The Bombay High Court, in Narendra Amrutlal Patel and Anr. v. Assistant Commissioner of State Tax and Anr. [Anticipatory Bail Application NO. 2099 OF 2022 decided on 17.10.2022], held that the Prior Conviction is the only exception in compounding an Offence under GST.
FACTS
The Directors (Applicants) of JAAT Vedas Construction Co. Pvt .Ltd, (Company) were engaged in the business of construction. The Applicants being registered under the Goods and Services Tax regime (GST), are seeking protection from arrest for the alleged offence under Section 132 of the Central Goods and Services Tax Act, 2017 (the CGST Act) and Maharashtra Goods and Services Tax Act, 2017 ( the MGST Act).
The Applicants were apprehending their arrest based on the investigation initiated on 07.12.2021 by the Assistant Commissioner of State Tax (the Respondent), regarding an alleged mismatched liability amounting to approximately Rs. 23 Crores.
The Respondent served a Demand Notice to the Company on 22.02.2022 for Input Tax Credit (ITC) disallowance. The Notice alleged that during the investigation of the proceedings initiated under Section 67 of the MGST Act /CGST Act, it was found that registration certificates of many of these suppliers of the Company were cancelled and in spite of that the Applicants have availed the ITC from the suppliers.
Therefore the Notice stated that the Company is liable to discharge the liability on account of the disallowable ITC. The Notice bifurcated the amount into two categories; the first category was the list of suppliers whose registration was cancelled indicating the sum of Rs. 2,71,80,295/- and a further sum of Rs. 3,87,29,103/- from the three other suppliers. The Company was directed to immediately pay the above mentioned amount else it was threatened that the proceedings would be initiated as per the provisions of law.
The Applicants replied to the Notice wherein amount of Rs. 3,87,29,103/- was tagged with respect to the three suppliers and stated that the registration of one of the suppliers was cancelled after the date of transaction, and in case of the other two suppliers, ITC was availed only after verifying that these suppliers have filed their GSTR-1 as well as GSTR-3B and therefore, the liability of the company for these three companies was sought to be reversed.
The Respondent did not respond to the reply to the Notice by the Applicants. Instead, on 11.03.2022, summons were issued to the Applicants under Section 70 of the MCGST Act, with reference to the three companies not mentioned in the earlier notice dated 22.02.2022 and asking the Applicants to remain present for recording their statement for investigation pending under Section 67 of the MGST Act/ CGST Act.
Thus, the Applicants preferred an anticipatory bail before the Hon’ble Bombay High Court (the High Court).
ISSUES BEFORE THE HIGH COURT
- Whether the Applicants are involved in the act of availing ITC without actual movement of goods or services?
- Whether anticipatory bail should be granted?
CONTENTIONS OF THE PARTIES
The Applicants submitted that they had already started paying the ITC amount which was disallowed, in parts, but could not clear the same on immediate basis.
The Applicants also contended that the Respondent never issued any demand notice, informing about the actual liability which accrued towards the disallowable ITC availed by the Company on account of the cancellation of registration certificate of the suppliers.
The Applicants pleaded that the Company had no intention to defraud any tax authorities and therefore, they started making the payments in proportion, as the Company is facing various applications for CIRP before the National Company Law Tribunal, for non-payment of dues to many suppliers/creditors.
The Applicants argued that the constitutionality of Section 16(2)(c) of the MGST Act/ CGST Act, which deal with eligibility of claims in relation to ITC; is sub judice before nine distinct High Courts.
The Applicants also asserted that the principle of paramount importance in criminal jurisprudence being, ‘Bail is a rule and Jail is an exception’, the contention is that since no prima facie case is made out against the Applicants, the custodial interrogation will not serve any purpose as the Applicants have no criminal intentions, and they have immovable properties in Mumbai and there are no chances that they will not be available for trial.
On the contrary, the Respondent has submitted that the offence committed by the Applicant is a serious one and since belonging to the class of economic offences, the custodial interrogation is of vital importance.
The Respondent argued that mens rea of the Applicants is very evident and therefore, the custodial interrogation is necessary, in such a white collar crime.
The Respondent pleaded that the offence committed on planning a conspiracy, which is more serious than any other crime and relief of Anticipatory Bail will hamper the investigation, as the Applicants are likely to abscond.
DECISION AND FINDINGS
The High Court examined the scheme of the Laws under which the Applicants are accused and also perused the materials that are available as on the date, to determine whether their custodial interrogation is necessary.
The High Court also referred to Section 67(1) of the MGST Act/ CGST Act which lays down the power of inspection, search and seizure which authorize the Proper Officer to inspect any place of business of the taxable person.
Further, the High Court also examined Section 131 of the MGST Act/ CGST Act which provides that Confiscation or Penalty are not to be intertwined with other punishments. Further, punishment for certain offences specified in Section 132(1)(a)-(d) are non bailable.
The High Court placed reliance on the principle laid down in Gurcharan Singh v. State of Haryana [1980 AIR 1632] and reiterated that there cannot be an inexorable formulae in the matter of granting bail and the fact and circumstances of every case, will govern the exercise of judicial discretion in granting bail.
The High Court reiterated the principle of bail is a rule and jail is an exception, along with the principle of innocence of a person accused of an offence, being so presumed, through a legal fiction placing the onus on the prosecution to prove the guilt before the Court.
The High Court held that there was no merit in the argument of the Respondent and that the observations are restricted only to the Police Officer and not applicable to the Officers of the GST Department, exercising the power of arrest under the CGST Act.
The High Court observed that the Respondent’s submission does not hold any ground, as whatever may be the enactment under which a particular act amounts to an offence, an undisputed arrest, will result in bringing humiliation, stigma, suffering, to the person, when not justified.
The High Court also examined the Supreme Court Guidelines to be followed in the backdrop of the severe congestion in the jail and keeping in mind, that denial of bail is a harsh step, where the custody for the purpose of investigation is not warranted.
The High Court suggested the Government to consider introduction of a separate legislation in the nature of Bail Act, to streamline the grant of bail.
The High Court further noted that there was no reason as to why the above guidelines shall not be made applicable to the statutes like the CGST Act or the SGST Act, where power is conferred upon an Officer to affect an arrest, in case of offences, where the penalty laid down is less than imprisonment of 7 years.
The High Court held that the present case arises out of a tax dispute and the interest of the Tax Authorities can always be protected on the claim being adjudicated and the taxpayer can be directed to pay the tax. Moreover, the offence under the GST Act, except with the limited exception of previous conviction, is compoundable.
As a result, the High Court granted an anticipatory bail to the Applicants.
AMLEGALS REMARKS
The High Court upheld the principle of ‘Bail is a rule and Jail is an exception’, as there is no bar under the CGST Act restraining the Petitioner from seeking anticipatory bail in economic offences such as tax evasion, money laundering, etc.
It is widely acknowledged that arrests cause deprivation of liberty of a person. Thus, it is important to maintain law and order in the society, the power to arrest must also always be subject to necessary safeguards.
However, the legal requirements and the conditions precedent to arrest under Section 132 and Section 69 of the CGST Act must be fulfilled and the proper procedure should be followed to make an arrest.
– Team AMLEGALS assisted by Mr. Vinay Sachdev (Intern)
For any queries or feedback, please feel free to get in touch with chaitali.sadayet@amlegals.com or aditi.tiwari@amlegals.com.
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