted to bail or in default of bail, forwarded to the custody of the Magistrate;

(b) in the case of a non-cognizable and bailable offence, the Deputy Commissioner or the Assistant Commissioner shall, for the purpose of releasing an arrested person on bail or otherwise, have the same powers and be subject to the same provisions as an officer-in-charge of a police station.

The offences mentioned in Section 132 for which the Commissioner can order arrest are:

a) supplies any goods or services or both without issue of any invoice, in violation of the provisions of this Act or the rules made thereunder, with the intention to evade tax;

b) issues any invoice or bill without supply of goods or services or both in violation of the provisions of this Act, or the rules made thereunder leading to wrongful availment or utilisation of input tax credit or refund of tax;

c) avails input tax credit using such invoice or bill referred to in clause (b);

d) collects any amount as tax but fails to pay the same to the Government beyond a period of three months from the date on which such payment becomes due;

and these are declared to be cognizable and non-bailable as per sub-section 5 which reads as:

(5) The offences specified in clause (a) or clause (b) or clause (c) or clause (d) of sub-section (1) and punishable under clause (i) of that sub-section shall be cognizable and non-bailable.

Reading together, it means that the Commissioner can authorise arrest only in cognizable and non-bailable cases. But see Section 69(3) extracted above which deals with a person arrested for a non-cognizable and bailable offence. As per Section 69(1), arrest can be only for cognizable and non-bailable offences, whereas Section 69(3) states what is to be done with a person arrested for a non-cognizable and bailable offence, when he cannot be arrested at all.

The Telangana High Court noted this incongruity while refusing to grant relief to a petitioner against arrest. The Court observed in 2019-TIOL-873-HC-TELANGANA-GST,

"But the incongruity between Section 69(1) and sub-Sections (4) and (5) of Section 132 of CGST Act, 2017 is that when the very power to order arrest under Section 69(1) is confined only to cognizable and non-bailable offences, 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."

An SLP against this order has been summarily dismissed by the Supreme Court in - 2019-TIOL-216-SC-GST.

But in an interim order dated 24th October 2018, the Bombay High Court ordered that the petitioner shall not be arrested without following procedure under Criminal Procedure Code. The Revenue is aggrieved by this interim order and has approached the Supreme Court, which is likely to hear the case today.

It is not very clear whether arrest can be made for non-cognizable offences and whether the procedure under the Code of Criminal Procedure has to be followed for arrests under GST and perhaps the Government wants the Supreme Court to tell the government the meaning of the law written by the government, just a few months ago. But what about the incongruity pointed out by the Telangana High Court? Is somebody trying to sort it out?

GST - Duty free Shops at airports

Recently the Allahabad High Court in a PIL reported in - 2019-TIOL-1136-HC-ALL-GST clarified:

The warehouse goods are supplied by the DFS to the International arriving passengers before its clearance for home consumption. The arriving passengers thereafter cross the customs frontier at the airport along with the goods and only then clears the same for home consumption. The passenger is therefore liable to pay the applicable duties of customs. The goods being a part of passenger's bonafide baggage are cleared for home consumption by the passenger under the Baggage Rules, 2016 and not by the DFS, hence no customs duty is payable by the DFS and therefore under proviso of Section 5 (1) of the IGST Act read with Section 12 of the Customs Act 1962, No IGST is payable either.

The supply of warehoused goods by the DFS at the departure terminal is to departing International passengers i.e. the passengers travelling from India to a foreign destination. Thus, the goods supplied are never cleared for home consumption and the warehoused goods are exported by the DFS, therefore the levy Customs duty and of the IGST do not arise.

The above observations conclude that IGST is not payable on the supply either to or from the DFS located at the arrival or at departure terminal.

(DFS = Duty Free Shop)

But when a manufacturer tried to supply goods to the Duty Free Shops without GST, the Madhya Pradesh High Court ordered, - 2018-TIOL-2931-HC-MP-GST

The petitioner cannot escape the liability to pay GST. He is manufacturing certain goods and supplying to a person, who is having a Duty Free Shop. It is true that we cannot export our taxes but the facts remains that it is not the petitioner, who is exporting the goods or taking goods out of India. He is selling to a person, who is having Duty Free Shop (to a Duty Free Operator), which is located in India as per the definition clause as contained under the GST Act. In light of the aforesaid, this Court does not find any reason to issue writ of mandamus directing the respondents not to charge GST on the petitioner or to legislate on the subject granting exemptions as prayed by the petitioner.

A Principal Commissioner as a Revision Authority recently held, "The transactions effected at the Duty Free Shops at the arrival or departure of the International Airports in India, might have taken place within the geographic territory of India, but for the purposes of levy of Customs Duties or any other taxes, the area of Duty Free Shops shall be deemed to be the area beyond the customs frontiers of India."

Will we ever stop re-inventing the wheel?

"Landmark" Order on Interest on Delayed GST:

In case of delayed payment of GST, interest has to be paid even on the Input Tax Credit available with the assessee. This anomaly was sought to be rectified by the GST Council when it recommended in its 31st meeting, amendment of section 50 of the CGST Act to provide that interest should be charged only on the net tax liability of the taxpayer, after taking into account the admissible input tax credit, i.e., interest would be leviable only on the amount payable through the electronic cash ledger.

The Telangana High Court had in - 2019-TIOL-893-HC-TELANGANA-GST held -

"Admittedly, the petitioner filed returns belatedly, for whatever reasons. As a consequence, the payment of the tax liability, partly in cash and partly in the form of claim for ITC was made beyond the period prescribed. Therefore, the liability to pay interest under Section 50 (1) arose automatically. The petitioner cannot, therefore, escape from this liability."

Insofar as the recommendation of the GST Council is concerned, the High Court in the referred case observed -

42. But, unfortunately, the recommendations of the GST Council are still on paper. Therefore, we cannot interpret Section 50 in the light of the proposed amendment.

Day before yesterday there was a case before the Delhi High Court wherein the petitioner submitted that against the total tax liability of Rs.3.31 crores the interest liability works out to 8.19 crores which makes it unreasonable and erroneous. The High Court directed that no coercive action be taken against the Petitioner for non-payment of the interest amount till the next date of hearing on 30th September, 2019.

I call this a ‘landmark' order only because the petitioner's name is Landmark Lifestyle.

Kindly see 2019-TIOL-1140-HC-DEL-GST.

GST elected:

In a rare feat, Prime Minister Modi, is voted back to power in spite of launching GST. Many governments that launched GST have failed to come back to power. Obviously, GST was not an issue in the Indian elections. Apparently, the Prime Minister believes that GST is a Good and Simple Tax, which anyone who has got anything to do with it, knows, is not. He should present a Modi-fied version of GST, which should be really good and simple. But that is perhaps too much of wishful thinking. No tax can be good and no tax can be simple.

Until next week