2020 (11) TMI 40 - HC - GST

Jurisdiction - power to arrest - whether the power to arrest as provided under section 69 read with section 132 of the CGST Act can be invoked by the Commissioner only upon completion of the adjudication process of finalising the assessment and determination of liability as per the provisions of the CGST Act? HELD THAT - In the absence of any cogent or credible material, if the subjective satisfaction is arrived at by the authority concerned for the purpose of arrest under Section 69 of the Act, then such action amounts to malice in law. Malice in its legal sense means such malice as may be assumed from the doing of a wrongful act intentionally but also without just cause or excuse or for want of reasonable or probable cause. Any use of discretionary power exercised for an unauthorized purpose amounts to malice in law. It is immaterial whether the authority acted in good faith or bad faith. The stipulation of the Commissioner to have reason to believe is of utmost importance in section 69(1) of the CGST Act. Section 26 of the Indian Penal Code defines the term reason to believe . It means a person is said to have reason to believe a thing, if he has sufficient cause to believe that thing but not otherwise. Reason to believe is a very subjective phrase and may vary in circumstances of each case. Section 147 of the Income Tax Act, 1961 also provides that reassessment can be made, if there is reason to believe by the Assessing Officer that there is escapement of income and failure on part of the assessee of true and full disclosures. Reason to believe consists of two words reason and to believe . The word reason means cause or justification and the word believe means to accept as true or to have faith in it. Therefore, there must be justification for it and belief is the result of the mental exercise based on information received. The words reason to believe' contemplate an objective determination based on intelligence, care and deliberation involving judicial review as distinguished from a purely subjective consideration. Therefore, reason to believe must have a rational connection or a relevant bearing to the formation of the belief and not extraneous or irrelevant to the purpose of the section. Therefore, the Commissioner has to form an opinion and to have reason to believe that the person has committed offences as specified in the clauses (a), (b), (c) or (d) of subsection( 1) of section 132 of the CGST Act and depending upon the punishment prescribed in clause (i) and clause(ii) of sub-section(1) of section 132, provisions of sub-section (2) and sub-section(3) of section 69 would operate depending upon whether the offence is cognizable or non cognizable as per the provisions of sub-section(4) and sub-section(5) of section 132 of the CGST Act. The contention canvassed by the petitioners that the Commissioner would not be in a position to form his reasonable belief that a person has committed an offence unless and until there is final adjudication of the liability of the assessee as prescribed under the Chapter VIII of the CGST Act, is without any basis. It is necessary to keep in mind that the section 69 of the CGST Act falls under the Chapter XII which provides for inspection, search, seizure and arrest which are in nature of measures prescribed under the provisions of the CGST Act to find out the evasion of tax, if any, by any person - the section 69 and the section 132 of the CGST Act operates in totally different fields and the attempt on part of the petitioners to canvass that unless and until adjudication proceedings of the assessment determining the tax and penalty liability is completed by the department as provided under Chapter VIII of the CGST Act, the Commissioner cannot form at any opinion to reason to believe that the assessee has committed any offence, is contrary to the entire scheme of the CGST Act. Subsection( 3) of section 69 of the CGST Act which is subject to the provisions of the Code provides for conferring the powers upon the Deputy Commissioner and the Assistant Commissioner to grant bail to the person who is arrested for non-cognizable and bailable offence as punishable as per clause(ii) of subsection( 1) or sub-section(2) of section 132 read with sub-section(1) of section 69 and subsection (4) of the section 132 of the CGST Act. Thus, the power to arrest as provided under section 69 of the CGST Act can be invoked if the Commissioner has reason to believe that the person has committed offences as provided under the clauses (a), (b), (c) or (d) of sub-section(1) of section 132 of the CGST Act, which are punishable under the clause (i) or clause (ii) of sub-section (1) or sub-section (2) of the section 132 of the CGST Act without there being any adjudication for the assessment as provided under the provisions of the Chapter VIII of the CGST Act. The reference to section 132 in section 69 of the CGST Act is only for the purpose of indicating the nature of the offences on the basis of the same the reasonable belief is formed and recorded by the Commissioner for the purpose of passing an order of arrest. Whether the provisions of section 69 of the CGST Act envisages that the Commissioner is obliged to record his reasons of belief and furnish the same to the person who is sought to be arrested? - HELD THAT - The existence of the power to arrest is one thing. The justification for the exercise of it is quite another. The Commissioner must be able to justify the arrest apart from his power to do so. Arrest and detention in police lock-up of a person can cause incalculable harm to the reputation and self-esteem of a person. No arrest can be made in a routine manner on a mere allegation of commission of an offence made against a person. It would be prudent for the authority in the interest of protection of the constitutional rights of a citizen and perhaps in his own interest that no arrest should be made without a reasonable satisfaction reached after some investigation as to the genuineness and bona fides of a complaint and a reasonable belief both as to the person's complicity and even so as to the need to effect arrest. Denying a person of his liberty is a serious matter. A person is not liable to be arrested merely on the suspicion of complicity in an offence. There must be some reasonable justification in the opinion of the authority effecting the arrest that such arrest is necessary and justified. Whether the provisions of sections 154, 155(1), 155(2), 155(3), 157, 172 of the Code of Criminal Procedure, 1973 are applicable or should be made applicable for the purpose of invoking the power to arrest under section 69 of the CGST Act? In other words, whether the authorised officer can arrest a person alleged to have committed non cognizable and bailable offences without a warrant of arrest issued by the Magistrate under the provisions of the Code of Criminal Procedure, 1973 - For the purpose of section 69(3) of the CGST Act, whether the officers of the GST department could be said to be a police officer in charge of a police station as defined under section 2(o) of the Code of Criminal Procedure, 1973? - HELD THAT - An authorised Officer is a 'proper officer' for the purposes of the CGST Act. As the authorised Officers are not Police Officers, the statements made before them in the course of inquiry are not inadmissible under Section 25 of the Evidence Act - The power to arrest a person by an authorised Officer is statutory in character and should not be interfered with. Section 69 of the CGST Act does not contemplate any Magisterial intervention. Whether the constitutional safeguards laid out by the Supreme Court in D.K. Basu's case 1996 (12) TMI 350 - SUPREME COURT in the context of the powers of the police officers under the Code of Criminal Procedure, 1973 and of officers of the Central Excise, Customs and Enforcement Directorate are applicable to the exercise of powers under the provisions of section 69 of the GST Act in equal measure? - HELD THAT - We may now address ourselves on the last question as regards the applicability of the safeguards pertaining to arrest as explained by the Supreme Court in case of D.K. Basu. It is significant to note that in D.K. Basu (supra), the Supreme Court did not confine itself to the actions of police officers taken in terms of powers vested in them under the Code but also of the officers of the Enforcement Directorate including the Directorate of Revenue Intelligence ('DRI'). This also included officers exercising powers under the Customs Act, 1962 the Central Excise Act, 1944 and the Foreign Exchange Regulation Act, 1973 (FERA') now replaced by the Foreign Exchange Management Act, 1999 as well. There is no doubt that the arrest memo is a key safeguard against illegal arrest and a crucial component of the legal procedure of arrest. Full and consistent compliance is a responsibility of both, the officers of the GST as well as the Magistrate. It is high time that the GST department prescribes a standardized format for the arrest memo. The format must contain all the mandatory requirements and necessary additions. The gist of the offence alleged to have been committed must be incorporated in the arrest memo. It would be the duty of the concerned Magistrate to check that an arrest memo has been prepared and duly filled. In a given case, if the Magistrate finds that the arrest memo is absent or improperly filled or bereft of necessary particulars, then the Magistrate should decline the production of the arrested person. The petitions are accordingly ordered to be rejected. Ad interim relief granted earlier stands vacated.

Summary

Issues Involved:
1. Power to Arrest under Section 69 of the CGST Act.
2. Requirement of Adjudication before Arrest.
3. Recording and Furnishing of Reasons for Arrest.
4. Applicability of the Code of Criminal Procedure, 1973.
5. Status of GST Officers as Police Officers.
6. Constitutional Safeguards during Arrest.

Detailed Analysis:

1. Power to Arrest under Section 69 of the CGST Act:
The court examined whether the Commissioner has the authority to arrest a person under Section 69 of the CGST Act without completing the adjudication process. The court concluded that the Commissioner can exercise the power to arrest if there is a "reason to believe" that the person has committed any offense specified in clauses (a) to (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 Section 132 of the CGST Act. This power is independent of the adjudication process.

2. Requirement of Adjudication before Arrest:
The court clarified that the power to arrest under Section 69 does not require the completion of the adjudication process. Section 69 falls under Chapter XIV, which deals with inspection, search, seizure, and arrest, whereas Section 132 falls under Chapter XIX, which deals with offenses and penalties. The court emphasized that these sections operate in different fields, and the Commissioner can form a "reason to believe" without the need for prior adjudication.

3. Recording and Furnishing of Reasons for Arrest:
The court held that the Commissioner must record reasons for the belief that an offense has been committed. However, it is not necessary to provide these reasons to the person being arrested. The arresting officer must inform the person of the grounds of arrest if the offense is cognizable and non-bailable. For non-cognizable and bailable offenses, the Deputy Commissioner or Assistant Commissioner can grant bail, exercising powers similar to an officer-in-charge of a police station.

4. Applicability of the Code of Criminal Procedure, 1973:
The court determined that the provisions of Sections 154 to 157 of the Code of Criminal Procedure, 1973, do not apply to arrests under Section 69 of the CGST Act. The authorized officer is not required to register an FIR. The court also noted that the authorized officer is not a police officer under the Code, and the statements made to them are not inadmissible under Section 25 of the Evidence Act.

5. Status of GST Officers as Police Officers:
The court concluded that GST officers are not police officers and are not required to follow the procedures applicable to police officers under the Code of Criminal Procedure. The court referred to previous judgments, including those related to the Customs Act, to support this conclusion. The court emphasized that the power to arrest by GST officers is statutory and should not be interfered with unless there are compelling circumstances.

6. Constitutional Safeguards during Arrest:
The court reiterated the importance of constitutional safeguards during arrests, referring to the guidelines laid down by the Supreme Court in D.K. Basu's case. These safeguards include the preparation of an arrest memo, informing the arrested person of the grounds of arrest, and ensuring that the arrest is not made in a routine manner. The court emphasized that these safeguards apply to arrests under the CGST Act as well.

Conclusion:
The court concluded that the power to arrest under Section 69 of the CGST Act can be exercised without completing the adjudication process if the Commissioner has a "reason to believe" that an offense specified in Section 132 has been committed. The Commissioner must record reasons for the belief, but it is not necessary to provide these reasons to the person being arrested. The provisions of the Code of Criminal Procedure, 1973, do not apply to arrests under the CGST Act, and GST officers are not considered police officers. Constitutional safeguards during arrests, as outlined in D.K. Basu's case, must be followed.