2025 (4) TMI 1011 - HC - GST

Seeking grant of bail to the accused/petitioner - issuance of fake invoices without actual supply of goods and thereby passing ineligible ITC - HELD THAT - It is seen that there is no dispute in regards to the Arrest Memo issued by the respondent authorities by complying all necessary formalities under Section 69 of the CGST Act. But it is the issue raised by the petitioner that there was no proper compliance of Section 41/41A of Cr.P.C. which are mandatorily required to be followed. From the view expressed by the Hon ble Supreme Court in case of Radhika Agarwal 2025 (2) TMI 1162 - SUPREME COURT (LB) it is evident that though the CGST is a special enactment but the same cannot be considered as a complete Code in itself as regards to the provision of search seizure and arrest and as stated above the provision of Code of Criminal Procedure would be applicable unless it is expressly or impliedly barred by the provision of the said Act. But here in the instant case it is seen that there is no compliance of Section 41/41A of Cr.P.C. which is mandatorily required to be followed as per the guideline of Hon ble Supreme Court in the cases of Arnesh Kumar Vs. State of Bihar and reiterated in Satender Kumar Antil Vs. CBI. More so there was also no compliance of Sections 47/48 of BNSS at the time of arrest made by the respondent authorities which is in violation of Article 21 22(1) of the Constitution of India. Considering the fact that there is sufficient progress in the investigation of the case and most of the relevant documents are also found to be collected by the I.O. during investigation it is found that further custodial interrogation of the present petitioner may not be necessary for the interest of investigation and therefore this is a fit case to extend the privilege of bail to the accused/ petitioner. Conclusion - The arrest of the petitioner was procedurally defective due to non-compliance with mandatory provisions of the Cr.P.C. and BNSS non-communication of reasons to believe and grounds of arrest and absence of DIN in key documents. It is provided that on furnishing a bond of Rs. 50, 000/-only with one surety of like amount to the satisfaction of the learned Chief Judicial Magistrate Kamrup(M) Guwahati the accused/petitioner namely Prabin Jha be enlarged on bail subject to the fulfilment of conditions imposed - bail application allowed.

Summary

The core legal questions considered by the Court include:

1. Whether the petitioner's arrest under Section 132(5) of the Central Goods & Services Tax Act, 2017 (CGST Act) was valid and complied with the procedural safeguards prescribed under the CGST Act as well as the Code of Criminal Procedure (Cr.P.C.).

2. Whether the provisions of the Cr.P.C., particularly Sections 41 and 41A, apply to arrests under the CGST Act, given that the CGST Act is a special statute but not a complete code on arrest and investigation procedures.

3. Whether the mandatory requirement of furnishing the "reasons to believe" and the grounds of arrest to the accused were complied with, and the implications of any non-compliance on the legality of the arrest and entitlement to bail.

4. The significance of the absence or improper incorporation of Document Identification Numbers (DIN) in arrest-related documents and its effect on the validity of the arrest.

5. Whether sufficient custodial interrogation of the accused has been conducted and whether further custody is necessary for the investigation.

6. The applicability of principles relating to bail in economic offences, considering the nature and gravity of the offence alleged.

Issue 1: Validity of Arrest and Compliance with Procedural Safeguards under CGST Act and Cr.P.C.

The CGST Act, while a special enactment, does not constitute a complete procedural code for arrest and investigation. The Court referred to the Supreme Court's ruling in Radhika Agarwal, which held that the provisions of the Cr.P.C. apply to GST-related arrests unless expressly or impliedly excluded. In particular, Sections 41 and 41A of the Cr.P.C., which regulate arrest and the procedure thereof, remain applicable. The Court noted that the arrest memo complied with Section 69 of the CGST Act, which empowers the Commissioner to order arrest upon recording "reasons to believe." However, the Court found that the procedural safeguards under Sections 41 and 41A Cr.P.C. and Sections 47 and 48 of BNSS (a related statute) were not complied with, including the failure to issue the mandatory notice under Section 35(3) of BNSS (corresponding to Section 41A Cr.P.C.) and failure to communicate grounds of arrest to the accused's family. This non-compliance was held to violate Articles 21 and 22(1) of the Constitution, which protect personal liberty and safeguard against arbitrary arrest.

The Court emphasized that procedural safeguards are mandatory and their breach vitiates the arrest, justifying bail.

Issue 2: Applicability of Cr.P.C. Provisions to Arrests under the CGST Act

The Court analyzed the interplay between the CGST Act and the Cr.P.C., relying heavily on the Supreme Court's decision in Radhika Agarwal. It was held that the CGST Act is not a complete code on arrest, search, and seizure. Therefore, the procedural provisions of the Cr.P.C. apply unless specifically excluded. The Court observed that the arrest in the instant case did not comply with Sections 41 and 41A of the Cr.P.C., which are mandatory and require prior notice and grounds of arrest to be communicated. This non-compliance rendered the arrest procedurally defective.

Issue 3: Communication of "Reasons to Believe" and Grounds of Arrest

The "reasons to believe" form the basis for authorization of arrest under Section 69 of the CGST Act. The Court referred to the Supreme Court's ruling in Radhika Agarwal, which held that "reasons to believe" must be furnished to the arrestee to enable challenge to the legality of the arrest, subject to limited exceptions for redaction in ongoing investigations. In the instant case, although the "reasons to believe" were recorded by the authority, they were not communicated to the petitioner. Similarly, the grounds of arrest were not furnished. The Court held that this failure violated the accused's fundamental rights and was a valid ground for granting bail.

Issue 4: Absence of Document Identification Number (DIN) in Arrest Documents

The petitioner challenged the validity of arrest documents on the ground that the Authorization Letter of Arrest and Grounds of Arrest lacked the mandatory DIN, as required by Circular No. 122/41/2019-GST dated 05.11.2019. The Court noted that while the Arrest Memo contained a DIN, it appeared to have been inserted subsequently in handwriting, whereas other documents lacked DIN entirely. The Court held that the absence of DIN in the documents communicated to the accused rendered those documents invalid and supported the petitioner's claim for bail.

Issue 5: Necessity of Further Custodial Interrogation

The petitioner had been in judicial custody for approximately 30 days, during which no police remand or custodial interrogation was sought by the investigating agency. The Court observed that sufficient opportunity had been provided for interrogation and that further custodial detention was unnecessary for the investigation's interests. This finding weighed in favor of granting bail.

Issue 6: Bail Considerations in Economic Offences

The respondent contended that the offence involved large-scale issuance of fake invoices and ineligible input tax credit amounting to Rs. 30.89 Crores, constituting a serious economic offence requiring a stringent approach to bail. The Court acknowledged that economic offences are grave and require careful consideration of factors such as the nature of accusation, evidence, severity of punishment, character of accused, and risk of tampering with evidence or witnesses, as laid down in the Supreme Court's decision in Y.S. Jagan Mohan Reddy. However, the Court balanced these factors against procedural lapses and the progress of investigation, ultimately finding that bail was appropriate.

Significant Holdings and Legal Reasoning:

"The GST Acts are not a complete code when it comes to the provisions of search and seizure, and arrest, for the provisions of the Code would equally apply when they are not expressly or impliedly excluded by provisions of the GST Act."

"The 'reasons to believe' should be furnished to the arrestee to enable him to exercise his right to challenge the validity of arrest."

"Non-compliance of Sections 41/41A Cr.P.C. and Sections 47/48 of BNSS at the time of arrest is a violation of Article 21 & 22(1) of the Constitution and justifies grant of bail."

"Absence of DIN in the Authorization Letter and Grounds of Arrest renders such documents invalid and supports bail."

"Economic offences require a different approach to bail, considering the nature of accusations and evidence, but procedural safeguards and fundamental rights cannot be compromised."

Final Determinations:

The Court concluded that the arrest of the petitioner was procedurally defective due to non-compliance with mandatory provisions of the Cr.P.C. and BNSS, non-communication of "reasons to believe" and grounds of arrest, and absence of DIN in key documents. Despite the seriousness of the offence, the Court found that the investigation had progressed sufficiently and further custodial interrogation was unnecessary. Accordingly, the petitioner was granted bail on furnishing a bond with conditions to cooperate with the investigation, refrain from influencing witnesses, and not leave jurisdiction without permission.