GST on liaison office of an Overseas entity set up in India - CBIC needs to intervene (See 'THE INSIGHT')25 States, including Kerala & West Bengal, opt for Option-1 for GST Compensation (See 'GST News')TP - Tribunal is not entitled to review its own order under the garb of rectification of mistake apparent on record: ITATI-T - Difference of opinion between the assessee and the Revenue, over the true nature of a certain transaction & its appropriate classification, is not tantamount to furnishing inaccurate particulars of income so as to warrant penalising the assessee: HC (See 'TOG Latest')NITI releases compendium of practices on COVID-19 (See 'TOG News')Customs - Confiscation of imported yarn u/s 111(m) & penalty u/s 112(a) Customs Act 1962 , are sustained where importer admits to mis-declaration of the description of the goods & tariff item - quantum of both levies reduced: CESTAT (See 'TOG Latest')Central Excise - It is trite law that if invoice issued by manufacturer contains details of assessee as consignee, the assessee is entitled for CENVAT credit even if the buyer of the goods is unregistered: CESTAT (See 'TOG Latest')COVID-19: Funding of Global Vaccination Mission - Time to take gilt off tax havens' gingerbread! (See 'THE COB(WEB)' in TIOL)iOS version of Nyaya Bandhu App to be launched on Constitution Day (See 'TOG News')Cabinet approves MoU on cooperation in field of Sport among BRICS Countries (See 'TOG News')TP - If international transaction reported by taxpayer in its Form 3CEB stands identified and examined by TPO to be true, then nature of services cannot be re-characterized: ITAT (See 'TOG Latest')I-T - Additions framed solely based on suspicions are unsustainable, more so where books of record were available before the AO but were not examined: ITAT (See 'TOG Latest')VAT - It is fit case for remand where assessment order is passed by the Revenue based on sworn statements of the assessee, taken at time of inspection of its premises & where the Revenue does not consider the replies filed by the assessee to the pre-assessment SCN issued: HC (See 'TOG Latest')VAT - High Court's intervention is unwarranted in respect of pre-assessment SCNs issued to an assessee, where the grounds raised by the assessee against such SCNs can be canvassed before the Adjudicating Authority: HC (See 'TOG Latest')PM to inaugurate RE-Invest 2020 on Nov 26 (See 'TOG News')
Tax on Go
Budget 2015
Click the banner to download Documents
HOME       GST     INDIRECT TAX     INCOME TAX     DTAA     TP     MIXED BAG     LIBRARY    

THE INSIGHT

Arrest before adjudication of offence under GST in the backdrop of allied Acts
By K Srinivasan (IRS)
Oct 28, 2020

THE act of arrest as a means of enforcement even before adjudicating the commission of an offence in fiscal laws, is perhaps unacceptable except under dire situations pointing at big tax frauds.

A routine act of touting arrest as a tool for tax collection will be perceived as tax terrorism or tax war against business and has invited wide-spread criticism from the trade and the courts lately, due to excesses of power to arrest indulged in by tax officials.

The real fact is that under the GST Act, officers are accorded only restrictive powers of arrest unlike under its forerunners the Central Excise Act & the Customs Act, to arrest for clandestine removal and indulging in smuggling activities respectively.

Under the Finance Act and the Income Tax Act, arrest can be exercised only with respect to specified offences such as collecting tax /duty but not depositing it with the Government in case of Service Tax, or alleged evasion of tax by filing the returns with intent to evade Income Tax.

For instance, majority of the indirect tax legislations such as the above mentioned Acts, empowered tax officers to exercise the power to arrest only if on a reasonable belief that a specified offence was committed without having to first establish the commission of it.

An over view of the Position of Law under Allied Acts to Arrest and the relevant CBIC advisories thereto

I Position under Central Excise Law

Section 13 of Central Excise Act, 1944. Notification No. 9/99-CE (N.T.) dated 10.02.1999, as amended, specifies proper officer under Section 13. Any Central Excise Officer not below the rank of Inspector of Central Excise with prior approval of Principal Commissioner / Commissioner can arrest.

As per Notification No. 9/99-CE (NT) officer not below the rank of A.C/D.C. and officer below the rank of AC/DC, if authorized in writing by AC/DC or any superior officer can exercise power under Section 13.

1. The arresting officer should have 'reasonable belief ' that the person is liable to punishment under CEA, 1944 or the Rules made there under.

2. Arrest can only be made U/S 13 with prior approval of Principal Commissioner /Commissioner.

3. For detailed guidelines regarding arrest under Central Excise for non-bailable/bailable offences Circular No.974/08/2013-CX dated 17.09.13 may be seen.

Monetary Limit for arrest has been enhanced to Rs.1 Crore and above vide  circular no.1010/17/2015-CX dated 23.10.2015

Circular No. 201/11/2016-ST dated 30.09.2016 which provided checks on the exercise of arrest powers under the CEA had further enhanced the monetary limit to RS 2 core.

Under the erstwhile such power of pre-adjudicatory arrest was permissible for offences regardless of whether they are cognizable or not, subject to the above safeguards and limitations imposed by the Board.

Important case Laws under Central Excise Act on Arrest

1. Sunil Gupta vs Uoi & Ors. Dated 7th, April, 1999 Punjab-Haryana High Court

Central Excise Act deals with cases where "excisable goods are carried by sea." Section 24 provides that "when any excisable ... only non-cognizable but even after arrest, the Central Excise Officer has to forward the arrested person to Custody.

2 . Gaurav Budhia vs Govermant Of India & Ors Dated 28th, October, 2009 Jharkhand High Court

Sec 13. Power to arrest.- Any Central Excise Officer not below the rank of Inspector ... with the prior approval of the Commissioner of Central Excise, can arrest any person whom he has reason to believe to have involvement in evasion of duty. However, officials of the Central Excise Department arresting the petitioner without a warrant of arrest, is unconstitutional and illegal ... never effects the power of the Central Excise Official.

3. Om Prakash & Anr vs Union Of India & Anr. - TOG-1910-SC-CE-2011 Dated 30th, September, 2011 Supreme Court of India -

Sec 13. Power to arrest: - Any Central Excise Officer not below the rank of Inspector ... with the prior approval of the Commissioner of Central Excise, can arrest any person whom he has reason to believe to be involved in evasion of duty

4. Mandeep Singla vs State of Punjab & Ors. - TOG-1112-HC-P&H-CE-2016 Dated 8th, July, 2016 Punjab-Haryana High Court

Sec 13. Power to arrest by any Central Excise Officer not below the rank of Inspector of Central Excise. With the prior approval of the Commissioner of Central Excise, he can arrest any person whom he has reason to believe to be involved in evasion of duty.

II Position of Law under Service Tax

Section 91 of Finance Act, 1994 authorises arrest subject to certain safeguards and conditions.

The officer not below the rank of Superintendent is duly authorized by the Principal Commissioner or Commissioner of Central Excise by general or special order.

The Principal Commissioner or Commissioner of Central Excise should have reasonable belief that the person has committed an offence specified in Section 89(1)(i) & (ii) of Finance Act, 1994.

For arresting a person evasion should be exceeding Rs. 50 Lakh.

Before making arrest Circular No. 140/9/2011-ST dated 12.06.2011 may be perused. For more details of procedure of arrest, refer to Circular No.  171/6/2013- ST dated 17.09.

Monetary Limit for arrest has been enhanced to Rs.1 Crore (Rupees One Crore) and above vide  circular no.1010/17/2015-CX dated 23.10.2015

Circular No. 201/11/2016-ST dated 30.09.2016 which provided checks on the exercise of arrest powers under the FA provided for cautious use of arrest powers only when backed by material evidence.

The Circular provided certain legal and factual pre-requisites for the exercise of arrest powers.

A monetary limit of 2 cr was prescribed and as proof of violation, the Circular prescribed that the collection of the same should be evident from the invoices, bills and contracts and non-payment to the Government should be evident from the ST-3 return showing self-assessed value of taxable service.

Even if the aforesaid conditions were satisfied, the Circular required a determination that the alleged offender is likely to hamper the course of further investigation by his unrestricted movement or is likely to tamper with the evidence or interfere with the witnesses.

Further, it prohibited arrest of an assessee when the breach was merely technical i.e related to an interpretation of law or if the alleged offender even deposited a fair amount of the impugned sum and assisted in the investigation.

Important case Law under Service Tax on Arrest

Courts, at times, have further restricted the arrest power prior to adjudication. In the leading case of MakeMyTrip (India) Pvt Ltd vs Union of India, - TOG-1490-HC-DEL-ST-2016, the primary issue before the Delhi High Court related to the legality of pre-adjudicatory arrest of company officials on the ground that the Company had collected money towards Service tax from its customers without depositing the tax with the Government.

While holding the action of arrest to be invalid, the Hon'ble Delhi HC inter alia explained the ambit of arrest power. It stated that the procedure under Section 73A (3) and (4) of the FA (which envisaged issuance of show cause notice and determination of issue) should precede the exercise of arrest powers.

As per the court, the only exception to the above rule was where past records with the Department show the person to be a habitual evader of Service tax or someone with a history of repeated defaults.

In coming to the aforesaid conclusion, the Delhi High Court substantially diluted the standards in the CBIC Circular as per which the standard of  "reason to believe" was sufficient to arrest a person on satisfaction of other legal and factual safeguards.

Further, by limiting the exception of being a habitual offender, the Court sought to limit other factors contained in the Circular which permitted arrest if it could be proven that arrest of assessee was necessary to prevent the tampering of evidence or intimidation of witness.

Relevant to note here is that the Court found a distinction between the scheme of FA and CEA / CA and found that the coercive powers under taxing statutes are hedged by the limits on the use of that power by inbuilt restrictions and limitations.

Therefore, a view may be taken that the said decision may not directly apply to a Customs or a Central Excise case, the scheme of whose legislations may be said to be different. But, not quite so in view of the restrictions imposed by those Act as well on arrest except under specified conditions discussed later in the Article.

III Position under Customs Law

Similar safeguards for arresting a person were also prescribed under Customs law;

Section 104 reads as under

SECTION 104.Power to arrest. (1) If an officer of Customs empowered in this behalf by general or special order of the [Principal Commissioner of Customs or Commissioner of Customs] has reason to believe that any person in India or within the Indian customs waters has committed an offence punishable under section 132 or section 133 or section 135 or section 135A or section 136, he may arrest such person and shall, as soon as may be, inform him of the grounds for such arrest.]

(2) Every person arrested under sub-section (1) shall, without unnecessary delay, be taken to a magistrate.

(3) Where an officer of customs has arrested any person under sub-section (1), he shall, for the purpose of releasing such person on bail or otherwise, have the same powers and be subject to the same provisions as the officer-in-charge of a police-station has and is subject to under the Code of Criminal Procedure, 1898 (5 of 1898).

(4) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), any offence relating to ;

(a) prohibited goods; or

(b) evasion or attempted evasion of duty exceeding fifty lakh rupees,shall be cognizable.

(5) Save as otherwise provided in sub-section (4), all other offences under the Act shall be non-cognizable.

(6) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, (2 of 1974) an offence punishable under section 135 relating to;

(a) evasion or attempted evasion of duty exceeding fifty lakh rupees; or

(b) prohibited goods notified under section 11 which are also notified under sub-clause (C) o8f clause (i) of sub-section (1) of section 135; or

(c) import or export of any goods which have not been declared in accordance with the provisions of this Act and the market price of which exceeds one crore rupees; or

(d)fraudulently availing of or attempt to avail of drawback or any exemption from duty provided under this Act, if the amount of drawback or exemption from duty exceeds fifty lakh rupees,

shall be non-bailable.

(7)Save as otherwise provided in sub-section (6), all other offences under this Act shall be bailable.

Arrest Under Customs Act, 1962, not to be Made in Routine Manner

Arrest under  Customs Act, 1962  is not to be made in routine manner but only in matter of exigency. It is emphasized that arrest of persons in terms of section 104(1) of Customs Act, 1962 should be resorted to only where the facts and situations of a particular case demand such action. Persons involved should not be arrested unless the exigencies of certain situations demand their immediate arrest. These situations may include circumstances :

(i) to ensure proper investigation of the offence;

(ii) to prevent such person from absconding;

(iii) cases involving organised smuggling of goods or evasion of customs duty by way of concealment;

(iv) to nab masterminds or key operators effecting proxy/benami imports/ exports in the name of dummy or non-existent persons/IECs, etc.  

Arrest Under Customs Act, is not Regulated by CrPC

The power to arrest under sub-section (1) is not regulated by the Code of Criminal Procedure, 1973 but in respect of bail, it is provided that an officer of the Customs shall have the same power and be subject to the same provisions as the officer-in-charge of a police station has. However, unlike CrPC, wherein requirement of warrant is dependent upon offence being coginzable/non-cognizable, there is no requirement of warrant for making arrest under Customs Act.

Important Case Laws on Arrest Under Customs Act

In  Kishin  S. Lougani  Versus Union  of  India  in  W.P. (Crl.) No. 333 of 2015 (S) –  It was also observed that  arrest  not necessarily  to be preceded by FIR and it need not end in final report as provided under Section 173(2) of Code of Criminal Procedure, 1973. Purpose of arrest is also for smooth conduct of inquiry under Customs Act and Customs Officer is neither “Police Station” under Section 2(s) nor “officer in-charge of police station.

Parmeshwar  Vyas  v  Union  of  India in   S.B. Criminal Misc. (Pet.) No. 319 of 2017- Directorate of Revenue Intelligence (DRI) Officers appointed with power of investigation under Section 53 thereof are not 'police officer'. Such officers empowered to search, seizure and arrest a person without lodging of FIR.

High Court of Gujarat: Case of Bhavin Impex Pvt. Ltd. v. State of Gujarat, reported in 2010 (260) E.L.T. 526 (Guj.) -  Powers of arrest of Revenue officers are for enforcing provisions of the above statutes and not for detecting commission or prosecution offence under those statutes, as that of police officers….' [paras 26, 29, 30, 31 of the case laws]

The Hon'ble Kerala  High Court in  Inspector  of  Customs, Cochin  v  Shajan  Thayyil - The law empowers the investigating officer to arrest such person and thereafter inform him of the grounds for such arrest. In view of the same, the order passed by the learned Single Judge directing the investigating officer to arrest Mr. Shajahan Thayyil only after issuing notice is liable to be set aside and hence the same stands set aside.  [para 6]

High Court  of Rajasthan  in Mohamad  Nazim Versus U.O.I- Accordingly application for bail was dismissed as in the instant case, total value of clubbed cases of gold smuggling, was  more than Rs. 1 crore, so  accused not entitled to bail.  [paras 2, 3]

Supreme Court  of  India  in Union  of  India  Versus Padam  Narain  Aggarawal- The law thus, on the one hand, allows a Customs Officer to exercise power to arrest a person who has committed certain offences, and on the other hand, takes due care to ensure individual freedom and liberty by laying down norms and providing safeguards so that the power of arrest is not abused or misused by the authorities .   [paras 51, 53]

The Hon'ble   High Court  of  Bombay in Vikram  Singh  Versus Union  of  India - In  Criminal Application No. 695 of 2007, decided on 6-3-2007, reported in  2015 (321) E.L.T. 431 (Bom.) has decided the matter of jurisdiction in respect of grant of bail and held that offence of smuggling of bonded stores meant for vessels of Indian Coast Guard and Indian Navy punishable under Section 135(1)(ii) of Customs Act, 1962 and is  bailable and no Magistrate can refuse to grant  bail. They disapprove the direct filing of application for bail before High Court without invoking the jurisdiction of Additional Chief Metropolitan Magistrate.

IV Position of Law under GST Act Even under the Central Goods and Services Tax Act, 2017 officers have been accorded restrictive powers of arrest, namely offences specified at

1. Section 132 (1) (a) [clandestine removal],

2. Section 132 (1) (b), (c) [wrong availment of ITC by issuing invoice without actual supply],

3. Section 132 (1) (d) [collecting tax without paying it to the Government] wherein the punishment attracted is upto 3 years [where the duty / ITC amount exceeds 2 crores] and upto 5 years [where the duty / ITC amount exceeds 5 crores].

4. The former violation of evasion exceeding 2 crores is one of the many non-cognizable and a bailable offences as per Section 132(4) 5. While the latter violation attracts punishment of upto 5 years is cognizable and it is also a non-bailable offence as per Section 132(5).

It will be therefore relevant to also note that there are multiple other offences specified in Section 132 which are non - cognizable and are a bailable offence, commission of which do attract punishment but not an arrest in a routine manner. For such offences, arrest prior to adjudication of the offence, is not allowed.

CBIC Advisory /FAQ on the same

CBIC has explained the safeguards through

1. FAQs Frequently Asked Questions on Goods and Services Tax 2nd Edition, dated 31.03. 2017

2. Press releases -C.B.E.C. Press Release No. 139, dated 01.03.2018 and

3. Flyers -C.B.E. & C. Flyer No. 50, dated 01.01.2018.

It is explained that the decision to arrest a person is to be exercised in exceptional circumstances, after considering various factors such as nature and gravity of offence, quantum of duty evaded / credit wrongly availed, nature and quality of evidence, possibility of evidence tampering or witness being influenced.

Whether arrest is necessary to ensure proper investigation, or to prevent the person from absconding, where the intent to evade duty is evident and element of mens rea is present or there is outright fraud, are also other factors to be considered in the above context.

It also clarified that the monetary limit provided by the statute would not be applicable for repeat-offenders.

Who is a habitual/repeat offender? If:

-the amount of tax involved is more than Rs. 1 crore in the past five years and

-he has been involved in three or more cases of confirmed demand (at the first appellate level or above) of Central Excise duty/ Service Tax/ due to misuse of CENVAT Credit and due to fraud, suppression of facts etc.

Unfortunately none of the aforesaid safeguards are prescribed under GST in a Circular under Sec 168 of the Act to have a binding value on the Departmental officers. In the absence of binding safeguards, the arrest powers can go unchecked, is the natural fear of everyone concerned.

V Position under the Income-Tax Act, 1961

Chapter XII of the Income Tax Act, 1961, which deals with the offences & prosecutions, is also equally a matter of concern as the GST Act for anyone concerned with the I.T. Act. It is quite important to understand the defenses available to anyone prosecuted under the provisions of this chapter of the I.T. Act.

JUDICIAL PRESUMPTION OF MENS REA IN CASE OF PROSECUTION UNDER CHAPTER XXII OF THE I.T. ACT It is of utmost importance to note that with respect to all the offences under Chapter XXII of the I.T. Act, a judicial presumption, under Sec. 278E of the I.T. Act, as to the culpable state of mind i.e. Mens rea, is raised against all accused in relation to all offences.

The onus of proof has been put on the accused to prove that the accused had no Mens rea which include intention, motive or knowledge of a fact or belief in, or reason to believe a fact, to commit any offences under the said Chapter.

Absence of Mens rea can be taken as a defense and this is one of the strongest defences available for any prosecutions under this Chapter.

Going by Sec.278E(2) of the I.T. Act, the presumption against the accused has to be judiciously raised only when the court believes that there are facts on record to establish guilt of the accused beyond reasonable doubt, and mere existence of a possibility of commission of an offence cannot be a ground for conviction.

While dealing with the aspect of Mens rea in relation to Sec.276C of the I.T. Act, the Supreme Court in the case of Gujarat Travancore Agency v. CIT  [1989]177 ITR 455 (SC), held that:

'There can be no dispute that having regard to the provisions of Sec. 276C, which speaks of willful failure on the part of the defaulter and taking into consideration the nature of the penalty, which is punitive, no sentence can be imposed under that provision unless the element of mens rea is established.'

The above decision, in a way, is an explanation to Sec.278E of the I.T. Act, and other similar Acts wherein it has been held that for offences under Section 276 C(1), the prosecution has to establish the element of Mens rea. This is contrary to the plain language of Sec.278E of the I.T. Act.

But contrary to the above reasoning of the SC in the above case, sadly the accused in a prosecution case is made to prove the circumstances which prevented them from filing the returns as per Sec. 139(1) of the I.T. Act or in response to notices under Sec. 142 and 148 of the I.T. Act.

As in Sec 278E of the Income Tax Act, 1961 which puts the onus of proof on the accused to prove that the accused had no Mens rea which include intention, motive or knowledge of a fact or belief in, or reason to believe a fact, to commit any offences under the said Chapter, even the CGST Act (Sec 135 refers) and the Customs Act (Sec 104 refers) do contain similar provisions.

Applying unequivocally Sec. 278E of the I.T. Act, which deals with the presumption as to culpable mental state in a prosecution of offence, for offenses committed under Sec.276CC of the I.T. Act, the Supreme Court in  Sasi Enterprises Vs. Assistant Commissioner of Income Tax - TOG-208-SC-IT-2014, held that in case of a prosecution of an offence, the Court has to presume the existence of  mens rea  and it is for the accused to prove the contrary and that too beyond reasonable doubt.

Resultantly, the accused in a prosecution case has to prove the circumstances which prevented them from filing the returns as per Sec. 139(1) of the I.T. Act or in response to notices under Sec. 142 and 148 of the I.T. Act.

CLASHING PRECEDENTS ON POWERS OF ARREST UNDER SERVICE TAX AND GST & A FINAL REFERENCE BEFORE A THREE JUDGES BENCH OF THE SC

The appeal to the aforesaid decision was dismissed by the Supreme Court in Union of India vs Makemytrip (India) Pvt. Ltd. - TOG-1605-SC-ST-2019 on the ground that the court was in agreement with the conclusion of the Delhi High Court that it was mandatory to follow the adjudicatory procedure in Section 73A(3) and (4) of the FA before proceeding with the arrest of a person under FA.

Conclusions similar to that of the Makemytrip decision (supra) of the Delhi High Court were also arrived in the decision of eBiz.com Pvt Ltd v. Union of India, - TOG-1495-HC-DEL-ST-2016 in respect of FA.

While interpreting arrest provisions of the CGST Act, two different views have been taken by the Court.

The first view is like the one expounded in the Makemytrip decision (supra) which does not ordinarily permit pre-adjudicatory arrest.

In Jayachandran Alloys (P) Ltd v. Superintendent of GST and Central Excise, W.P No. 5501 of 2019 dated 04.04.2019 - TOG-309-HC-MAD-GST-2019, the issue before the Madras High Court related to the legality of arrest for violating Section 16(2) of the CGST Act and taking excess credit.

Upon applying the principle laid down in the decision of Makemytrip India Pvt Ltd (supra), the Court found that power to punish under Section 132 would be triggered only upon an appropriate determination of commission of an offence after following the due adjudicatory procedure in Section 73 and 74 (where a show cause notice is issued and an appropriate determination is made), unless the assessee is found to be a habitual evader of tax or habitual offender was found to be there.

On the basis of the above reasoning, the Court disallowed the pre-adjudicatory arrest.

A similar position has also been adopted by the Bombay High Court while granting interim relief of bail in Prasad Purshottam Mantri v. Union of India, 2019 (29) GSTL 647 (Bom.), and by the Punjab and Haryana High Court in Akhil Krishan Maggu v. Deputy Director, GST Intelligence - TOG-959-HC-P&H-GST-2019

A contrary view was taken by the Telangana High Court in P.V Ramana Reddy v. Union of India, - TOG-263-HC-AP&T-GST-2019. In the said matter, the Petitioner had challenged the invocation of arrest under Section 69 (1) of the CGST Act for allegedly wrongly claiming ITC of 225 crores by issuing of fake invoices.

On a reading of the provisions, the Court found that pre-adjudicatory arrest was permitted under Section 67 read with Section 132 of the CGST Act, especially as the object of such arrest were manifold, such as - preventing the person from committing any further offence, preventing evidence tampering / disappearance, prevent the accused from making inducement, threat a person from being a witness against him.

As per the Court's reading of the aforesaid provisions, the power to order arrest under Section 69(1) was only confined to cognizable and non-bailable offences and it was not clear as to how an order for arrest could be passed under Section 69(1) in respect of offences declared non-cognizable and bailable under Section 132(4) of the CGST Act.

Consequently, the court found the provisions to be incongruous. Given the high quantum of INR 225 crores and the nature of offence – which would create a huge liability for the government while granting refund (as opposed to a case of a mere evasion), the Court permitted the arrest of the accused.

Ironically, the S.L.P filed by the Petitioner against the High Court's decision was dismissed by the Supreme Court in P.V. Ramana Reddy vs Union of India - TOG-353-SC-GST-2019.

There are other High Courts which have followed a similar line of reasoning including the Rajasthan High Court in Bharat Raj Punj v. CGST - TOG-199-HC-RAJ-GST-2019.

THE AUTHOR'S COMMENT

As regards the divergence between Section 132(4) and (5) and Sec 69(1) of the CGST Act, it would appear that both sets of provisions may have to be read harmoniously with each other to avert any confusion.

The Telangana High Court was perhaps not quite right to conclude that power of arrest in Section 69(1) has been provided only with respect to cognizable and non-bailable offences.

The HC did not choose to appreciate that offences in Section 132(a)(b)(c)(d) punishable under category (ii) (with punishment extending up to 3 years) is a non-cognizable and bailable offence as per Section 132 (4).

A reference may be drawn here to the first Schedule of the Cr.P.C 1973. Part II, wherein it is provided that if any offense is punishable with imprisonment for 3 years upwards, but not more than 7 years, such offense shall be classified as a cognizable and a Non-Bailable offense.

In case an offense is punishable with imprisonment for less than 3 years or with fine only, such offense shall be non-cognizable and Bailable.

While classifying the offenses above, wherever there is some divergence between the provisions of an Act in respect of certain offences, reference the above Schedule would be useful in the view of the Author.

When read in light above, Sub-section (1) of Section 69 would also appear to be only harmonious with Clause (b) of Subsection (3) of Section 69 which deals with the powers of the Deputy or Assistant Commissioner while dealing with an offence which is non-cognizable and bailable.

Top Courts have been generally circumspect about permitting arrest of an assessee before the establishment of guilt and have followed this line of reasoning adopted by the Delhi HC in Makemytrip and the SC in Gujarat Travancore Agency cases (Supra) discussed in detail by the Author.

Amongst the various issues, the Supreme Court would decide the issue of legality of pre-adjudicatory arrest and reconcile the apparent divergence in the minds of some courts of Sec132 with Section 69 of the CGST Act as highlighted by the Telangana High Court in P.V Ramana Reddy case (supra)

A reference made by the Government to the SC in the Sapna Jain case

However, the difference of opinion has already been referred to the Supreme Court in Union of India v. Sapna Jain, SLP (Crl.) No. 4322-4324/2019 - TOG-512-SC-GST-2019 where notice has been issued and that is okay now even if the SC did not entertain an SLP in the case of Ramana Reddy case (Supra). It would be interesting to see how the Supreme Court approaches the issue.

END NOTE

Ideally, the legislature ought to have learnt a lesson from the litigation that had arisen from arrest provisions of the above mentioned Acts and provided suitable provisions under the GST Act to avert unwanted arrests and confusion and to protect the interest of genuinely errant tax payers.

However, given the current statutory framework where the safeguards for arrest are not even provided through a binding circular, it would be good if the Supreme Court takes a pro-active approach as in the case of Gujarat Travancore Agency VS CIT case to come to the rescue of an ignorant person if charged of the above guilt of evasion of tax.

In doing so, it is hoped that the SC will ensure that adequate safeguards are in place to keep a check on the pre-adjudicatory arrest powers of tax officials.

It is also the sincere hope of the Author that the Supreme Court in the said process, will come out with clear findings on the aspects of presumption open to the Court as to the existence of culpable state of mind of the accused and the defence available to the person arrested in terms of Sec 135 of the Act, which is modelled on very similar lines of the provisions under Sec 284E of the Income Tax Act.

It is going to be a herculean task for the arrested person to defend himself that he had no mens rea which includes intention, motive or knowledge of a fact or belief in, or reason to believe a fact, to commit any offences under the said Chapter XIX of the Act that too beyond reasonable belief.

It is going to be almost impossible for the accused to succeed in his defence unless the Court comes to his rescue to find justice which is like finding a needle among the hay stalk of the pleas of the Prosecution.

The famous maxim 'E xistence of a preponderance of circumstances pointing at the possibility of commission of an offence by the accused cannot be a good ground for conviction', must not be overlooked by both the Department and the Court, is the sincere appeal to both by the Author.

(In this connection also read connected Article on the above subject by the Author entitled - Who moved my Cheese, asks the taxpayer - Me, says the Government! September 11, 2019)

[The Author is a former Assistant Commissioner of GST, Chennai and a CBIC Master Trainer, GST and currently a Senior Associate, Indirect & Corporate Taxes, at a Chennai-based Law Firm, RANK Associates. The views of the Author are purely personal.]