GST UPDATE ON WHETHER POWER OF ARREST CAN BE INVOKED WITHOUT COMPLETION OF ASSESSMENT? 160/2020-21

GST UPDATE ON WHETHER POWER OF ARREST CAN BE INVOKED WITHOUT COMPLETION OF ASSESSMENT?

The prosecution and arrest provisions in GST regime are very stringent and common question that arises in mind of assessee is that whether the power of arrest can be invoked even if the liability has not been determined and adjudicated? This issue was recently raised before the Hon’ble Gujarat High Court in the case of VIMAL YASHWANTGIRI GOSWAMI VERSUS STATE OF GUJARAT which is the subject matter of discussion of our present update./
The petitioner contended that the authorities cannot arrest any person without determining or assessing the tax liability. The petitioner placed heavy reliance on the decision given by the Hon’ble Delhi High Court in the case of MAKE MY TRIP (INDIA) PVT. LTD. VERSUS UNION OF INDIA [2016 (44) S.T.R. 481 (DEL).] and Madras High Court in the case of M/s JAYACHANDRAN ALLOYS PVT. LTD. It is pertinent to mention that the two High Courts relied on the decision of the Supreme Court in the case of D.K. Basu Vs State of West Bengal reported as [1997 (1) SCC 416].
The petitioner contended that in order to invoke arrest provisions under section 69 of the CGST Act, 2017 read with section 132 of the CGST Act, 2017, twin conditions need to be satisfied cumulatively, i.e., the Commissioner has reasons to believe that a person has committed the specified offence and demand is determined against the person. Reliance was also placed on decision given by Gujarat High Court in the case of Desai Brothers Vs DCIT and Sheth Brothers Vs JCIT which held that belief must be honest and not mere suspicion or guess work. It was contended that “reason to believe” is very much different from “reason to suspect”. Reliance was placed on the Apex Court decision in the case of GKN Driveshafts (India) Ltd. Vs ITO [259 ITR 19 (SC)]. The petitioner pleaded that the power to punish is to be exercised only after determination of demand as the provisions of section 69 & 132 of the CGST Act, 2017 use the word “commits”. Reliance was also placed on decision given by Hon’ble Punjab & Haryana High Court in the case of Akhil Krishan Magu Vs Deputy Director, Directorate General of GST Intelligence reported as [2019 (111) taxmann.com 367 (P&H)] andSukhdeep Singh Bhoday Vs Joint Director General of Foreign Trade and others.
The petitioner relied upon the decision of Madras High Court in the case of Jaychandran Alloys Private Ltd. to submit that if the respondents are permitted to exercise the power of arrest without there being any adjudication as provided under the scheme of CGST Act, the safeguards as enshrined under the Constitution of India and Article 22 which pertains to arrest and Article 21 which mandates that no person shall be deprived of his life and liberty before the authority of law, would be violated. The petitioner contended that provisions of CGST Act determine civil liability of the assessee and fastening of criminal liability has to be in conjunction with that of civil liability as no prosecution is prescribed if evasion of tax is below Rs. One Crore. Reliance was also placed on decision given in the case of G. L. Didvania and another Vs Income Tax Officer and another [2016 SCC ONLINE GUJARAT 8893] to support their contention that in order to invoke powers of arrest, adjudication is pre-requisite. Similarly, reliance was also placed on the decision given in the case of Mahadev Enterprise Vs State of Gujarat and State of Punjab Vs Barkatram [1962 (3) SCR 338].
The revenue authorities contended that the division bench of Telangana High Court has held that prosecution can be launched even before completion of assessment.
After considering the submissions, as regards the question of reasonable belief of the Commissioner for exercising power of arrest, the Hon’ble High Court held that as per provisions of section 69 read with section 132 of the CGST Act, the existence of relevant material is a pre-condition to the formation of opinion of arrest and the opinion formed cannot be on imaginary ground. Reliance was placed on the Apex Court decision given in the case of Sheonath Singh [AIR 1971 SC 2451], Barium Chemicals Ltd. Vs Company Law Board [AIR 1967 SC 295], Income Tax Officer, Calcutta and Ors. Vs Lakhmani Mewal Das [AIR 1976 SC 1753], Bhikhubhai Vithalabhai Patel, Smt. S.R. Venkatraman Vs Union of India [1979 ILLJ 25 (SC)] and ITO Calcutta Vs Lakhmani Mewal Das [1976 (103) ITR 437 (SC)] to analyse the meaning of “has reason to belief”.
The hon’ble High Court further held that the order authorising any officer to arrest may be justified if the Commissioner or any other authority empowered in law has reasons to believe that the person concerned has committed the offence under section 132 of the Act. However, the subjective satisfaction should be based on some credible materials or information and also should be supported by supervening factor. The power conferred by the authority under section 69 of the Act for the arrest is very drastic and far reaching so it should be used sparingly and only on substantive weighty grounds and reasons.
The Hon’ble High Court analysed the provisions of section 69 and 132 and held that section 69 is independent of section 132 of the CGST Act, 2017. It was held that reference of section 132 is merely to differentiate between cognizable non-bailable offences and non-cognizable bailable offences. As such, if Commissioner has reason to belief that the person is liable to be arrested, he can arrest even without adjudication or determination of tax liability. Reliance was placed on the Supreme Court decision in the case of Radheshyam Kejriwal Vs State of West Bengal and another [2011 (3) SCC 581] wherein it was held that adjudication proceedings and criminal proceedings can be initiated simultaneously and for initiating criminal proceedings, one does not have to wait for the outcome of the adjudication proceedings as the two proceedings are independent in nature.

This decision is dealt with this issue in depth and clearly held that “reason to belief” is very important term. If the officer has reason to believe that the person should be arrested then he can do so even if the demand is not determined or adjudication process has not been finalised. Let us hope that this elaborate decision will certainly settle all the controversies around this issue.

This is solely for educational purpose.

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GST UPDATE ON WHETHER POWER OF ARREST CAN BE INVOKED WITHOUT COMPLETION OF ASSESSMENT? 160/2020-21

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