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2020 (8) TMI 448 - HC - GSTGrant of Bail - evasion of GST - erstwhile directors of the company - evasion of on account of production and sale of sanitizers - It is argued that the instant arrest proceedings are completely premature, as till date the assessment proceedings have not commenced and, therefore, there is no concretized liability that the GST Department can fasten on the SDPL - Sub-section (7) of Section 107 of the CGST Act - HELD THAT - We have gone through the record in order to ascertain the existence of reasons to believe for the proceedings being initiated against the applicants. We do not perceive any material, except the statement of the employee. There is no documentary material produced on record to show that the present applicants were legally in charge and responsible for the day-to-day working of the Company. They had already resigned legally from the Directorship of the Company. Merely on a bald statement of an employee of the Company, it cannot be held that the present applicants were in charge and responsible for the functions of the Company. It is directed that the applicants be released from custody on their furnishing a personal bond in the sum of ₹5,00,000/- each, with separate sureties of the like sum to the satisfaction of the trial Court, for their appearance before it, as and when required, further subject to the conditions imposed.
Issues Involved:
1. Legality of the arrest under Section 69 of the CGST Act. 2. Responsibility and liability of the applicants under Section 137 of the CGST Act. 3. Validity of the GST demand and assessment proceedings. 4. Compliance with procedural requirements during the search and seizure. 5. Health and medical conditions of the applicants as grounds for bail. Issue-wise Detailed Analysis: 1. Legality of the arrest under Section 69 of the CGST Act: The applicants challenged their arrest under Section 69(1) of the CGST Act, arguing that the power to arrest can only be exercised after the assessment is complete. They cited judgments from various High Courts, including the Madras High Court in M. Jayachandran Alloys Pvt. Ltd. vs. Superintendent of GST and Central Excise, which held that the power to punish under Section 132 of the CGST Act is triggered only post-determination of the demand due from the assessee. The court noted that the GST authorities failed to provide "reasons to believe" and "grounds of arrest" as required under Section 69, and there was no documentary material to show that the applicants were legally in charge of the company. 2. Responsibility and liability of the applicants under Section 137 of the CGST Act: The applicants argued that they were not responsible for the day-to-day business affairs of the company as they had resigned from their directorships in 2009. They cited Section 137(1) of the CGST Act, which holds a person liable only if they were in charge of and responsible for the conduct of the business at the time of the alleged offence. The court found no evidence to support the claim that the applicants were in charge and responsible for the company's functions, noting that the applicants had legally resigned from their positions. 3. Validity of the GST demand and assessment proceedings: The applicants contended that the arrest proceedings were premature as the assessment proceedings had not commenced. They argued that the GST authorities had increased the purported liability from ?7.96 crores to ?33 crores as an afterthought. The court noted that the GST Department's actions were contrary to the figures certified by the Excise Department and that the valuation was based on hypothetical reasoning. The court also referenced the Supreme Court's decision in C. Pradeep vs. Commissioner of GST, which held that no coercive action should be taken until the assessment is concluded. 4. Compliance with procedural requirements during the search and seizure: The applicants alleged several procedural irregularities during the search and seizure, including the failure to provide search warrants, improper inventory of seized documents, and physical abuse of employees. They argued that these actions were in violation of the law and COVID-19 guidelines. The court did not delve deeply into these allegations but noted the applicants' claims and the lack of concrete evidence provided by the GST authorities. 5. Health and medical conditions of the applicants as grounds for bail: The applicants cited their health conditions as grounds for bail. Applicant No.2, Ajay Kumar Arora, is a 61-year-old heart patient who underwent bypass surgery and suffers from severe asthma. Applicant No.1, Jagdish Arora, is a 64-year-old heart patient with a history of gastroenterology diseases. The court considered these health conditions, along with the applicants' cooperation with the investigation, as factors in granting bail. Conclusion: The court granted bail to the applicants, directing their release on furnishing a personal bond of ?5,00,000 each with sureties. The court imposed conditions, including cooperation with the trial, non-interference with prosecution witnesses, and surrendering passports. The court emphasized that the observations made should not be taken as an expression of opinion in any ancillary or incidental proceedings.
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