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TMI Blog2019 (11) TMI 942X X X X Extracts X X X X X X X X Extracts X X X X ..... ance filed Writ Petitions before Delhi High Court against DGGI. As per Respondent these four exporters had availed huge amount of refund of IGST and they are dummy owners. The DGGIRespondent on 15.8.2019 searched Gurugram residence of Ramesh Wadhera-alleged owner of dummy export firms who happens to be neighbour of Petitioners. On the request of Ramesh Wadhera, Petitioners came to his residence and some commotion took place between Petitioners and official of DGGI. At the behest of DGGI, Police registered FIR dated 15.8.2019 under Section 186, 353 IPC at DLF Police Station, Gurugram against both the Petitioners and arrested them on the same day. Both were released on bail on 22.8.2019 after a week incarceration. The DGGI on 27.8.2019 again recorded statements of said dummy exporters, who allegedly disclosed name of Petitioners apart from earlier names of Ramesh Wadhera and Mukesh Kumar as also being involved. The Respondent-DGGI on 28.8.2019 searched Gurugram residence of Petitioners who at that point of time were not at home. The Respondents after completing search took away younger brother of Petitioner No. 1 to their office and arrested him on 29.8.2019. The DGGI on 2.9.2019 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondents want that Petitioner No. 1 should accept that he is involved in refund scam though even his father was not found involved and Respondents/DGGI got arrested him from DRI. Intention of Respondent is just to arrest Petitioner which is evident from the fact that Respondent/DGGI remained silent when Petitioner No. 2 was in custody in FIR case and thereafter in DRI matter. 5. Counsel for the Respondent contended that Petitioner No. 1 is neither cooperating nor answering questions asked by SIO. He is involved in the fraud and deserves no sympathy of this court. The exporters are not real owners of exporting firm and it is Petitioners who in connivance with Ramesh Wadhera and one Mukesh Kumar had created bogus/dummy firms and availed refund of IGST. The Petitioner No. 1 who earlier was customs clearing agent is mis-using his professional position and needs to be interrogated without cover of protection of this court. 6. Counsel for the Respondents on 24.10.2019 submitted record of investigation in sealed cover. We have perused a number of documents submitted by counsel in sealed cover but we do not find in record any statement of Petitioners, Dhruv Maggu-brother of Petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... encement of the process of adjudication of penalty under Section 83A of the FA, another agency like the DGCEI cannot without an SCN or enquiry straightway go ahead to make an arrest merely on the suspicion of evasion of service tax or failure to deposit service tax that has been collected. Section 83A of the FA which provides for adjudication of penalty provision mandates that there must be in the first place a determination that a person is "liable to a penalty", which cannot happen till there is in the first place a determination in terms of Section 72 or 73 or 73A of the FA. (iii) For a Central Excise officer or an officer of the DGCEI duly empowered and authorised in that behalf to be satisfied that a person has committed an offence under Section 89(1)(d) of the FA, it would require an enquiry to be conducted by giving an opportunity to the person sought to be arrested to explain the materials and circumstances gathered against such person, which according to the officer points to the commission of an offence. Specific to Section 89(1)(d) of the FA, it has to be determined with some degree of certainty that a person has collected service tax but has failed to pay the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of MMT, the decision to go in for the extreme step of arrest without issuing an SCN under Section 73 or 73A(3) of the FA, appears to be totally unwarranted. (viii) For the exercise of powers of search under Section 82 of the FA, (i) an opinion has to be formed by the Joint Commissioner or Additional Commissioner or other officers notified by the Board that "any documents or books or things" which are useful for or relevant for any proceedings under this Chapter are secreted in any place, and (ii) the note preceding the search of a premises has to specify the above requirement of the law. The search of the premises of the two petitioners is in clear violation of the mandate of Section 82 of the FA. It is unconstitutional and legally unsustainable. (ix) The Court is unable to accept that payment by the two petitioners of alleged service tax arrears was voluntary. Consequently, the amount that was paid by the petitioners as a result of the search of their premises by the DGCEI, without an adjudication much less an SCN, is required to be returned to them forthwith. (x) It was imperative for the DGCEI to first check whether the entity whose employees are sought to be arrested ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me a measure. What, however, requires reiteration is that the potent power of arrest should not be lightly and casually exercised to induce fear into an assessee and the consequential submission to the unreasonable demands made by officers of the investigating agency during the interrogation and while in custody. To again quote the Bombay High Court in ICICI Bank Ltd. v. Union of India (supra) : "At the cost of repetition we may say that if a tax payer fraudulently or with the intention to deprive Revenue of its legitimate dues evades payment thereof not only that, if the Central Excise Officer is of the opinion that for the purpose of protecting the interest of the Revenue it is necessary provisionally to attach any property belonging to the person on whom the notice is served under Section 73 or Section 73 A of the Act, he is empowered to do so, however with the previous approval of the Commissioner of Central Excise. However, at the same time, law enforcers cannot be permitted to do something that is not permitted within the four corners of law." 81. In Technomaint Contractors Ltd. v. Union of India - 2014 (36) S.T.R. 488 (Guj.), the Gujarat High Court held that Section 73 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us, created only on paper, solely to avail ITC. The manner of recovery of credit in cases of excess distribution of the same is set out in Section 21 of the Act. This section provides that where the Input Service Distributor distributes credit in contravention of the provisions contained in Section 20 resulting in excess distribution of credit to one or more recipients, the excess credit so distributed shall be recovered from such recipients along with interest, and the provisions of Section 73 or Section 74, as the case may be, shall, mutatis mutandis, apply for determination of amount to be recovered. 38. Thus, 'determination' of the excess credit by way of the procedure set out in Section 73 or 74, as the case may be is a pre-requisite for the recovery thereof. Sections 73 and 74 deal with assessments and as such it is clear and unambiguous that such recovery can only be initiated once the amount of excess credit has been quantified and determined in an assessment. When recovery is made subject to 'determination' in an assessment, the argument of the department that punishment for the offence alleged can be imposed even prior to such assessment, is clearly incorrect and amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should be rejected and proceeds to do so. This decision does not take into consideration the decision of the Delhi High Court in the case of Make My Trip (India) Pvt. Ltd., (supra), confirmed by the Supreme Court and also does not take into account the relevant statutory provisions of the Revenue enactment, that in my view are necessary to appreciate the lis in proper perspective. The decision is thus distinguishable on facts and in law. 43. As far as the decision rendered by the Rajasthan High Court is concerned, it is distinguishable on facts, as at Paragraph 20 thereof, the Learned Judge records that the petitioner therein did not controvert the claim that the claim of Input Tax Credit is made based on fake invoices. Thus, no defence was put forth by the petitioner to the allegation of Bill Trading in that case, which is not so in the case before me. This decision is also distinguishable on facts. 44. The Learned Single Judge of the Bombay High Court, in Anticipatory Bail Application, in the case of Meghraj Moolchand Burad v. Directorate General of GST (Intelligence), Pune and Another, Anticipatory Bail Application No. 2333 of 2018 [2019 (21) G.S.T.L. 125 (Bom.)] has consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uards as enshrined under the Constitution of India and in particular Article 22 which pertains to arrest and Article 21 which mandates that no person shall be deprived of his life and liberty for the authority of law. The two High Courts have extensively relied upon the decision of the Supreme Court in the case of D.K. Basu vs. State of West Bengal reported in 1997 (1) SCC 416 = 2002-TIOL-230-SC MISC." 7.3. Gujarat High Court in the case of CLEARTRIP PVT LTD MUMBAI & ORS Vs THE UNION OF INDIA 2016-TIOL-863-HCMUM- ST has concluded in relevant para as below: " 16. We are clear in our minds and from the scheme of the Act and the Law as a whole that coercive measures, including effecting any arrest, would arise only when investigation has been completed and on launching the prosecution. If the prosecution is a criminal prosecution, then, there is no question of deviating or defeating from the Criminal Law. The Criminal Law contains several provisions including protective measures, which would enable the Petitioners to resist any arrest, as apprehended. In the scheme of the Criminal Law and particularly the Finance Act, 1994 as well, if it contains any penal provisions, it is not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtment is accepted, it is open to the petitioner to file appeal after the assessment order is passed; and as per the statutory stipulation, such appeal could be filed upon deposit of only 10% of the disputed liability. In that event, the deposit amount may not exceed Rs. 2,00,00,000/- (Rupees Two Crores), which the petitioner is willing to deposit within one week from today without prejudice to his rights and contentions in the assessment proceedings and the appeal to be filed thereafter, if required. Issue notice on condition that the petitioner shall deposit Rs. 2,00,00,000/- (Rupees Two Crores) to the credit of C.No. IV/16/27/201HPU on the file of the Commissioner of GST & Central Excise, Salem, Tamil Nadu and produce receipt in that behalf in the Registry of this Court within ten days from today, failing which the special leave petition shall stand dismissed for non prosecution without further reference to the Court. Subject to the above, notice returnable within three weeks. Dasti, in addition, is permitted. For a period of one week, no coercive action be taken against the petitioner in connection with the alleged offence and the interim protection will continue up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, under Section 60, (iii) scrutiny of returns, under Section 61, (iv) assessment of persons who do not file returns, under Section 62, (v) assessment of unregistered persons, under Section 63, (vi) summary assessment in special cases, under Section 64 and (vii) audit under Sections 65 and 66. 52. But, to say that a prosecution can be launched only after the completion of the assessment, goes contrary to Section 132 of the CGST Act, 2017. The list of offences included in sub-section (1) of Section 132 of CGST Act, 2017 have no co-relation to assessment. Issue of invoices or bills without supply of goods and the availing of ITC by using such invoices or bills, are made offences under clauses (b) and (c) of subsection (1) of Section 132 of the CGST Act. The prosecutions for these offences do not depend upon the completion of assessment. Therefore, the argument that there cannot be an arrest even before adjudication or assessment, does not appeal to us. 53. An argument was advanced by Mr. Raghunandan Rao, learned Senior Counsel for the petitioners that all the offences under the Act are compoundable under sub-section (1) of Section 138 of the CGST Act, 2017, subject to the res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfaction to the respondents that they have punished the arrested person even before trial. According to the learned Senior Counsel, the arrest of a person which will not facilitate further investigation, has to be discouraged, since the same has the potential to punish a person before trial. 56. But, the aforesaid contention proceeds on the premise as though the only object of arresting a person pending investigation is just to facilitate further investigation. However, it is not so. The objects of pre-trial arrest and detention to custody pending trial, are manifold as indicated in Section 41 of the Code. They are: (a) to prevent such person from committing any further offence; (b) proper investigation of the offence; (c) to prevent such person from causing the evidence of the offence to disappear or tampering with such evidence in any manner; (d) to prevent such person from making any inducement, threat or promise to any person acquainted with the facts of the case so as to dissuade him from disclosing such facts to the Court or to the police officer; Therefore, it is not correct to say that the object of arrest is only to proceed with further investigation with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing that the writ petitions are maintainable and despite our finding that the protection under Sections 41 and 41A of Cr.P.C., may be available to persons said to have committed cognizable and non-bailable offences under this Act and despite our finding that there are incongruities within Section 69 and between Sections 69 and 132 of the CGST Act, 2017, we do not wish to grant relief to the petitioners against arrest, in view of the special circumstances which we have indicated above. " (Emphasis supplied) From above quoted enunciation of law relating to arrest during investigation i.e. prior to determination of tax evaded under Finance Act, 1994 (service Tax) as well CGST Act, 2017 by different High Courts and interim order passed by Hon'ble Supreme Court, we find that it is consistent opinion of courts that power of arrest should be resorted in exceptional circumstances and with full circumspection. The maximum sentence prescribed under GST is 5 years and it is directly linked with quantum of evasion of tax. Prosecution of any person is directly linked with determination of evasion of tax because if there is no evasion of tax, there cannot be criminal liability. The determin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h and question ought to be re-examined after hearing. Such ad interim order must conform to requirements of the section and suitable conditions should be imposed on the applicant. 120. The Law Commission in July 2002 has severely criticized the police of our country for the arbitrary use of power of arrest which, the Commission said, is the result of the vast discretionary powers conferred upon them by this Code. The Commission expressed concern that there is no internal mechanism within the police department to prevent misuse of law in this manner and the stark reality that complaint lodged in this regard does not bring any result. The Commission intends to suggest amendments in the Criminal Procedure Code and has invited suggestions from various quarters. Reference is made in this Article to the 41st Report of the Law Commission wherein the Commission saw 'no justification' to require a person to submit to custody, remain in prison for some days and then apply for bail even when there are reasonable grounds for holding that the person accused of an offence is not likely to abscond or otherwise misuse his liberty. Discretionary power to order anticipatory bail is req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause over implication in the cases is a matter of common knowledge and concern; viii. While considering the prayer for grant of anticipatory bail, a balance has to be struck between two factors namely, no prejudice should be caused to the free, fair and full investigation and there should be prevention of harassment, humiliation and unjustified detention of the accused; ix. The court to consider reasonable apprehension of tampering of the witness or apprehension of threat to the complainant; x. Frivolity in prosecution should always be considered and it is only the element of genuineness that shall have to be considered in the matter of grant of bail and in the event of there being some doubt as to the genuineness of the prosecution, in the normal course of events, the accused is entitled to an order of bail. 123. The arrest should be the last option and it should be restricted to those exceptional cases where arresting the accused is imperative in the facts and circumstances of that case. 124. The court must carefully examine the entire available record and particularly the allegations which have been directly attributed to the accused and these allegations are corr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties of number of persons which according to the prosecution are necessary in view of the facts of the particular case. 5) The accused be directed to furnish undertaking that he would not visit the place where the witnesses reside so that the possibility of tampering of evidence or otherwise influencing the course of justice can be avoided. 6) Bank accounts be frozen for small duration during investigation. 129. In case the arrest is imperative, according to the facts of the case, in that event, the arresting officer must clearly record the reasons for the arrest of the accused before the arrest in the case diary, but in exceptional cases where it becomes imperative to arrest the accused immediately, the reasons be recorded in the case diary immediately after the arrest is made without loss of any time so that the court has an opportunity to properly consider the case for grant or refusal of bail in the light of reasons recorded by the arresting officer. 130. Exercise of jurisdiction under section 438 of Criminal Procedure Code is extremely important judicial function of a judge and must be entrusted to judicial officers with some experience and good track record. Both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovided that a police officer shall, in all cases where the arrest of a person is not required under the provisions of this sub-section, record the reasons in writing for not making the arrest; 41-A Notice of appearance before police officer- (1) The police officer shall, in all cases where the arrest of a person is not required under the provisions of sub-section (1) of section 41, issue a notice directing the person against whom a reasonable complaint has been made, or credible information has been received, or a reasonable suspicion exists that he has committed a cognizable offence, to appear before him or at such other place as may be specified in the notice. (2) Where such a notice is issued to any person, it shall be the duty of that person to comply with the terms of the notice. (3) Where such person complies and continues to comply with the notice, he shall not be arrested in respect of the offence referred to in the notice unless, for reasons to be recorded, the police officers is of the opinion that he ought to be arrested. (4) Where such person, at any time, fails to comply with the terms of the notice or is unwilling to identify himself, the police officer m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with or without fine, cannot be arrested by the police officer only on his satisfaction that such person had committed the offence. It has been further held that a police officer before arrest, in such cases has to be further satisfied that such arrest is necessary to prevent such person from committing any further offence; or for proper investigation of the case; or to prevent the accused from causing the evidence of the offence to disappear; or tampering with such evidence in any manner; or to prevent such person from making any inducement, threat or promise to a witness so as to dissuade him from disclosing such facts to the court or the police officer; or unless such accused person is arrested, his presence in the court whenever required cannot be ensured. These are the conclusions, which one may reach based on facts. Eventually, the Court was compelled to state:- " In pith and core, the police officer before arrest must put a question to himself, why arrest? Is it really required? What purpose it will serve? What object it will achieve? It is only after these questions are addressed and one or the other conditions as enumerated above is satisfied, the power of arrest needs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed at the whims and caprices of any officer or for the sake of recovery or terrorising any businessman or create an atmosphere of fear, whereas it should be exercised in exceptional circumstances during investigation, which illustratively may be: (i) a person is involved in evasion of huge amount of tax and is having no permanent place of business, (ii) a person is not appearing inspite of repeated summons and is involved in huge amount of evasion of tax, (iii) a person is a habitual offender and he has been prosecuted or convicted on earlier occasion, (iv) a person is likely to flee from country, (v) a person is originator of fake invoices i.e. invoices without payment of tax, (vi) when direct documentary or otherwise concrete evidence is available on file/record of active involvement of a person in tax evasion. 10.1. The persons who are having established manufacturing units and paying good amount of direct or indirect taxes; persons against whom there is no documentary or otherwise concrete evidences to establish direct involvement in the evasion of huge amounts of tax, should not be arrested prior to determination of liability and imposition of penalty. Sim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 to DRI after recording his statement and there is nothing on record to show that he made any confession. The Respondents are recording one after another statement of Petitioner No. 1 (Akhil Krishan Maggu) with perhaps to intimidate him in giving a self incriminating confession. They have not been able to arrest him because of the oral assurance given before this Court, and have not handed him over to DRI for arrest because he is not required by DRI in any case. Intention of Respondents seems only to arrest Petitioner No. 1, one way or the other, which is evident from the fact that Petitioner No. 2 was handed over to DRI without concluding investigation at least qua petitioner no.2 and there is nothing contained in different affidavits of Respondent, filed before this Court, indicating that involvement of Petitioner No. 2 is apparent from his statements. 13. Though the Petitioners have prayed quashing of summons, however on the directions of this Court both the Petitioners had already put their appearance. The Petitioner No. 2 was handed over to DRI on 12.9.2019 and since 13.9.2019 he is in judicial custody, hence no direction is warranted qua him, however qua Petitioner No. 1 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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