JUNE 13,2020

By Nitin Ranjan

RECENTLY, in the case of Arvind Kumar Munka vs Union of India - 2020-TIOL-510-HC-KOL-GST a Single Member Bench of the Calcutta High Court Bench has provided for conditional bail of the accused in case where the accused is alleged to have defrauded the government to the tune of Rs 141 Cr. by creating fake companies and supplying Illegal Input Tax Credit (ITC) of Goods and Services Tax (GST).A Previous Bail Application in the same case under Section 439 of the CrPC was also rejected in a hearing on 24th December, 2019 (CRM 10075 of 2019 - 2019-TIOL-2948-HC-KOL-GST by the same court. In both these judgements, the provisions of arrest under GST Law and its interplay with the various provisions of the Criminal Procedure Code (CrPC), 1973 were discussed at length. The judgements provide a useful insight into the substantive and procedural aspects of these provisions of the new regime.

Arrest provisions provided in Section 132 of the CGST Act states that whoever commits the offences provided in subsections (a) to (k) here "shall be punishable" with imprisonment for a term which may extend to five years and with fine (Tax Evasion Amount greater than Rupees Five Crore) or with imprisonment for a term which may extend to three years and with fine (Tax Evasion Amount in between Rupees Two Crore and Rupees Five Crore). In various cases, and recently in the case of A.K.Pandey vs Union of India (C.A. No. 6181 of 2002) Apex Court held that "shall" is a mandatory directive to the authority. Hence we see that the provisions of arrest in GST Law are very strict to deter possible Tax Evasion in the new regime.

In this case, the defence counsel had sought bail on the points that:

1. Since the maximum period ninety-days as provided under Section 167(2) of CrPC for judicial custody was over and since the accused was cooperating in the investigation the relief provided in Section 41, 41A of CrPC for Bail should be given.

2. He quoted the cases of Arnesh Kumar -Vs- State of Bihar & Anrs, ( 2014 (8) SCC 273), Rini Johar & Anrs - Vs- State of Madhya Pradesh & Ors, (2016 (11) SCC 703) where it has been stated that any arrest should not be resorted to mechanically as the same is a breach of Individual Liberty.

3. He also stated that since the offence under Section 132 of CGST Act, 2017 is bailable, there was also the previous sanction by the Commissioner of GST for filing charge which was not present before the court.

4. He also quoted the case of of Sanjay Kumar Bhuwalka vs Union of India, - 2018-TIOL-2883-HC-KOL-GST where the same court had granted bail to the accused in a similar manner.

In his reply, The Departmental Counsel refuted these arguments by stating that :

1. The maximum period provided in Section 167(2) of CrPC was only applicable to the period of investigation and when the chargesheet has been filed and the trial has commenced then the same is not applicable here.

2. In the case of Sanjay Kumar Bhuwalka vs Union of India - 2018-TIOL-2883-HC-KOL-GST bail was granted as the ninety-day period as per Sec 167 (2), CrPC was over and no application for extension of time for filing the chargesheet was not requested by the Departmental counsel. Here, the charge sheet had been filed and the trial had commenced.

3. He also stated that Section 41,41A could not be held to be pari materia (to be construed together) with the summoning provisions of CGST Law provided in Section 70 and hence the protection of 41A was not provided here.

4. The authorization and satisfaction of the Commissioner of CGST under Section 132 of read with Section 69 of the CGST Act was recorded in an internal file of the department. Also, in the case of P.V. Ramana Reddy -Vs- Union of India, - 2019- TIOL-216-SC-GST where it has been held that though Section 69(1) of CGST Act, 2017 which confers power upon the Commissioner to order the arrest of a person for cognizable and non-bailable offences does not contain safeguard incorporated in Section 41 and 41A, CrPC.

5. Also, as held in P.V. Ramana Reddy case (supra) that the violation of Article 21 as was held in Rini Jhoar case (supra) is not applicable here as the trial has commenced and the period for availing the safeguards have lapsed.

We have to understand the delicate balance between individual liberty and the need for a rule of law. In India, we effectively have a situation where the more than sixty percent of prisoners are undertrials. If trials drag on for decades there has to be institutional protection against arbitrary arrest. In various cases such as Arnesh Kumar (supra) and D.K. Basu, the courts have directed the need for procedural safeguards. Police or Judicial Custody before sentencing, in any case, can be authorized by a Police Officer or a Magistrate as per provisions of the CrPC. The Offense can be Bailable, where the bail is provided by the Arresting Officer himself or Non-Bailable where the Courts are supposed to provide bail. Bail is not to be granted when the accused is likely to flee or interfere in the investigation of the case. Under GST Law, the offences are non-bailable and the department in this case contends that the accused would most likely interfere in the investigation given a large amount of tax evasion. For a more detailed understanding of the arrest provisions in India, a reading of the Hundred and Seventy Seventh (177th ) Law Commission Report would be highly instructive.

The Judgement of the Court in the Arvind Kumar Munka Case (supra) has considered the circumstances and the law applicable in this case and has delivered a detailed judgement. First, it referred to the Ramana Reddy case ( supra) where the validity of the arrest provisions of GST Law was upheld. The Apex Court had held that Section 41 and 41A of CrPC were, as such, not applicable to GST Offences and with the trial commencing the violation of Article 21 of the Constitution (Right To Life) would not be violated. It also stated that in cases of Economic Offences it was the entire society and economy which was the victim and should not be taken lightly.

The courts also upheld the logic of the Defence Counsel that the trial having commenced the Ratio of Sanjay Kumar Bhuwalka (supra) is not applicable in this case. It also held that instead of Section 41, 41A of CrPC being pari materia to Section 70 of the CGST Act it is to Section 91 of the CrPC that Section 70 is actually pari materia to as the topic of Section 90 of CrPc is related to that of Section 70 (both relate to Power of Summons).But then the courts have also observed that even though the protection against arrest given in Article 41A is not applicable, the same must be kept in mind while affecting any arrest.

This shows that the Court is cognizant of the rights of an accused and the fact that due process must be provided and is trying to impress the same on the Executive. Arrest is the detention of a person by the legal authority to cause deprivation of liberty. If these provisions are misused by the Executive it is inevitable that the Court could curtail this mi question. Also, the Courts are cognizant of the seriousness of cases of Economic Crimes and hence have upheld the arrests in these cases. But we have seen that Courts have given various instructions in several cases which have to be followed strictly in each arrest made by a Police Officer or a Magistrate.

Here, an important instruction was given by the High Court that the accused maybe granted Bail by the Lower Courts if they approach the Commissioner of CGST for Compounding of their Offences as provided by Section 138 of the CGST law. Compouding of Offences allows the accused to escape Criminal Prosecution if he admits the offence with the willingness of the aggrieved party. Provisions for Compounding also exist in other taxation laws and in Section 320 of the Criminal Procedure Code (CrPC). This option, if exercised by the accused would allow the accused to avoid criminal prosecution on payment of the alleged tax, interest and other penalties as provided under the GST Law. They would be admitting to the wrongdoing to the Commissioner of CGST by making a true and complete submission to him. The Commissioner has to be satisfied of the completeness and veracity of the application of compounding and he may reject the application under Rule 162(8) of the CGST Rules if he is not satisfied while recording his reasons to do the same. The provision of compounding is an elegant solution which could settle potential tax disputes if there are honest intentions on both sides. It is therefore a wonder why the dispute resolution mechanisms of the earlier Tax Regime like Settlement Commission (Chapter XIVA of the Customs Act, 1962) which could be availed before launch of prosecution or Powers of Compounding of Offences (Section 137(3) of the Customs Act, 1962 read with Circular 29/2009-Cus dated 15.10.2009) have not been explored further by the stakeholders. One reason could be the lack of mutual trust between the Assessee and the Tax Administration.

Recently, the Tax Authorities have admitted to high number frauds in the GST Regime and we are also in the midst of a Black Swan like Covid-19 scenario where both tax revenue and business revenues are both going to suffer. In order to facilitate the honest taxpayer, the dishonest ones need to be penalized and every rupee which is due to the government must be collected. The various provisions of GST have to be interpreted harmoniously for an effective tax system. The Adage of Bee of the Arthashastra, who only takes the requisite honey from the flower without causing any undue harm to the flower must be a guiding light for the Tax Authorities. We should realize that Tax revenue is a by-product of economic growth.

[The author is an Officer of the Indian Revenue Services (Customs and Indirect Taxes) posted as Deputy Commissioner in the Office of Principal Commissioner (A.R.), CESTAT, Mumbai. The views expressed are strictly personal.]