2025 (1) TMI 1023 - HC - GST

Initiation of proceedings against the petitioner u/s 132(1) (c) of the Central Goods and Services Tax (CGST) Act 2017 - evasion of GST by falsely claiming ITC - reasons to believe - power to arrest - HELD THAT - Perusal of the records reveals that the authorization required under the statue has been given by the Commissioner on the ground that he has reasons to believe on the materials placed before the authority. However what is not seen from the materials placed before the court at this stage is the determination of the liability as is required for recovery of taxes from any assessee. No material has been shown that such determination of the liability had been arrived at by the respondent authorities on whom the Commissioner had concluded that he had reasons to believe that the person has committed any offence specified under the various Clauses under Section 132. From the statements recorded before the investigating authority it is seen that there are other partners in the partnership besides the petitioner and at this stage of investigation there are no materials to suggest that the petitioner will tamper with the evidence or have evaded the summons or did not respond to summons when served. The question of whether the directions of the Apex Court in ARNESH KUMAR VERSUS STATE OF BIHAR ANR 2014 (7) TMI 1143 - SUPREME COURT were followed by the respondent is also an issue which would required determination by this court. While there is no quarrel with the proposition that Section 69 does confer power on the Commissioner to order arrest in case any of the specified offences under Section 132 of the CGST Act the question remains is whether arrest or detention is called for merely because is power is available on the authority to do so. The petitioner has cooperated with the investigating authority and his statement has been recorded there is no material to suggest that he will abscond or not respond to summons issued. There is also no material which prima facie suggests that the determination of the liability has been arrived that by the Commissioner or the investigating officer. Under such circumstances this court of the view that continued detention of the petitioner at the stage of investigation is not required. This therefore court considers that the petitioner can be released on interim bail until further orders. Conclusion - There is no material which prima facie suggests that the determination of the liability has been arrived that by the Commissioner or the investigating officer. Under such circumstances this court of the view that continued detention of the petitioner at the stage of investigation is not required. The petitioner is directed to be released on interim bail subject to fulfilment of conditions imposed - bail application allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The legal judgment primarily revolves around the following core issues:

• Whether the detention of the petitioner under Section 132(1)(c) of the Central Goods and Services Tax (CGST) Act, 2017, was justified given the circumstances and the stage of investigation.
• The applicability and scope of the powers under Section 69 of the CGST Act concerning arrest and detention.
• The appropriateness of invoking Article 226 of the Constitution of India to seek release from detention in GST-related offenses.
• Whether the procedural requirements and justifications for arrest under the CGST Act were adequately met in this case.
• The relevance and application of precedents set by various High Courts and the Supreme Court concerning detention and bail in GST evasion cases.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Justification of Detention under Section 132(1)(c) of the CGST Act

• Relevant Legal Framework and Precedents: Section 132(1)(c) of the CGST Act pertains to offenses related to fraudulent claims of Input Tax Credit (ITC) exceeding Rs. 500 Lakhs, punishable by imprisonment and fines. The precedents include the Bombay High Court's judgment in Daulat Samirmal Mehta and the Supreme Court's stance on similar matters.
• Court's Interpretation and Reasoning: The court examined whether the detention was necessary given the ongoing investigation and the lack of finalized assessments. It considered the precedents where courts intervened in similar detentions.
• Key Evidence and Findings: The petitioner was accused of availing ITC without actual receipt of goods using false invoices. The court noted that the investigation was still ongoing, and the quantum of tax evasion had not been finalized.
• Application of Law to Facts: The court applied the legal standards from Section 132 and precedents to determine whether the petitioner's detention was warranted at this stage of the investigation.
• Treatment of Competing Arguments: The petitioner's counsel argued for release based on cooperation with the investigation and lack of finalized assessments, while the respondent's counsel emphasized the legal authority for detention and ongoing investigation.
• Conclusions: The court concluded that continued detention was not justified at this stage and granted interim bail to the petitioner.

Issue 2: Powers under Section 69 of the CGST Act

• Relevant Legal Framework and Precedents: Section 69 of the CGST Act empowers the Commissioner to authorize arrests for specified offenses. The court referenced judgments from Bombay and Delhi High Courts and the Supreme Court regarding the exercise of this power.
• Court's Interpretation and Reasoning: The court scrutinized whether the "reasons to believe" standard was met for the petitioner's arrest and whether the procedural requirements were fulfilled.
• Key Evidence and Findings: The court found no concrete evidence of tampering or non-cooperation by the petitioner, questioning the necessity of his arrest.
• Application of Law to Facts: The court assessed the materials presented and the procedural adherence to determine the validity of the arrest under Section 69.
• Treatment of Competing Arguments: The respondent argued for the necessity of detention based on potential tax evasion, while the petitioner highlighted procedural lapses and lack of evidence.
• Conclusions: The court determined that the arrest was not justified under the circumstances and granted interim bail.

Issue 3: Invoking Article 226 for Release from Detention

• Relevant Legal Framework and Precedents: Article 226 of the Constitution allows High Courts to issue writs for enforcement of fundamental rights. The court considered precedents on its application in detention cases.
• Court's Interpretation and Reasoning: The court evaluated whether the facts warranted the exercise of Article 226 powers for the petitioner's release.
• Key Evidence and Findings: The court noted the petitioner's cooperation and lack of evidence for continued detention, supporting the use of Article 226.
• Application of Law to Facts: The court applied constitutional principles and precedents to justify the interim bail under Article 226.
• Treatment of Competing Arguments: The petitioner argued for release under Article 226 due to unjustified detention, while the respondent cited procedural adherence.
• Conclusions: The court found the use of Article 226 appropriate and ordered interim bail.

3. SIGNIFICANT HOLDINGS

• Verbatim Quotes of Crucial Legal Reasoning: "The requirement under Sub-section (1) of Section 69 is to have 'reasons to believe' that not only a person has committed any offense as specified but also as to why such person needs to be arrested."
• Core Principles Established: The court emphasized the necessity of concrete evidence and procedural adherence before exercising arrest powers under the CGST Act. It highlighted the importance of personal liberty and the sparing use of detention powers.
• Final Determinations on Each Issue: The court concluded that the petitioner's detention was not justified given the lack of finalized assessments and concrete evidence. It granted interim bail, subject to conditions, and set a returnable date for further proceedings.

The judgment underscores the balance between enforcing tax laws and safeguarding individual liberties, emphasizing procedural compliance and evidence-based decision-making in detention cases.