NOVEMBER 20, 2019

By Vijay Kumar

WITH a former Finance Minister in jail for the last three months, mind you without a charge having been proved against him, in spite of the fact that he is a top lawyer in the top court and is defended by the topmost lawyers of the country, anybody can be jailed and can be kept in jail for alleged offences. Bail may be a right, but jail seems to be the fate.

Why should anyone be kept in jail without bail even before charges against him are proved? In fiscal laws, who gains if a businessman is kept in jail? Our GST laws are complicated and cumbersome, the systems are mocking at technology, we are yet to have an appellate mechanism, but arrest provisions are put to liberal use.

In a case reported by us more than five years ago, a person was arrested for not depositing with the Government, the Service Tax he collected. During the arguments, it was suggested on behalf of the applicant that he would deposit all the outstanding Service Tax to the Central Government but in a time bound programme. But the schedule was not appealing to the Revenue and it insisted that the entire dues of Service Tax, already collected by the applicant, shall be deposited with the Department. And so his bail was rejected.

Now what will happen in such cases? As long as he doesn't pay up the dues, he may not get bail - he may not be able to pay up unless he gets bail - A Catch 22 situation? There is hardly any investigation needed, there is hardly any chance of the accused tampering evidence. He has agreed that he owes money to the government and wants to pay it. Wouldn't it have been prudent for the Department to allow him to go on bail and pay up the dues in instalments rather than treat him as a State Guest in a jail? But prudence and Tax Collection hardly ever go together.

Till 2013, there was no arrest under service tax. For nearly twenty years, they managed to administer the tax without arrest. Then, though there was no legal provision to arrest, there was no bar to threatening with arrest and many officers routinely got what they wanted by scaring the assessees with possible arrests and many assessees believed it too.

In a case we reported more than 13 years ago - 2006-TIOL-316-HC-DEL-ST, the only grievance which the petitioner has made in the writ petition was that the respondents (Revenue) have under threats and coercion recovered a sum of Rs.20 crores as service tax without any order of assessment determining its liability or quantifying the amount recoverable from it. It was urged on behalf of the petitioner that although the record summoned by the respondents in connection with the proposed assessment proceedings has already been submitted yet the respondents have neither concluded the proceedings nor indicated the reasons for their failure. On the contrary, they have threatened the officials of the petitioner with arrest and detention and thereby coerced them to pay a huge amount of money towards tax which has not so far been held payable.

Can you guess who the petitioner was? It was the mighty Airports Authority of India. AAI is a large organisation maintaining more than 100 airports. But even this mighty organisation was not above the persuasive powers of the Service Tax department. They were made to pay Rs 20 Crores voluntarily by the department, but later they alleged that the payment was because of coercion. And at that time there was no arrest under Service Tax!

- Why would anyone pay huge amounts of disputed tax voluntarily? Does it make any business sense?

- Why do giant organisations like AAI get threatened with harassment and whose grandfather's money did they pay if they were sure that it was not payable?

- Just because a few officers are harassed, will they pay up the money which actually belongs to the citizen of India?

- Why did they not take proper legal help in ascertaining that there is no arrest under Service Tax?

No answers!

In an arrest case, a High Court told the Revenue,

No show cause notice, not even a scrap of paper to show that he owes 67 crores to you. This is a remarkable way of collecting taxes. Do you have any document to prove his liability? Now, even without a notice you have collected 40 crores. We are getting reduced to a police state, that is what is happening.

Fear and threat of arrest are more dangerous than arrest itself. This will breed unbridled corruption. At every stage, before arrest, during arrest, after arrest and during bail proceedings, there is tremendous scope for corruption and generally, such opportunities are not wasted. Is arrest in GST a legacy of service tax and central excise? After all, the States were running their VAT administrations for more than 70 years without arrest provisions. Why should you arrest an accused assessee - can't you wait till he is convicted?

Recently, a lady approached the Jharkhand High Court seeking anticipatory bail in a case where she was charged with availing input tax credit to the tune of Rs. 3 Crores without doing any sale or purchase. - 2019-TIOL-2618-HC-JHARKHAND-GST.

The High Court granted her anticipatory bail, subject to her reversing the whole input tax credit in monthly instalments within six months. The Court also stipulated conditions like:

- she will co-operate with the investigation of the case.

- appear before the investigating officer as and when noticed by him.

- furnish her mobile number and photocopy of the Aadhar Card with an undertaking that she will not change her mobile number during the pendency of the case.

In 2019-TIOL-1021-HC-MAD-GST, the Madras High Court observed,

There is thus no doubt in my mind that the Department intended to intimidate the petitioner with the possibility of punishment under 132 and this action is contrary to the scheme of the Act. While the activities of an assessee contrary to the scheme of the Act are liable to be addressed swiftly and effectively by the Department, (the statute in question being a revenue statute where strict interpretation is the norm), officials cannot be seen to be acting in excess of the authority vested in them under the statute. I am of the considered view that the power to punish set out in Section 132 of the Act would stand triggered only once it is established that an assessee has 'committed' an offence that has to necessarily be post-determination of the demand due from an assessee, that itself has to necessarily follow the process of an assessment.

The Court emphatically noted, A statement is no substitute for an assessment. So, it has to be notice, hearing, order, prosecution, arrest - in that order. The reverse route which is often adopted, is not that easily appreciated and approved by courts.

In a judgement delivered last week - 2019-TIOL-2615-HC-P&H-GST, the Punjab and Haryana High Court made some very pertinent observations.

- It is consistent opinion of courts that power of arrest should be resorted to in exceptional circumstances and with full circumspection.

- The maximum sentence prescribed under GST is 5 years and it is directly linked with quantum of evasion of tax.

- Prosecution of any person is directly linked with determination of evasion of tax because if there is no evasion of tax, there cannot be criminal liability.

- The determination of tax liability does not fall within realm of criminal courts whereas liability of tax and penalty is determined by adjudicating authority under GST Act which is subject to challenge before Tribunal and Courts.

- To record statement under CGST Act, 2017 summons are served and if any person complies with summons, the mandate of Section 41 and 41A of Criminal Procedure Code should be taken care of.

- Arrest deprives any person from his right of liberty enshrined under Article 21 of the Constitution of India.

-  power of arrest should not be exercised at the whims and caprices of any officer or for the sake of recovery or terrorising any businessman or create an atmosphere of fear, whereas it should be exercised in exceptional circumstances during investigation.

- The persons who are having established manufacturing units and paying good amount of direct or indirect taxes; persons against whom there is no documentary or otherwise concrete evidences to establish direct involvement in the evasion of huge amounts of tax, should not be arrested prior to determination of liability and imposition of penalty.

- Similarly, arrest of Chartered Accountant or Advocates who had filed returns or otherwise assisted in business but are not beneficiary or part of fraud merely on the basis of statement without any corroborative evidence linking the professional with alleged offence should be avoided.

- It is well known that if top brass of a running concern is arrested, there are all possibilities of closure of unit which results into unemployment and wastage of precious natural resources.

The Department should first try to bring in clarity in the Law relating to GST and they should understand the laws and also the field officers should be taught to have respect for laws and courts, before they are given the powers to arrest.

Until next week